The correct first step is to gather all relevant facts and understand the applicable accounting framework (the company’s policy and relevant standards like ASC 606) before forming a conclusion or taking action. Jumping to escalation, confronting personnel, or using external benchmarks first could be premature and may not account for specific, legitimate contract terms that justify the recognition timing.

While all options present concerns, the most significant financial reporting and management risk is the loss of historical data continuity. This severely hampers the ability to analyze trends, prepare comparative financial statements (e.g., prior year figures), and make informed business decisions based on complete historical records. Audit efficiency and SOX compliance are important, but the core issue is the integrity and usefulness of the company’s financial data ecosystem.

The fundamental distinction between preventive and detective controls lies in their timing and objective. Preventive controls (e.g., system access permissions, approval workflows) are designed to deter or stop an error or fraud from happening in the first place. Detective controls (e.g., reconciliations, variance reports) are designed to discover errors or irregularities after they have occurred. The other options may be correlated in some cases but are not the primary, defining difference.

Negative cash flow from operations despite positive net income is often a sign of growth consuming cash, typically through increases in working capital. A large increase in accounts receivable (cash not yet collected) and inventory (cash tied up in unsold goods) are uses of cash that reduce operating cash flow, even though the related revenue and costs are recognized in net income. The other options involve investing (option A), financing (options B & D) activities, which do not directly affect cash flow from *operations*.

For self-constructed assets, the core guiding principle is that the capitalized cost should include all costs that are directly attributable and necessary to bring the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. This includes direct materials, direct labor, and directly attributable overhead. It excludes general administrative costs and costs of abnormal waste. This is often referred to as the ‘incremental cost’ or ‘avoidable cost’ principle for capitalization.

This is a classic example of ‘use-it-or-lose-it’ spending, often driven by a fear that unspent budget funds will be permanently removed from future budget allocations. The primary negative effect is that it incentivizes managers to spend money on lower-priority or unnecessary items at the end of a period simply to avoid a budget reduction, leading to inefficient use of company resources and undermining a culture of cost-consciousness.

Standard credit term notation is expressed as [discount percentage]/[discount period], net/[full payment period]. Therefore, ‘2/10, n/30’ means a 2% discount is available if payment is made within 10 days of the invoice date; otherwise, the net (full) amount is due in 30 days. This is a fundamental concept in managing accounts payable and working capital.

An adjusting entry that debits (increases) an expense and credits (increases) a liability is an accrual. Accrued wages are a perfect example: employees have earned the wages (expense incurred), but the payment will be made in the next period, creating a liability (wages payable). Depreciation increases an expense and decreases an asset. Unbilled revenue increases an asset and increases revenue. Writing off a receivable decreases an asset and increases an expense (but does not create a liability).

“Tone at the top” refers to the ethical atmosphere and culture created in the workplace by the organization’s leadership (board, CEO, CFO, etc.). It encompasses their integrity, ethical values, philosophy, operating style, and commitment to competence. This tone influences the control consciousness of all employees and is the foundation for all other components of internal control. It is more about culture and behavior than specific policies, structures, or communications.

The correct first step is to gather all relevant facts and understand the applicable accounting framework (the company’s policy and relevant standards like ASC 606) before forming a conclusion or taking action. Jumping to escalation, confronting personnel, or using external benchmarks first could be premature and may not account for specific, legitimate contract terms that justify the recognition timing.0