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Accounting 301 Test 2
Terms in this set (61)
A 250$ deposite made on the last day of the month did not appear on this months bank statement. How would this item be treated on the bank reconciliation?
It would be added to the bank statement.
In accrual accounting...revenues are recognized when earned, not when cash is received.
The advantages to internal controls are:
1. Enhance reliability of accounting information
2. Improve efficiency and effectiveness of operations
3. Protect against theft of assets
What information is provided by the receivable turn over ratio?
Higher ratio = Faster (better) turn over
The number of times receivables turn over during the period
1. Result from transactions other then from normal sales. (i.e; lending money to an employee)
2. Charge interest
3. When a company converts an existing trade receivable into a non-trade receivable to grant a customer an extended payment period.
Internal controls are reviewed by independent auditors. (T/F)
True- because they increase the reliability of financial statements
Receivable turn over ratio
Net Sales/ Average net trade accounts receivable
Allowance for doubtful accounts is ____ when uncollectible accounts are written off
non sufficient fund checks
deducted from the books
deducted from the cash balance
Aging of receivable methods
As receivable accounts get older and more overdue the less likely they are to be collected
-requires directly computing balance for doubtful accounts on the balance sheet and then computing the amount of adjusting entry needed to obtain this
Percentage of credit sales method
direct computing of bad debt expense on the income statement
sales discounts should appear on the financial statements as a...
deduction from sales
FOB shipping point
title changes hands on shipment and buyer pays for shipping
title changes hands on delivery and the seller pays for shipping
Bank reconciliation is required by GAAP? (T/F)
The adjusting entry to record estimated bad debt expense is...
debit Bad Debt Expense
Credit allowance for doubtful accounts
A high receivable turn over ratio is a sign of...
a companies effectiveness in granting and collecting credit.
EFT stads for...
electronic funds transfer
Bank Reconciliation must be prepared before (statement)...
balance sheet. The correct cash balance that is a result of the reconciliation is what should be reported on the balance sheet.
If a company wants its inventory cost flows to be the same as its inventory physical flows it should use which costing method?
Which inventory system requires purchases to be recorded in the inventory account instead of the purchases account?
Perpetual Inventory System
Identified the cost of a specific item that was sold. Think large or distinct items...houses, antiques...
Which inventory costing method uses the newest cost for goods sold on the income statement and the oldest cost for inventory on the balance sheet?
In a periodic system, the end of period adjustment that adjusts COGS for the amount in ending inventory requires a ______ to COGS
Gross Profit Is...
Net Sales - COGS
True or False: An error in ending inventory in 2013 will cause ending inventory in 2014 to be misstates as well?
Fixed Asset Turnover Ratio
Net Sales(operating revenue)/ Average Net Fixed Assets
Average Net Fixed Assets
(Beginning + Ending Fixed Asset Balance) / 2
the excess of the purchase price over the fair value of the business's assets and liabilities
"Gain/Loss on sale of assets" is what type of account?
All costs to get an asset in place and ready to use should be...
If a cost is capitalized it is recorded as an ______, not an expense.
Tangible assets are on which statement?
Recording depreciation expense is an application of the ............ principle.
a company may make an exception to the accounting rules and not capitalize on a long lived asset if its cost is.....
T/F: Depreciation is not intended to report an asset at its current value.
What counts as an intangible asset?
only purchased intangible assets, not developed assets
An assets cost minus accumulated depreciation is its ------- value.
An impairment loss is...
an operating expense that appears on the income statement.
Depreciation method used for amortization...
In a perpetual the entry to record the sale of merchandise is recorded by a
debit to cost of goods sold
Assuming sales remain unchanged if cost of goods sold increases then gross profit...
Failing to record COGS is the same as...
failing to decrease inventory.
FIFO uses the ______ cost for cost of goods sold on the income statement and the ______ cost for inventory on the balance sheet.
Assets used daily for the company to function
Assets subject to depreciation
Natural resource assets subject to depletion
-Mineral deposits and timber
Definite Life (Patents, copyrights, franchises)
Indefinite Life(trademarks and goodwill)
-Maintains normal operating condition
-Does not increase productivity
-Does not extend life beyond original estimate
-Recurring in nature and involve small amounts of upkeep
To calculate accumulated depreciation you need...
Estimated Useful life
Estimated residual value
T/F Bad debt expense is an estimate
The cost of extending credit to customers is...
bad debt expense
The closing entry for cogs is a...
Sales discounts are accounted for...
in a separate contra revenue account
the lower of cost or market theory
Flat screen LCD television panels originally purchased for $1,100 each currently have a replacement cost of $985 each. If 520 of these television panels are in inventory, what journal entry must be recorded to comply with the lower of cost or market rule?
Cost of Goods $59,800
Cost of Goods $59,800
Unrealized Loss in Inventory $59,800
Allowance for Inventory Reduction $59,800
Cost of goods sold $59,800
Cost of Goods $59,800
What is the primary purpose of the LIFO reserve?
To compute the differences in cost of goods sold between using LIFO and FIFO.
What does the fixed asset turnover indicate to investors?
A. Ability to pay long-term debt.
C. Freight charges to ship goods from vendors to customers.
D. Management effectiveness in utilizing assets.
Management effectiveness in utilizing assets.
The double-declining balance depreciation method is characterized by:
A decreasing amount of depreciation expense each period.
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