RETL 261 1st Edition Exam 3 Study Guide Chapters 8 11 Chapter 8 Cash and Internal Controls True or False Proper internal control means that responsibility for a task is clearly established and assigned to one person True Technology such as cash registers check protectors time clocks and personal identification scanners can improve internal control True Good internal control dictates that a person who controls an asset also maintains that asset s accounting records False Separation of duties divides responsibility for a transaction or a series of related transactions between two or more individuals or departments Separation of duties reduces the risk of error and fraud True A voucher system is a set of procedures and approvals designed to control cash disbursements and the acceptance of obligations True What are the two limitations of Internal Controls 1 Human Error 2 Human Fraud If a cash register s record shows 550 but the count of cash in the register is 555 then when you prepare the journal entry do you debit or credit cash over and short You would credit Cash over and short in this example If you are short on cash then you debit Chapter 9 Accounting for Receivables What is an account receivable A receivable is an amount due from another party What is a note receivable A written promise between the creditor and their buyer This is usually used for bigger ticket items What are the two methods used to account for bad debts The Direct Write Off Method and the Allowance Method True or False The Direct Write Off method violates the matching principle but is 100 accurate True An allowance account is a contra asset account True The formula for computing interest on a note is principal of the note times the annual interest rate times time expressed in fraction of year True Accounts Receivable Turnover Net Sales Average Accounts Receivable True Notes receivable are always classified as current liabilities False When computing interest if the note is expressed in days then you base a year on 360 days because of the banker s rule True Chapter 10 Plant Assets Natural Resources and Intangibles True or False Plant assets refer to intangible assets that are used in the operations of a business False Depreciation measures the actual decline in market value of an asset False Depreciation expense is calculated using estimates of an asset s salvage value and useful life True Land is depreciated False Land improvements are depreciated True How do you calculate straight line depreciation Cost Salvage Value Useful life How do you calculate Units of Production Depreciation 1 Cost Salvage Value Units of Production Depreciation per unit 2 Depreciation per unit X Units produced in period Depreciation expense Ordinary repairs are classified as Revenue and betterments and extraordinary repairs are classified as Capital Chapter 11 Current Liabilities and Payroll Accounting How do you classify whether a liability is current or long term A current liability is expected to be paid within a year or less A long term liability is not expected to be paid within a year What are the three types of Contingent Liabilities 1 Probable 2 Possible 3 Remote True or False The full disclosure principle requires the reporting of contingent liabilities that are reasonably possible True Employers pay amounts equal to that withheld from the employee s gross pay True Gross pay is the amount of money you make before taxes are deducted from your salary True Net pay is the amount of money you make after taxes are deducted True FICA taxes include social security True A self employed person is exempt from FICA taxes False What is a 1040 An official document that U S taxpayers use to file their annual income tax return What is a W 2 Your W 2 form reports the amount of federal state and other taxes that were withheld from your paycheck What is a W 4 It is the tax form used by your employer to withhold the proper amount of federal income tax from your paycheck