Owner’s equity shows the investments done by the owner/owners and the result of the operations of the company which is either profit or loss.

Accounts Receivable Turnover Ratio measures the liquidity of accounts receivable and is calculated as net credit sales divided by net accounts receivable. The correct answer is B.

A company must perform strictly proper accounting only for items that are significant to the business’s financial situation according to the materiality concept requirements.

Last-in, First-out (LIFO) is just the opposite of FIFO. Under the last-in, first-out (LIFO) method, ending inventory comes from the oldest costs (beginning inventory and earliest purchases) of the period. The cost of goods sold is based on the most recent purchases (new costs) –that is, the last units in are assumed to be the first units out of the warehouse (sold). This method is forbidden for being misleading especially in hyper-inflationary economies. The correct answer is B.

The objectives can be categoized in 3 groups;

Operations objectives: These objective state the efficiency and effectiveness of the business’ activities. Reporting objectives: These objectives are about the reliability of financial, non-financial and all other types of reports.
Compliance objectives: These objectives related to complying with laws and regulations that the business is subject to according to the its characteristics.

The components of fraud triangle are pressure, opportunity, and rationalization.

Under allowance method, the company should make necessary adjustments at the end of its accounting year for the amount of losses it predicts as a result of making sales on credit to its customers. This allowance method has three basic yet important features:
1. The uncollectible amounts are anticipated and the expense for the uncollectible account is matched
against sales in the same period in which sales were made.
2. Through an adjusting entry at the last of accounting year, forecasted uncollectible receivables are
credited to Allowance for Doubtful Debts Account and debited to Bad Debts Expense account.
3. Recognized uncollectible receivables are debited to Allowance for Doubtful Debts Account and credited to Account Receivable account at the time when specific amount is written.

Bad debt expense is an income statement account that shows the losses incurred due to uncollectible receivables.

the disposition of notes receivable is divided into three alternatives:

1. Honor of Notes Receivable

2. Dishonor of Notes Receivable

3. Sale of Notes Receivable

Aging of accounts receivable is the analysis of customer balances with respect to the length of time they have not been paid.

Finished Goods Inventory reports the cost of goods, materials and other components of manufacturing process used for the inventory produced and available for sale.

-“Cash ratio is a measure of a company’s ability to pay current liabilities from cash and cash equivalents".

An error is an unintentional misrepresentation of some items. But, a fraud is an intentional misrepresentation of something. It can be defined as “an intentional misrepresentation of facts which is, made for purpose of persuading another party to act in a way that causes injury or damage to that party.” Therefore, the difference between the terms error and fraud is based on intention.

When COGS is deducted from sales revenue, gross profit is calculated. Gross profit evaluates the company’s profitability in terms of selling activities.

A business’s financial statements must report enough information for outsiders to make knowledgeable decisions about the company because of the disclosure principle rules.

The specific identification method uses the specific cost of each inventory unit to determine ending inventory and cost of goods sold. Specific identification requires that companies keep records of the original cost of each individual inventory item. In the specific identification method, the company knows exactly which item was sold and exactly what the item cost. The specific identification method is impractical unless each unit can be identified accurately. This costing method is best for businesses that sell unique, easily identified inventory items, such as jeweler (a specific diamond earring), an automobile dealer (each automobile has a unique serial number) and real estate (identified by address). This method requires the business maintains detailed records of inventory sales and purchases as well as carefully identifying the inventory sold.

Accountability is not a component in COSO internal control framework

Cash ratio is a measure of a company’s ability to pay current liabilities from cash and cash equivalents. 

Cash Ratio = (Cash + Cash Equivalents) / Total Current Liabilities

COSO framework: • can be applied to all types of business. • has a principle-based approach and this approach can provide flexibility to the internal control process. • states how components and related principles are present and functioning and how components operate together. So, they can understand the requirements for effective controls. • facilitates risk assessment prepares an appropriate response within acceptable level and deals with fraud. • can be applied not only in financial reporting but also all other types of reporting, operating and compliance objectives. • can help to eliminate ineffective, redundant, or inefficient controls.

The correct answer is B. If the FOB shipping point type of shipment is preferred, the transportation cost belongs to the buyer. Therefore, transportation cost is added to the cost of merchandise, because it is a part of purchase cost.