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3 Types of Expense Categories
Product cost, period cost, systematic allocation
Product cost - Define + example
Can be matched directly with specific transactions/ events, recognized upon recognition of related revenue
Period cost - Define + example
Recognized in the period cash is spent or liability is incurred for goods or services used at the that time; not directly related to other transactions, no future benefit
Systematic allocation - Define + Example
expense allocated in systematic process to periods in which related assets are expected to provide benefits FUTURE BENEFIT
3 types of purchasing processes
Purchase Transactions
Cash disbursement transactions
Purchase return transactions
Purchase transaction accounts
Accounts payable, inventory, purchases or COGS, Various assets and expense accounts
Cash disbursement transaction Accounts
Cash, A/P, Cash discount, various asset and expense accounts
Purchase return transactions Accounts
Purchase returns, purchase allowance, A/P, Various asset and expense account.
Major Functions of the purchasing process and related key documents (6 items)
Requisitioning, Purchasing, receiving, Invoice processing, disbursements, accounts payable, general ledger
Primary concerns when auditing A/P and accrued expenses (3 concerns)
Conceals fraud as effectively as overstatement of assets.
Accompanied by understatement of expenses and overstatement of net income
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