chap 4
what does each letter of dealer stand for?
- dividends
-expenses
-assets
-liabilities
-equity
-revenues
which classifications are credited when increased
liabilities
equity
revenue
what are the elements of the fraud triangle?
- opportunity
- financial pressure (incentive)
- rationalization
what is chapter 5 about
- preventing fraud
what are temporary accounts?
- revenue
-expenses
- dividends
what are permanent accounts?
- assets
- liabilities
- equity
what is a deposit in transit?
Cash recorded in books but not yet cleared bank → add to bank balance
what are the limitations of internal controls
- human error
- collusion (working together)
- cost > benefit
are trial balances (adjusted,closed) reported externally or internally
internally
what are closing entries? why are they needed? and what accounts zero out as a result?
they reset temporary accounts to 0 and transfer to retained earnings.
what is an outstanding check
Issued checks not yet cleared → subtract from bank balance
what are the internal control goals
- safeguard assets
- enhance the reliability of accounting records
- increase efficiency of operations
- ensure compliance with laws and regulations
which classifications are debited when increased?
Dividends
Expenses
Assets
what is an adjusting entry and why is it important
they update revenues and expenses to the correct period. Needed for accruals and deferrals.
what is a non-sufficient fund (NSF) check
Customer’s bounced check → subtract from book balance
what are the principles of internal controls?
- segregation of duties
- independent verification
- documentation
- physical controls
-responsibility assignment
what are the steps of the accounting cycle?
1) journal entry
2) ledger (T-accounts)
3) unadjusted trial balance
4) adjusting entries
5) adjusted trial balance
6) financial statements
7) closing entries
8) post-closing trial balance
When a prepaid expense is increased, is it an asset or expense?
asset.
when a prepaid expense is decreased, it is an expense.
In bank reconciliation..what items are added/subtracted from the bank side
add: DIT
sub: OC
in bank reconciliation..what items are added/subtracted on the book side
add: interest/collections
sub: NSF fees, service charges, errors