Internal Controls in Accounting Flashcards

Internal Controls in Accounting Flashcards
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Cost-Benefit Principle
An accounting principle that can be used to see if something is cost-effective. It involves looking at how much something costs in comparison to the benefits it offers.
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Internal Controls: Purposes

Protect a company's assets from loss

Make sure the business complies with all laws

Let companies monitor their goals

Provide timely, accurate and reliable financial information

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Internal Controls in Accounting
These are procedures a business sets up to make sure their business is handled accurately, effectively and with order.
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Earnings Management Techniques: The Big Bath
Businesses use this earnings management technique when they inflate the costs of a one-time event.
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Earnings Management Techniques: Materiality
A very common type of earnings management. It deals with how much a given financial transactions affects a business's financial statements.
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Earnings Management Techniques: Revenue Recognition
You manipulate the time you recognize revenue brought into your business in this earnings management technique.
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Earnings Management Techniques: Operating Activities
You use this earnings management technique when make certain purchases in specific periods. If you decide to buy equipment when sales are good, it's this kind of technique.
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Earnings Management
The use of a series of techniques that can improve the look of a business's financial statements.
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Window Dressing
A process that occurs if a business tries to make their financial statements look good so the company appears to be doing really well. Often this is to draw in investors. This is not fraudulent.
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Cash Equivalents
These are liquid assets that businesses can quickly turn into cash. Examples can include money market funds, certificates of deposit and bonds from the government.
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Cash Controls: Dispersal
Controls on how cash is paid out in a business. Like other controls, they should be split between multiple people. These controls can include entering bill payments and making the payments.
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Cash Controls: Receipt
These are controls that handle the receipt of cash. Ideally, they should be split between different people, each of whom leaves a paper trail. They can include collecting money and depositing it.
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25 cards in set

Flashcard Content Overview

Going over these flashcards can be a great way to focus on different methods to control cash. You can go over the process of bank reconciliation and the uses of check registers. These cards also cover the steps of an audit and the importance of auditors. You'll also be able to review the purpose of the Securities and Exchange Commission and the Sarbanes-Oxley Act.

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Back
Cash Controls: Receipt
These are controls that handle the receipt of cash. Ideally, they should be split between different people, each of whom leaves a paper trail. They can include collecting money and depositing it.
Cash Controls: Dispersal
Controls on how cash is paid out in a business. Like other controls, they should be split between multiple people. These controls can include entering bill payments and making the payments.
Cash Equivalents
These are liquid assets that businesses can quickly turn into cash. Examples can include money market funds, certificates of deposit and bonds from the government.
Window Dressing
A process that occurs if a business tries to make their financial statements look good so the company appears to be doing really well. Often this is to draw in investors. This is not fraudulent.
Earnings Management
The use of a series of techniques that can improve the look of a business's financial statements.
Earnings Management Techniques: Operating Activities
You use this earnings management technique when make certain purchases in specific periods. If you decide to buy equipment when sales are good, it's this kind of technique.
Earnings Management Techniques: Revenue Recognition
You manipulate the time you recognize revenue brought into your business in this earnings management technique.
Earnings Management Techniques: Materiality
A very common type of earnings management. It deals with how much a given financial transactions affects a business's financial statements.
Earnings Management Techniques: The Big Bath
Businesses use this earnings management technique when they inflate the costs of a one-time event.
Internal Controls in Accounting
These are procedures a business sets up to make sure their business is handled accurately, effectively and with order.
Internal Controls: Purposes

Protect a company's assets from loss

Make sure the business complies with all laws

Let companies monitor their goals

Provide timely, accurate and reliable financial information

Cost-Benefit Principle
An accounting principle that can be used to see if something is cost-effective. It involves looking at how much something costs in comparison to the benefits it offers.
Intentional Human Error
A type of human error that occurs when someone plans to act in an undesired way. If an employee refuses to complete a specific job, it's this kind of error.
Unintentional Human Error
This kind of human error occurs as a result of an accident.
Notes to the Financial Statements
Footnotes that show up in financial reports given by auditors. These show the auditor's opinion and are required to meet GAAP protocols, making auditor opinions very important.
Audit Process: Steps

The steps of the audit process are:

- observe how the accounting department gets information

- look at the company policy on record keeping

- look at each component of the accounting system that the company uses

- look into the system of internal controls that the company has

- review the company's cash account

- review the company's tax records.

Sarbanes-Oxley Act
An act designed to offer investors protection. It is very important because it holds corporate executives accountable for information placed on the financial statements of their companies.
Securities and Exchange Commission (SEC)
This organization is responsible for regulating accounting practices. It was formed in response to the stock market crash of 1929.
Stock Market Crash of 1929
A massive crash of the stock market that did drastic harm to the economy. The government determined that companies reporting false financial information were responsible for this.
Fraudulent Financial Reporting
This occurs when a business falsely reports financial information, or fails to report a piece of financial information entirely. Businesses do this intentionally.
Reporting Error
These are financial errors that occur by accident due to miscalculations or other issues. These are not intentional mistakes.
Bank Reconciliation
A type of reconciliation that occurs when a company balances its cash account to match the balance in its bank account.
Bank Statement
Banks provide this statement. It tells you what your beginning balance was, any deposits or withdrawals that were processed through the bank and what the account's ending balance is.
Check Register
Businesses can look at this to see a complete record of the deposits and withdrawals they made in a set period of time. It even covers transactions that haven't cleared a bank.
Transposition
An error in recording financial data that occurs when you accidentally switch the order of the numbers you're writing down.

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