Internal Controls and Bank Reconciliations
What are the three parts of the fraud triangle?
Motive (pressure), Opportunity, and Rationalization
A company sells $2,000 of merchandise on credit. Which account is debited?
Accounts Receivable
What does the Allowance for Bad Debts account estimate?
Accounts Receivable that the company does not expect to collect
What do FIFO and LIFO stand for?
First In, First Out
Last In, First Out
What type of account is COGS?
Expense
An employee steals cash from the company register. What type of fraud is this?
Misappropriation of assets
What does FOB shipping point mean for when ownership transfers?
Ownership transfers when the goods are shipped
Contra-asset
When inventory costs are rising, which method generally results in higher gross profit?
FIFO
Beginning inventory is $4,000, purchases are $9,000, and ending inventory is $3,000. Calculate COGS.
$10,000
One employee receives cash, records the transactions, and reconciles the accounting records. Which internal control procedure would best reduce the risk of fraud?
Separation of duties
A customer has terms of 2/10, n/30 on a $1,000 sale. How much money will the customer pay if they pay the full amount in 8 days?
$980
A company has $30,000 in credit sales and estimates 2% will be uncollectible. Calculate Bad Debt Expense using the percent-of-sales method.
$600
A company has the following inventory:
Beg. Inventory: 10 units at $4
First purchase: 10 units at $6
Second purchase: 10 units at $9
The company sells 23 units.
Calculate Cost of Goods Sold using FIFO.
$127
A company has 100 units available for sale costing $800 total. It sells 60 units. Using average cost, calculate COGS and ending inventory.
COGS = $480
Ending Inventory = $320
Which of these is included on the bank side of a bank reconciliation:
Bank errors, Book errors, Bank collections, Electronic funds transfers (EFT), Deposits in transit, Service charges, Outstanding checks, Interest revenue, NSF checks, Cost of printed checks
Bank errors, Deposits in transit, and Outstanding checks
A company has net sales of $40,000 and Cost of Goods Sold of $24,000. Calculate gross profit and gross profit percentage.
Gross profit = $16,000
gross profit percentage = 40%
A company estimates that there are $500 of A/R they can expect not to receive. The company then wrote off the total $500 from Allowance for Bad Debt when they determined it would officially not be collected. What is the initial journal entry, and the journal entry to write it off?
Debit: Bad Debt Expense $500
Credit: Allowance for Bad Debt $500
Debit: Allowance for Bad Debts $500
Credit: Accounts Receivable $500
A company has the following inventory:
Beg. Inventory: 10 units at $4
First purchase: 10 units at $6
Second purchase: 10 units at $9
The company sells 23 units.
Calculate Cost of Goods Sold using LIFO.
$162
A company has 50 units at $6 each and purchases 50 more at $10 each. It sells 70 units. Using LIFO, calculate COGS and ending inventory.
COGS = $620
ending inventory = $180
What are some things on the book side that decrease a companies cash balance in a bank reconciliation?
Service charges, NSF checks, Cost of printed checks, EFT payments, and Book errors
A company has a beginning credit balance of $1,200 in Allowance for Bad Debts. During the year, it writes off $700 of uncollectible accounts. At the end of the year, the company estimates that $2,000 of Accounts Receivable will be uncollectible.
What adjusting entry is needed, and what is the ending balance in Allowance for Bad Debts?
Adjusting journal entry:
Debit: Bad Debt Expense $1,500
Credit: Allowance for Bad Debts $1,500
Final ending balance: $2,000 credit.
Accounts Receivable is $20,000. The Allowance for Bad Debts has a $1,200 credit balance. Calculate net realizable value.
If the company wrote off $300, what is the end A/R, Allowance for Bad Debt, and net realizable value values?
$20,000 − $1,200 = $18,800
A/R: $19,700
ABD: $900
$19,700 - $900 = $18,800
A company has the following inventory:
Beg. Inventory: 20 units at $5 each
First purchase: 20 units at $8 each
Second purchase: 20 units at $10 each
The company sells 35 units for $15 each.
Calculate gross profit using LIFO and FIFO.
LIFO: $525 - $320 = $205
FIFO: $525 - $220 = $305
A company has 50 units at $6 each and purchases 50 more at $10 each. It sells 70 units. Using FIFO, calculate COGS and ending inventory.
COGS = $500
ending inventory = $300