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Accounting Concepts and Principles, Exams of Business Economics

University of MarylandBusiness Economics

A wide range of accounting concepts and principles, including the fraud triangle, bank reconciliation, accounts receivable, inventory management, internal controls, and more. It provides detailed explanations and examples of various accounting practices and methods, making it a valuable resource for students and professionals in the field of accounting. The document delves into the fundamental principles and techniques that underpin financial reporting and decision-making, equipping readers with a comprehensive understanding of the accounting process. Whether you're studying for an exam, preparing for a class, or simply looking to expand your knowledge of accounting, this document offers a comprehensive and insightful exploration of the subject matter.

Typology: Exams

2023/2024

Available from 08/08/2024

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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-(+/-)
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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

Journal Entry for cash that is over - ANS-Cash XXX Cash Over XXX Sales Rev XXX Journal Entry for cash that is under - ANS-Cash XXX Cash Short XXX Sales Revenue XXX LIFO Conformity Rule (assuming prices are rising) - ANS-- if a company uses LIFO for income tax purposes, they must use LIFO for making financial statements LIFO Reserve - ANS-= FIFO Ending Inventory - LIFO Ending Inventory Limitations of Internal Controls (3) - ANS-1. Internal Controls should be reasonable. -company should not spend $100k to try to save $5k in theft -costs should never exceed benefits

  1. Human Element
  • no matter how hard you try, theft will occur. There is only so many systems you can implement.
  1. Size of the business
  • the bigger the business, the more difficult it will be to monitor your employees Lower of Cost or Market Principle - ANS-Inventory should be valued at the lower of replacement cost or market value Merchandise Inventory Purchase (Entry) - ANS--Inventory XXX -Cash/ AP XXX Net Income - ANS-= GP - operating expenses Net Realizable Value (under Allowance Method) - ANS-= Total Accounts Receivable - Allowance for Doubtful Accounts
  • recorded on the balance sheet
  • the amount the firm anticipates it will actually be able to collect (not what is owed) Note: there is no FIFO conformity rule - ANS- Notes Receivable (NR) - ANS-the firm lends money - NR represents a formal promise by another firm to pay our firm a sum at maturity, plus interest NSF check - ANS-(-)

a check written by a customer to the company where the customer does no have sufficient cash balance in his/her bank account to cover the amount of the check. The bank will learn about the bounced check first before the company. Outstanding Checks - ANS-(-) a check that has been written by the company but has not been cashed by the person who it was written to. An employees check that has not been cashed yet. Periodic Inventory System (Def.) - ANS-the COGS expense is determined at the end of the accounting period based on a physical count of ending inventory (rather than each sale). Periodic Method (Equation) - ANS-= Beg. Inventory

  • Net Purchases

Goods Avail. For Purchase

  • Ending Inventory

COGS Perpetual Inventory System (Def.) - ANS-COGS expense is recognized and the inventory account is adjusted whenever a sale occurs Perpetual Inventory System (Entry for Seller's POV and Buyer's Only POV) - ANS- 1.Sales/ Rev

  • Cash or A/R
    • Revenue
  1. Expense -COGS Exp
    • Inventory Primary Components of Internal Control System - ANS--risk assessment -monitoring
  • information and communication system Principles of Internal Control Activities (6) - ANS-1. Establish Responsibilities
  1. Separate Duties
  2. Document Procedures
  3. Physical Controls
  4. Independent Internal Verification
  5. Human Resource Control Profit Margin Ratio - ANS-= Net Income / Net Sales

The 5 adjustments Companies can make to their books: - ANS-1. book errors

  1. Accounts/Notes Receivable Collections
  2. NSF (non sufficient funds) check
  3. Interest Earned
  4. Service Charges The system for handling cash receipts uses several important internal control principles, including - ANS-(1) establishment of responsibility, (2) segregation of duties, (3) documentation procedures, (4) physical controls, (5) independent internal verification, and (6) human resource controls. When the cash in the register is over, think of it as.... - ANS-a revenue (credit) When the cash in the register is short, think of it as.... - ANS-an expense (debit) Write Off Entry - ANS-ADA XXX A/R XXX