Internal Controls and Fraud
What is the difference between an error and fraud?
Error is accidental when applying accounting rules and transactions
Fraud is intentional deceptional for personal gain or damage to others
NSF (Non-sufficient Funds)
Company (Right Side); Subtract
What account do we use when recorded NSF?
Accounts Receivable
What is cash realizable value also known as?
Accounts Receivable
What are the four net revenues?
Trade discounts, Sales return, Sales allowances, Sales discounts
What are the three factors of fraud?
opportunity, motivation, rationalization
Bank Service Fees
Company Side (Right Side); Subtract
Which side will Unrecorded Payments go? Add or subtract?
Company (Right) ; Subtract
When estimated uncollectibles, what happens to BDE and AUA?
Debit BDE Credit AUA
What is a trade discount?
reduction in list price of a product or service
Sarbanes - Oxley Act
Requires companies to create and maintain internal controls
Company error
Company Side (Right Side); Add or Subtract
What are the three accounts on the bank side?
Checks outstanding
Deposits outstanding
Bank Error
Debit AUA, Credit AR
What is a sales return?
Customer returns goods previously purchased
What are two examples of preventative controls?
1. Separation of Duties
2. Physical Controls
3. Proper authorization
4. Employee Management
5. E-commerce controls
Checks Outstanding
Bank (Left Side): Subtract
What account is used when the company is unable to resolve the discrepancy?
The Miscellaneous Accounts
Cats Company (buyer) agrees to a $1,000, 2 month, 12% promissory note on May 1. How will Dogs Company (seller) record the receipt of the note.
Debit Notes Receivable (1000)
Credit Accounts Receivable (1000)
What is a Sales Allowance?
Customer does NOT return goods
What is one example of detective controls?
Reconciliations
Performance Reviews
Audits
Deposits Outstanding
Bank (Left side); Add
What are the two Miscellaneous Accounts?
Miscellaneous Expense
Miscellaneous Revenue
Wools lends Yarn Co. 12,000 on June 1, (5-month, 10% interest). Record interest revenue on Nov. 1
Cash 12,500
Notes Receivable 12,000
Interest Revenue 500 (12,000 x 10% x 5/12)
What is a Sales Discount?
Reduction in the amount to be received from a customer within a specific period.