Normal Balance
Sales Returns and Allowances
Debit
This is a contra revenue account
What is the purpose of a bank reconciliation ?
The purpose of a bank reconciliation is to verify the accuracy of both the depositor’s records and the bank’s records.
Gross Profit
Net Sales - Cost of Goods Sold
What is the purpose of internal controls ?
Internal controls are policies and procedures used to protect assets, ensure reliable accounting, and promote efficient operations.
Inventory method that would still have begging inventory values in ending inventory at year end
LIFO/Last in first out
This means that the last inventory bought is the first to be sold, which can leave the beginning inventory of the year in the ending inventory.
Allowance for Doubtful Accounts
Credit
This is a contra asset account tied to accounts receivable
What affects the bank balance ? In what way do they affect the balance ?
The book balance is affected by outstanding checks and deposits-in-transit and bank errors.
Outstanding checks are a deduction and deposits-in-transit are an addition to the bank balance. A bank error can be a deduction or addition depending on the type of error that was made.
Cost of Goods Available for Sale
Beginning inventory + Purchases
Momoa Corporation uses a numbered ticket system to record all their sales. What control are they following?
Maintain adequate records
Proper documentation helps prevent errors and theft
Inventory system that updated inventory for every time it changes
A Perpetual Inventory System
Petty Cash
Debit
This is an asset account
What is the journal entry for an NSF check ?
An NSF (non sufficient funds) check is a deduction from the book balance. A customer wrote a check without enough money in the bank to cover it, so the bank did not transfer the money to you. The bank will typically charge a fee for NSF checks.
Accounts receivable XX
Cash XX
The fee is added to the amount the customer owes and is apart of the accounts receivable.
Cost of Goods Sold
Cost of Goods Available for Sale - Ending inventory
Jane opens the mail, records all the cash deposits and then takes the deposits from the bank. What internal control policy is being broken ?
Separation of duties
A person who controls or has access to an asset must not have access to that asset’s accounting records.
In a period of rising prices, the inventory method that produces the lowest net income
LIFO
Cost of Goods Sold
Debit
This account is for the expense of selling inventory
True or False: A book error is always a deduction from the book.
False: A book error can be either an addition or a subtraction. If a company enters a check for less than what the check was actually written for the difference will need to be deducted from the book. If a company records a check for more than the check was written from the difference will an addition to the book.
Interest
Principle X Annual interest rate X Time as a fraction of a year
Everyone knows what should be done, the roles are clearly defined and assigned to one person.
Establish clear responsibilities
If ending inventory is overstated what affect does it have on assets ?
Assets would be overstated.
Purchases
Debit
On what statement is cash over and short reported and how is it reported there ?
Cash over and short is reported on the Income Statement as part of the selling, general and administrative portion. Because the amount is typically small debit balances are reported as miscellaneous expenses and credit balances are miscellaneous revenues.
Net Realizable Value
Accounts Receivable - Allowance for Doubtful Accounts
Why is it important to have regular and independent reviews?
Regular reviews of internal controls help insure that procedures are followed
The Purchases account is used in recording transactions under this inventory system
Periodic Inventory System