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Financial Accounting Exam 2
Terms in this set (25)
At the time a company purchases land using cash, which of the following is true?
the value of the company does not change
A company received cash from a customer for services that were provided. Which of the following should be recorded?
debit cash, credit accounts receivable
Suppose a company provides services to customers in the current period but does not collect cash from those customers. How will the basic accounting equation be affected in the current year?
Paying dividends in the current period would have what effect on the accounting equation?
assets decrease and stockholders equity decreases
Under cash-basis accounting, which of the following would be recorded as an expense?
cash paid for rent in the current period
In a bank reconciliation, which of the following would be added to the company's cash balance?
notes collected by the bank
Which of the following transactions affects the balance of retained earnings in the current period?
pay salaries for the current period
An example of an adjusting entry would include:
interest owed on borrowed amounts
Which of the following describes dividends:
dividends reduce the balance of retained earnings
When a company pays cash for an expense, what is the effect on the accounting equation for that company?
decrease assets and decrease stockholder's equity
a reduction in the list price of an item
discount for early payment
Sales Returns and Allowances:
discount for unsatisfactory product or service
Receivable turnover ratio
=(net credit sales)/(average accounts receivable)
how effective is management in collecting cash from customers
Average collection period
=(365 days)/(receivables turnover ratio)
number of times during the year the average account receivable balance is collected
Formal credit arrangements (think loans from banks)
interest=(face value)(annual interest rate)(fraction of the year)
Non trade Receivables
tax refunds, interest receivable, loans
Allows for Uncollectible accounts equation
=(total accounts receivable)(percent estimated uncollectible)
cost of goods not yet sold
Inventory turnover ratio
=(cost of goods sold)/(average inventory)
Gross Profit Ratio
=(gross profit)/(net sales)
assets that have value but no physical characteristics (patents, copyrights, franchises, etc.)
Contingent Liabilities are disclosed if
patient is reasonably likely
Contingent Liabilities are not disclosed if
payment is remote
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