ComputerBasedAuthorization Controlsy Authorizationsareautomated. Manual SegregationofFunctionsy Custodyoftheasset,inventory,bytheWarehouse mustbeseparatefromrecordkeepingfortheassetsby theInventoryControl.
Manual Supervisiony Withintheexpenditurecycle,supervision isof highestimportanceintheReceivingdepartment, wheretheinventoryarrivesandisloggedinbya receivingclerk.
Needtominimize: y failurestoproperlyinspecttheassets y theftoftheassets. ComputerBasedSupervisiony Automationoftenleadstoacollapsingofthe traditionalsegregationofduties. Manual AccountingRecordsy Mustmaintainadequaterecordsfor: y accountspayable y voucherspayable y checks y generalledger y subsidiaryledgers. ComputerBased AccountingRecordsy Accountingrecordsrestonthereliabilityand securityofstoreddigitalizeddata. Accountantsshouldbeskepticalabouttheaccuracyof hardcopyprintouts.
Thisisgoodforaudittrailpurposesbutisoften inefficient. Manual AccessControlsyAccessto:y inventories direct y cash direct y accountingrecords indirect. ComputerBased AccessControlsy Magneticrecordsarevulnerabletobothauthorized andunauthorizedexposureandshouldbeprotected y musthavelimitedfileaccessibility y programsmustbesafeguardedandmonitored. ComputerBased IndependentVerificationy Automatingtheaccountingfunctionreducestheneed forverificationbyreducingthechancesoffraudand errorintheexpenditurecycle.
See Full Reader. Examples of noncash charges are depreciation, depletion, and amortization of intangibles. Expenses recorded but unpaid e. Operating activities involve the cash effects of transactions that enter into the determination of net income. Investing activities include making and collecting loans and acquiring and disposing of debt and equity instruments; property, plant, and equipment and intangibles.
The issuanceis reported as follows: Cash flows from financing activities Issuance of preferred stock The increase in Land is reported as follows: Cash flows from investing activities: Purchase Land The companyappears to have good liquidity and reasonable financial flexibility.
Its current cashdebt coverage is 1. In addition, its cash debt coverage is also good at 0. Free cash flow is net cash provided by operating activities less capital expenditures and dividends. The purpose of free cash flow analysis is to determine the amount of discretionary cash flow a company has for purchasing additional investments, retiring its debt, purchasing treasury stock, or simply adding to its liquidity and financial flexibility. Some of the techniques of disclosure for the balance sheet are: a Parenthetical explanations.
This note should be very useful from a comparative standpoint, since it should be easy to determine whether the company uses the same accounting policies as other companies in the same industry. General debt obligations, lease contracts, pension arrangements and stock option plans are four items for which disclosure is mandatory in the financial statements. This term has a connotation outside accounting that is quite different from its meaning in the accounts or in the balance sheet.
The use of the terms capital surplus, paid-in surplus, and earned surplus is confusing to the nonaccountant and leads to misinterpretation. If, on the other hand, the preferred stock is not a trading security, it should be classified as available-for-sale.
Available-for-sale securitiesare classified as current or noncurrent depending upon the circumstances. This account will be shown net of any billings on the contract.
On the other hand, if the warehouse is being constructed for the use of this particular company, it should be classified as a separate item in the property, plant, and equipment section. XXX Less: Allowance for doubtful accounts XXX Receivables—officers XXX Inventories Finished goods XXX Work in process XXX Raw materials XXX Land held for future plant site XXX Restricted cash plant expansion XXX Total long-term investments XXX Property,plant,and equipment Buildings XXX Less: Accum.
XXX Total assets XXX Unearned subscriptions revenue XXX Unearned rent revenue XXX Total current liabilities XXX Additional paid-in capital: Paid-in capitalin excessof par common stock XXX Total paid-in capital XXX Retained earnings XXX Totalpaid-in capitaland retained earnings XXX Less: Treasury stock, at cost Since these conditions are not met an accrual is not required.
The allowance for doubtful accounts is a valuation account contra asset and is deducted from accounts receivable on the balance sheet. Theliabilityis recorded on the date of declaration. Its financial flexibility is good. It might be noted that it substantially reducedits long-term debtin which will help its financial flexibility.
Information is available to compute all the asset amounts except current assets and therefore current assets can be determined by deducting the total of all the other asset balances from the total asset balance i. It appears the company has good liquidity and financial flexibility. No monetary amounts are to be reported.
