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Fundamentals of Accounting
Terms in this set (60)
What is the effect of a company's accounting department maintaining high ethical standards?
The company's accounting information will increase in value.
Why might employees be interested in their company's financial accounting information?
Financial statement data are often used in determining employee bonuses.
Which group establishes financial accounting rules in the United States?
Financial Accounting Standards Board (FASB)
Which report is one of the three primary financial statements?
Statement of cash flows
A company paid $5,000 cash in advertising costs.
Assets decrease by $5,000; expenses increase by $5,000
What is a transaction?
Two parties exchanging something of value
A company borrowed $80,000 cash from a bank.
How does this transaction affect the accounting equation of the borrowing company?
Assets increase by $80,000; liabilities increase by $80,000
What is the impact of expenses on the accounting equation?
Expenses decrease owners' equity
Which type of account are accounts payable and notes payable both examples of?
What is the purpose of the financial accounting cycle?
To turn information about transactions into financial statements
According to the accounting equation, the amount of liabilities and equity must always be equal to another amount.
What is that other amount?
Which item is an expense item?
Cost of goods sold
How is gross profit computed?
Sales minus cost of goods sold
Which type of account is retained earnings?
For purposes of cash flow classification in the statement of cash flows, which item is an operating activity?
How does a classified balance sheet provide useful information to a decision maker?
It distinguishes between current and long-term assets
What information does a balance sheet provide to a decision maker?
Summary of the financial position of a company at a particular date
What is an account payable?
The amount owed by a company that purchased goods or services from a supplier on credit
What is an example of a financial cost that would result from poor direct labor budgeting and planning?
Increased hiring, training, and overtime costs
What does a manager have control over in a cost center?
What should be considered when developing a measure to evaluate the performance of a manager?
Only controllable costs
In some companies, the performance measures for profit center managers are heavily influenced by cost allocations downward from organizational units (such as company headquarters).
Why is this a mistake?
Uncontrollable costs should not be included in the performance evaluation measure of a profit center manager
Which budget should include the expected cost of supplies used by the office staff of the corporate headquarters?
Administrative expense budget
Which items are uncontrollable, external variables that make it difficult to forecast the level of sales?
Customer tastes and economic conditions
What is the correct sequence of budgets in a manufacturing business?
Sales, production, direct materials
Which type of business organization has a major focus on direct materials, direct labor, and overhead?
What are the three primary functions that company managers use managerial accounting information for?
Planning, controlling, and evaluating
What is the proper accounting for a product cost?
Record as an inventory cost until the item is sold
How could a period cost be reported in an income statement?
As an administrative expense
A retail company purchased inventory costing $100,000. By the end of the year, inventory costing $75,000 had been sold.
How is the remaining $25,000 in inventory reported in the financial statements?
As an asset in the balance sheet
How are the wages of cashiers classified in a merchandising company?
How are wages of office staff in a company headquarters building classified?
Which label is given to the cost of the wood used in the construction of a piece of wooden furniture?
Which label is given to the cost of electricity in a furniture factory?
What is the sequence of the flow of costs through a manufacturing operation?
Raw materials, work-in-process, finished goods, cost of goods sold
What is the CVP equation?
Sales - variable costs - fixed costs = profit
Which cost category is not formally tracked in a company's accounting system?
A company reports these data:
Total sales revenue = $250,000
Number of units sold = 50,000 units
Variable costs = $100,000
If the company is operating at its break-even point, what is the company's total contribution margin?
Total Sales - Variable Costs = Contribution Margin
A company reports these data:
Price per unit = $25
Variable costs per unit = $15
Fixed costs = $15,000
Given these data, what is the variable cost ratio?
Variable costs = Variable Costs per unit / Price per unit
Why is the concept of relevant range important to a manager?
Outside the relevant range, the variable cos per unit can change
Which statement correctly describes applied manufacturing overhead?
The amount of manufacturing overhead that is assigned to the goods produced
What is the label given to the quantity computed as estimated overhead costs divided by estimated level of activity?
Predetermined overhead rate
In a job order costing system, what is the proper accounting for a product cost?
It is reported as a part of cost of goods sold
Which item is a period cost?
Utility bills to heat the headquarters building
Which statement is true with respect to activity-based costing (ABC) systems?
An ABC system allocates overhead based on multiple activities
How is overhead allocated in an ABC system?
Activity rate multiplied by number of cost driver events
In an ABC system, which name is given to a numerical measure reflecting the amount of a cost associated with a particular overhead cost activity?
How are production costs treated in a process costing system?
Costs are accumulated by process and averaged over all products made during the period
How is the production cost per unit computed in a process costing system?
Amount of total production costs divided by the number of units completed during a particular period of time
For which production process is process costing the appropriate costing method to use?
Refining gasoline in a petroleum facility
Which overhead allocation method should be used for a business that mass-produces breakfast cereal?
What is the correct sequence for the flow of costs through a job order costing system?
Raw materials inventory, work-in-process inventory, finished goods inventory, cost of goods sold
Which type of company cannot use job order costing?
Petroleum refining plant
What is an example of direct materials?
Cost of aluminum in making an airplane
What is an example of direct labor?
Wages for furniture assemblers in a wood furniture manufacturer
What is an example of manufacturing overhead?
Cost of sandpaper in making wood furniture
Percentage change in sales: (Year 2 minus Year 1) / Year 1 Ex. =(C4-F4)/F4
Percentage of total sales: Year 2 Sales / absolute value of Year 2 Sales: Example: =C4/$C$4
Which action would make the profitability of the company in 20X9 the same as in 20X7?
Increasing the proportion of gross profit to sales by about 2%
Why is the net cash for December negative while total sales for December are the highest out of the months from October through December?
Total cash available does not reflect December sales because there was a high volume of credit sales
How can Whole Pine avoid having negative net cash flows in December?
Postpone purchasing the new equipment and do not pay cash dividends to shareholders
Recommended textbook explanations
Glencoe Accounting: First Year Course
Don Herrmann, J. David Spiceland, Wayne Thomas
The Economics of Money, Banking and Financial Markets
Frederic S. Mishkin
Introduction to Managerial Accounting
Eric W. Noreen, Peter C. Brewer, Ray H Garrison
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