32 terms


The book value of a plant asset is the difference between the
purchase price of the asset and the sum of the yearly depreciation to date
If bonds are issued at a discount, then over the life of the bonds, the?
carrying value of the bonds will increase
If a company fails to record the adjusting entry for estimated uncollectible accounts receivable at the end of the year
Net income is overstated
A company writes a check for $167 but incorrectly records the amount in its ledger as $176. On the bank reconciliation, the error should be
added to the balance per books (you think you have less money than you actually do)
Bond discounts and premiums should be amortized to comply with
the matching principle
The matching principle
Expenses should be "matched" with revenues. This provides a timely connection between sacrifices and rewards in order to facilitate an evaluation of profitability.
The revenue recognition principle
an accrual accounting principle that states you must record revenues in the period that they are earned
The historical cost principle
States that assets should be recorded at their actual cost measured on the date of purchase as the amount of cash paid plus the value of all non-cash consideration also given. Cost is not adjusted in changes in market.
The sale of bonds above face value
will cause the total cost of borrowing to be less than the bond interest paid
Receivables Turnover Ratio
Net Credit Sales / Average Accounts Receivable
Average Collection Period
365 / Receivables Turnover Ratio
Which of the following would be deducted from the balance per books on a bank reconciliation?
Service Charges
When an account receivable is written off, the
net accounts receivable will stay the same
Supervisors counting cash receipts is an example of
Independent internal verification
Establishment of responsibility
Control is most effective when only one person is responsible for a given task.

Example: Register is short $10, if only one person was running the register, it is easy to determine who is responsible. If two more more individuals have worked the register, it may be impossible to determine who is responsible.
Independent internal verification
Involves the review of data prepared by employees. Should verify records periodically, independent employee should verify, and discrepancies should be reported to management.
Segregation of duties
implementing control procedures to clearly divide authority and responsibility within the information system function to prevent employees from perpetrating and concealing fraud
Concept of Depreciation
The process of allocating the cost of tangible assets to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset
Depreciation accounting
It is not a matter of valuation. It is part of the matching of revenues and expenses. It retains funds by reducing income taxes and dividends
Allowance for Doubtful Accounts is a ____________ item and normally has a ____________ balance
contra-asset, credit
Reasonable Assurance
concept that recognizes that the costs of control procedures should not exceed the benefits that are expected from the control procedures
Sarbanes Oxley Act
Independent outside auditors must attest to the level of internal control. Companies must develop sound internal controls over financial reporting. Companies must continually assess the functionality of internal controls
An employee authorized to sign checks should not record
cash disbursement transactions
The matching principles
necessitates the recording of an estimated amount for bad debts
The cost of an intangible asset with an indefinite life should
not be amortized
The carrying value of bonds will equal the market price
on the date of issuance
If the amount of bad debt expense is understated at year end
net Accounts Receivable will be overstated
Internal controls are concerned with
safeguarding assets
A high receivable turnover ration indicates
customers are making payments very quickly
going concern principle
means that accounting information reflects an assumption that the business will continue operating instead of being closed or sold
cost principle
The principle that states that, when purchased, all assets are recorded at their actual cost regardless of market value.
cash realizable value
The net amount a company expects to receive in cash from receivables.