Question 3 Name and describe the five elements of internal control. Question 5 (

Question

Question 3
Name and describe the five elements of internal control.

Question 5
(a) If the receivable turnover is 20, how many days are the receivables outstanding, on the average?

(b) What are the three classifications of receivables?

Question 6
There are four steps that are involved in the closing process. What are the four journal entries that are required in closing the temporary accounts?

Question 7
What are the four basic categories or types of accounts that require adjusting entries at the end of an accounting period?

Explanation / Answer

question(3)
internal control as having five components:
(1)Control Environment-sets the tone for the organization, influencing the control consciousness of its people. It is the foundation for all other components of internal control.
(2)Risk Assessment-the identification and analysis of relevant risks to the achievement of objectives, forming a basis for how the risks should be managed
(3)Information and Communication-systems or processes that support the identification, capture, and exchange of information in a form and time frame that enable people to carry out their responsibilities
(4)Control Activities-the policies and procedures that help ensure management directives are carried out.
(5)Monitoring-processes used to assess the quality of internal control performance over time.

question (5)
part (a)
if the receivable turnover is 20, how many days are the receivables outstanding, on the average?
365 / 20 = 18.25 Days
(b)
1. Accounts Receivable—used for selling merchandise or services on credit, and normally expected to be collected in a relatively short period.
2. Notes Receivable—used to grant credit on the basis of a formal instrument of credit, called a promissory note.
3. Other Receivables—include interest receivable, taxes receivable, and receivables from officers and employees.

question (6)
1. Close revenue accounts to income summary, by debiting revenue and crediting income summary.
2. Close expense accounts to income summary, by debiting income summary and crediting expense.
3. Close income summary to retained earnings, by debiting income summary and crediting retained earnings.
4. Close dividends to retained earnings, by debiting retained earnings and crediting dividends.

question (7)
1. At the beginning of the period, the entity has a certain amount of cash

2. This cash is used to purchase supplies and pay for expenses

3. Revenue is earned that either results in a cash transaction or an account receivable

4. Finally, cash is collected on accounts receivable

(1) Accrued revenues - (also called accrued assets) are revenues already earned but not yet paid by the customer or posted to the general ledger. An example of accrued revenue would be for a custom ordered machine that has been shipped FOB shipping point on the day the accounts receivable module is closed and the approval to bill the customer has not been received by the billing clerk.
(2) Unearned revenues - (or deferred revenues) are revenues received in cash and recorded as liabilities prior to being earned. Unearned revenue is a liability to the entity until the revenue is earned. An example of unearned revenue would be if the customer paid a deposit for a custom ordered machine that has not been delivered, the deposit would be recorded as unearned revenue.
(3) Accrued expenses - (also called accrued liabilities) are expenses already incurred but not yet paid or recorded. Examples of these types of adjusting entries could be for payroll that has been earned by employees on the last day of the period
(4) Prepaid expenses - (or deferred expenses) are expenses paid in cash and recorded as assets prior to being used. The most common form of an adjusting entry for prepaid expense would be for the used portion of an insurance premium. These types of adjusting entries are usually permanent.

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