In a collusion, at least two or more people work together to commit a fraud.

There are three parties while drawing a check: A maker, a payee, and a bank. The correct answer is C.

“Internal control is a process, affected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives related to operations, reporting and compliance.

Inventories can can simply be defined as asset items that a company holds for sale in the ordinary course of business, or items that will be used or consumed in the production of goods to be sold (IAS 2- Inventories). From this definition, we understand that inventories can come out as different categories in companies depending on their activities. A merchandising company usually purchases its merchandise in a form ready for sale and reports only the cost assigned to unsold units left on hand as “Merchandise Inventory” in its financial statements. A manufacturing company produces goods and usually sells them to merchandising firms. Although the products they produce may differ, manufacturers normally have three inventory accounts in their financial statements. 

If two parties agree on the shipment as FOB shipping point, transportation is the buyer’s responsibility. It is also called “Freight-in”, because freight cost is included in the cost of purchased goods.

The operating cycle of a merchandising company starts with the purchase of inventories from a producer or an individual, called a vendor. Then these inventories are sold to customers, either in cash or on account. When the cash is collected from customers, the operating cycle ends the first round.

There are two types of frauds: misappropriation of assets and fraudulent financial reporting.

After closing of revenue accounts, expense accounts and Income Summary account, it is time to prepare post-closing trial balance as the ending step in the accounting cycle. Post-closing trial balance shows the accounts with only balances. As the revenue accounts, expense accounts and Income Summary accounts were closed, it means that they have no balances.

Inventory Cost Flow Method is a method of approximating the flow of inventory costs in a business that is used to determine the amount of cost of goods sold and ending merchandise inventory.

A cash budget is a document that shows the expected amount of cash receipt and payments for a period in the future.

Accounts receivable is recognized when a company delivers good or services on credit.

Receivable is an accounting term associated with the amounts that are owed to the business by other parties, mainly its customers. These are basically the claims that are likely to be acquired in future. These claims stem from selling goods or services on credit. Receivables can also arise when someone lends money to another person. Generally, receivables are classified into three main categories: (1) accounts receivables, (2) notes receivables, and (3) other receivables. Accounts receivables and notes receivables arise from main operating activities of companies and they are known as trade receivables. Receivables can be also classified as current (short-term) and non-current (long-term) receivables with respect to their maturity structures. 

Liquidity is the measure of how quickly and easily an account can be converted into cash.

• Fraud can be classified into two common types according to their impacts on financial statements.
• In misappropriation of assets usually employee tries to cover the fraud up with an inaccurate entry or tries to steal the asset before recording process.
• Fraud can results from the conflict of different parties’ interests.
• All of the statements above are true for fraud.

Assignment of responsibilities requires that different people should be determined for each different duty. Their responsibilities should be assigned and explained clearly The correct answer is C.

E is wrong because,when there is a question, record an expense rather than an asset

Current liabilities are the liabilities that the company has to pay either with cash of by handling goods or services within one year or in an operating cycle.

Dotted line should be (Sales returns and allowances)

COGS = Beginning Inventory + Purchases – Ending Inventory

=10,000+5,000 -1,000 =14,000

The consistency principle holds that companies should use the same accounting methods and procedures in each accounting period, so that the information provided will help investors and creditors to compare a company’s financial statements from one period to the next. For example, assume that you are analyzing a company’s net income over a two-year period in which there was a decrease in net income from the first year to the second. Analysis of the income statement shows that Sales Revenue was almost the same for both years, but Cost of Goods Sold increased significantly, which resulted in decreases in gross profit and operating income. A is the right answer