Internal Controls

question 36

Multiple Choice

Internal controls:

• A)Have four broad purposes.
• B)Are key elements of the third step in a financial statement audit.
• C)Both have four broad purposes and are key elements of the third step in a financial statement audit.
• D)Neither have four broad purposes nor are key elements of the third step in a financial statement audit.

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Definitions:

Periodic inventory system

An inventory accounting system where updates to inventory levels are made periodically, usually at the end of an accounting period, rather than after each transaction.

Ending inventory

The total value of goods available for sale at the end of an accounting period, calculated by adding purchases to beginning inventory and subtracting cost of goods sold.

Perpetual inventory method

An accounting method where inventory levels are updated in real-time with each sale and purchase, providing a continuous record of inventory balances.

Inventory method

An accounting approach used to value and manage the inventory of a business, including FIFO (First-In, First-Out), LIFO (Last-In, First-Out), and average cost methods.