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ACG 2021 Paterson Exam 2 Solved 100%
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ACG 2021 Paterson Exam 2 Solved 100%3 components of the Fraud Triangle - ANS-(1) opportunity,
(2) financial pressure, and
(3) rationalization
Accounting for Cash when the books for the company and bank do not match is called -
ANS-Bank Reconciliation
Accounts Receivable (AR) - ANS-the firm sells goods or services on credit. The balance
of AR is recorded in the general ledger. Each customer that owes the firm money is
recorded in a subsidiary ledger
Accounts Receivable Turnover (equation) - ANS-= Net credit sales/ Avg. Net AR
where,
Avg. Net AR = Beg. AR + End AR / 2
- we want Accounts Receivable Turnover to be a high number because this means we
are converting AR to cash well
Accounts/Notes Receivable Collections - ANS-(+)
to collect cash as quickly as possible, many companies have their receivables sent
directly to the bank.
ADA is a __________ asset - ANS-contra
- so the normal balance is a credit
Allowance Method - ANS-- method for accounting for uncollectible receivables
- predict bed debts based upon company's experience
-based upon this, set up Allowance for Doubtful Accounts (AKA uncollectible accounts)
- method used most
Average Inventory= - ANS-= Beginning Inventory + Ending Inventory / 2
Avg. Collection Period (equation) - ANS-= 365/ Accounts Receivable Turnover
- we want this number to be low bc it means it does not take a large number of days to
collect from our customers
Bad Debit Expense - ANS-- when a customer is unable to pay back the company
- what the company incurs when they don't collect Accounts Receivable
Bad Debit Expense will be account where? - ANS-Income Statement
Bank Errors - ANS-(+/-)
, an error
Book Errors - ANS-(+/-)
an error in the books
Conservation Principle - ANS-firms should NOT overstate assets and revenues or
understate liabilities and expenses
Conservatism - ANS-companies must anticipate losses, buy not gains
- when in doubt, record assets the lowest reasonable amount and liabilities at the
HIGHEST reasonable amount
- it's bc of conservatism that we follow the lower of cost or market rule which is next
Consistency - ANS-- a company should use the same method from period to period to
enhance comparability
- with that said, though, a company can change methods. To help with making
comparisons and appease analysts, a company will tend to include the numbers of the
previous method.
Contra Revenue - ANS--pulling value away from your revenue
-
Credit Card Sale Entry - ANS-Cash XXX
Service Charge Exp XXX
Sales Rev XXX
- considered cash sales
Credit Memorandum - ANS-the bank is putting money into, or crediting your account,
and you didn't know about that.
Days in Inventory = - ANS-= 365 / Inventory Turnover Ratio
- how many days you have the goods
-lower # is better
Debit Memorandum - ANS-the bank is taking money out of, or debiting your account,
and you do not know about it.
Deposits in Transit - ANS-(+)
a deposit that the company has made and recorded, but has not reached the banks
record keeping system yet. The company knows about the deposit in transit, but the
bank will learn about them later
Direct Write Off Method - ANS-- method for accounting for uncollectible receivables
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