1) What is more important from the standpoint of inventory costing: accrual acco

Question

1) What is more important from the standpoint of inventory costing: accrual accounting or valuation?

2) Under what condition would all four methods of inventory pricing produce exactly the same results?

3) Why is misstatement of inventory one of the most common means of financial statement fraud?

1) In what way does internal control contribute to faithful representation in its financial statements?

2) Why is it important for public companies to have an audit of management's assessment of internal controls?

1) What accounting concepts are violated by the direct charge-off method of recognizing uncollectable receivables?

2) Why is it advantageous for a company to finance its receivables?

1) Do adjusting entries involving estimated liabilities and accruals ever affect cash flows?

2) Why is present value one of the most useful concepts in making business decisions?

Explanation / Answer

1)FROM THE STANDPOINT OF INVENTORY COSTING VALUATION IS MORE IMPORTANT

ACCRUAL CONCEPTS AND METHODS OF VALUATION OF INVENTORIES ARE DIFFERENT PRINCIPLES OF ACCOUNTING.ACCRUAL CONCEPT OF ACCOUNTING HAS NO ROLE IN VALUATION OF INVENTORIES.

2)IF INFLATION DOES NOT EXIST THEN ALL METHODS OF INVENTORY PRICING WOULD PRODUCE SAME RESULTS.

3)MISSTATEMENT OF INVENTORY IS ONE OF THE MOST COMMON MEANS OF FINANCIAL STATEMENT FRAUD BECAUSE INVENTORIES ARE USUALLY HANDLED BY LOW LEVEL MANAGEMENT.

1)CONTRIBUTION OF INTERNAL CONTROL TO FAITHFUL REPRESENTATION IN FINANCIAL STATEMENTS:INTERNAL CONTROL IS THE PROCESS BY WHICH ORGANISATIONAL RESOURCES ARE DIRECTED ,MONITORED AND MEASURED.IT PLAYS AN IMPORTANT ROLE IN DETECTING AND PREVENTING FRAUD AND PROTECTING THE ORGANISATION'S RESOURCES,BOTH PHYSICAL AND INTANGILE AND HENCE HELPS IN FAITHFULL REPRESENTATION IN FINANCIAL STATEMENTS.

2)Section 404 of the Sarbanes-Oxley Act, as amended by the Dodd-Frank Act, requires management of all companies to assess and report on the effectiveness of the company's internal control over its financial reporting. The law also requires that independent auditors for larger companies attest to management's disclosures about the effectiveness of that internal control.

1)The direct write off method involves charging bad debts to expense in the period when individual invoices have been clearly identified as bad debts. The specific action used to write off an account receivable under this method with accounting software is to create a credit memo for the customer in question, which offsets the amount of the bad debt. Creating the credit memo creates a debit to a bad debt expense account and a credit to the accounts receivable account.The direct write off approach violates the matching principle, under which all costs related to revenue are charged to expense in the same period in which you recognize the revenue, so that the financial results of an entity reveal the entire extent of a revenue-generating transaction in a single accounting period.

2)IT IS ADVANTAGEOUS FOR A COMPANY TO FINANCE ITS RECEIVABLE BECAUSE:

It allows you to improve cash flow and business output.Receivable financing is a tremendous source of immediate capital for your business. It is a great solution for solving cash flow problems with a business, and also has tons of distinct advantages over more traditional options like a standard business loan or a small business line of credit. With receivable financing you sell your accounts receivables to a third party company that will pay you for the invoices. This gives your business instant cash instead of having to wait to receive payment which is why many businesses run into cash flow issues.

1)Adjusting entries will not impact a company's statement of cash flows in a meaningful way. This is because the statement of cash flows is designed to demonstrate a company's performance without accounting estimates and adjustments. The first item on the statement of cash flows is net income. Accruals and deferrals can increase or decrease net income, but they are also reversed through adjustments in the operating activities section on the statement of cash flows. So, the impact of adjusting entries on net income is reversed before "Net Cash Flows from Operating Activities," the first important subtotal; it has no impact on the company's ending cash position.

2)Present value is one of the most useful concept in making business decisions because NPV is the sum of all the discounted future cash flows. Because of its simplicity, NPV is a useful tool to determine whether a project or investment will result in a net profit or a loss. A positive NPV results in profit, while a negative NPV results in a loss. The NPV measures the excess or shortfall of cash flows, in present value terms, above the cost of funds.

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