Problem Time 35—40 minutes Purpose—to provide the student with the opportunity to prepare a complete balance sheet, involving dollar amounts. A unique feature of this problem is that the student must solve for the retained earnings balance. Problem Time 40—45 minutes Purpose—to provide an opportunity for the student to prepare a balance sheet in good form.
Emphasis is given in this problem to additional important information that should be disclosed. For example, an inventory valuation method, bank loans secured by long-term investments, and information related to the capital stock accounts must be disclosed. Problem Time 40—45 minutes Purpose—to provide the student with the opportunity to analyze a balance sheet and correct it where appropriate.
The balance sheet as reported is incomplete, uses poor terminology, and is in error. A challenging problem. Problem Time 40—45 minutes Purpose—to provide the student with the opportunity to prepare a balance sheet in good form. Additional information is provided on each asset and liability category for purposes of preparing the balance sheet.
Problem Time 35—45 minutes Purpose—to provide the student with an opportunity to prepare a complete statement of cash flows. A condensed balance sheet is also required. The student is also required to explain the usefulness of the statement of cash flows.
Because the textbook does not explain in Chapter 5 all of the steps involved in preparing the statement of cash flows, assignment of this problem is dependent upon additional instruction by the instructor or knowledge gained in elementary financial accounting. Problem Time 40—50 minutes Purpose—to provide the student with an opportunity to prepare a balance sheet in good form and a more complex cash flow statement. XXX Accounts receivable XXX Advances to employees XXX Inventory ending XXX Prepaid rent XXX Total current assets XXX Cash surrender value of life insurance XXX Land for future plant site XXX Property,plant,and equipment Land XXX Buildings XXX Intangible assets Copyrights XXX Patents XXX Total intangible assets XXX Salaries and wages payable XXX Dividends payable XXX Total long-term liabilities XXX Total liabilities XXX Common stock description XXX Totalpaid-in capital and retained earnings XXX Accumulated othercomprehensive income XXX Less: Treasury stock XXX Equity attributable to Noncontrolling interest Note that the appreciation capital account is also deleted.
Note 2 indicates that retained earnings was credited. Note that the goodwill account is also deleted. Note: As an alternate presentation, the cash restricted for plant expansion would be added to the general cash account and then subtracted. The amount reported in the investments section would not change. For example,by showingthe specific inflows and outflows from operating activities,investingactivities,and financing activities,the user has a better understanding ofthe liquidity and financial flexibility of the enterprise.
Similarly, these reports are usefulin providingfeedbackaboutthe flow ofenterprise resources. This information should help users make more accurate predictions of future cash flow. In addition,someindividuals have expressed concern about the quality of the earnings because the measurement of the income dependson a numberof accruals and estimateswhich may be somewhatsubjective.
As a result,the higher the ratio of cash provided by operating activities to net income, the more comfort some users have in the reliability of the earnings. Overall, it appears that its liquidity position is average and overall financial flexibility and solvency should be improved.
For example,by showingthe specific inflows and outflows from operating activities,investing activities,and financing activities, the user has a better understanding of the liquidity and financial flexibility of the enterprise. Similarly, these reports are useful in providing feedback about the flow of enterprise resources. This informationshouldhelp users makemore accurate predictions of future cash flow.
Accounting changes, additional assessments of income taxes, prior period adjustments, and changes in estimates are some of the financial transactions presented. CA Time 30—35 minutes Purpose—to present the asset section of a partial balance sheet that must be analyzed to assess its deficiencies. Items such as improper classifications, terminology, and disclosure must be considered. CA Time 20—25 minutes Purpose—to present a balance sheet that must be analyzed to assess its deficiencies.
Items such as improper classification, terminology, and disclosure must be considered. CA Time 20—25 minutes Purpose—to present the student an ethical issue related to the presentation of balance sheet information.
CA Time 40—50 minutes Purpose—to present a cash flow statement that must be analyzed to explain differences in cash flow and net income, and sources and uses of cash flow and ways to improve cash flow. The new estimate would be used in computing depreciation expense for Ervin De Guzman. Julius Lester Abiera. Christian Perez. Franz Campued. Aruna Rajappa. Joseph Salido. Artikel Internasional Embedding process mining into financial statement audits.
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