Accounting Principles Quiz

Study Notes

Accounting Cycle and Inventory Management

Accumulated Depreciation - Equipment is a contra asset account that appears just after the account it offsets (Equipment) on the balance sheet.
Companies record a receipt of cash before revenue has been earned as a liability called unearned revenue.
Adjusting entry is made to record the revenue that has been earned and to show the liability that remains.
Companies make adjusting entries for accruals to update a revenue or expense account that is understated.
Adjusting entry results in a decrease (a debit) to a liability account and an increase (a credit) to a revenue account.
At the end of the accounting period, companies transfer the temporary account balances to the permanent stockholders’ equity account—Retained Earnings.
Companies use either a perpetual inventory system or a periodic inventory system to account for inventory.
After a company determines the number of inventory units on hand, it must apply unit costs to these quantities to compute ending inventory and cost of goods sold.
Unit costs can be applied to quantities on hand using First-in, first-out (FIFO), Last-in, first-out (LIFO), or Average Cost.
Each of the cost flow methods are allowed under GAAP, and a company may use more than one cost flow method at the same time.
When the value of inventory is lower than its cost, companies may need to “write down” the inventory to its market value in the period in which the price decline occurs.
Inventory errors affect the computation of cost of goods sold and net income in two periods, and ending inventory depends entirely on the accuracy of taking and costing the inventory.Fraud, Internal Control, and Reporting and Analyzing Receivables
Fraud can occur when there is an opportunity, financial pressure, and rationalization.
The Sarbanes-Oxley Act requires publicly traded US corporations to maintain an adequate system of internal control, and independent outside auditors must attest to its adequacy.
Internal control is a system of methods and measures adopted to safeguard assets, enhance accuracy and reliability of accounting records, increase efficiency, and ensure compliance with laws and regulations.
Internal control systems have five primary components: control environment, risk assessment, control activities, information and communication, and monitoring.
The six principles of internal control activities include establishment of responsibility, segregation of duties, documentation procedures, physical controls, independent internal verification, and human resource controls.
The limitations of internal control include costs exceeding benefits, the human element, and the size of the business.
Receivables are amounts due from individuals and other companies that are expected to be collected in cash.
Accounts receivable result from the sale of goods and services, while notes receivable are claims for which formal instruments of credit are issued as proof of debt.
Other receivables include interest, loans to officers, advances to employees, and income taxes refundable.
Accounts receivable are recognized by service organizations when they provide service on account and by merchandisers at the point of sale of merchandise on account.
Accounts receivable are valued at net realizable value, or the amount expected to be collected.
Uncollectible accounts receivable are recorded as bad debts expense using either the direct write-off method or the allowance method, with the latter being required by GAAP.

Description

Test your knowledge on key concepts in Accounting Cycle and Inventory Management, as well as Fraud, Internal Control, and Reporting and Analyzing Receivables. This quiz covers topics such as adjusting entries, inventory systems, cost flow methods, internal control components, and receivables. Whether you're a student or a professional in the field, this quiz will challenge your understanding of these important accounting principles and help you identify areas for improvement.