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Financial Accounting Test #2 (TTU, Allen)
Terms in this set (52)
What is the equation for Net Sales?
Sales Revenue - Sales Returns and Allowance - Sales Discounts
In the credit terms 2/10, n30...
The 2 represents a 2% discount, the 10 represents 10 days from invoice date, the N stands for the full amount owed - any returns or allowances, and the 30 represents 30 days from invoice date.
What is the equation for Net Purchases?
Purchases - Purchase Allowance and Returns - Purchase Discounts
What is the equation for Cost of Goods Purchased?
Net Purchases + Transportation In
What is the equation for Cost of Goods Available for Sale?
Beginning Inventory + Cost of Goods Purchased
What is the equation for Cost of Goods Sold?
Cost of Goods Available for Sale - Ending Inventory
The inventory system which increases or decreases the inventory account each time inventory is bought or sold:
The inventory system which records cost of goods sold each time a sale of inventory is made:
The inventory system which calculates ending inventory and cost of goods sold at the end of the period:
FOB stands for:
Free on Board
In FOB destination point who is responsible for shipping costs?
In FOB shipping point who is responsible for shipping costs?
What is the equation for Gross Profit Ratio?
Gross Profit / Net Sales
What is the equation for calculating the Weighted Average Unit Cost for Inventory?
Cost of Goods Available for Sale / Units Available for Sale
What is the equation for Ending Inventory at Cost?
Weighted Average Cost * # of units in ending inventory
Which cost flow method reports the most recent costs in ending inventory?
Which cost flow method uses the actual physical flow of inventory to assign costs?
Which cost flow method reports the most recent costs in Cost of Goods sold?
Which cost flow method assigns the same unit costs to all units available for sale?
Which cost flow method will result in higher net income in times of rising prices?
Which cost flow method will result in lower taxes in times of rising prices?
Do international accounting standards allow LIFO?
What is a cash equivalent?
Investments that are readily convertible to a known amount of cash.
Would a 6-month certificate deposit be included in Cash on the balance sheet?
What is an outstanding check?
A check written by a company but not yet presented to the bank for payment?
What is a deposit in transit?
A deposit recorded on the books but not yet shown on the bank statement.
What is an NSF check?
Non sufficient funds.
Do adjusting journal entries need to be made for all of the increases and decreases listed on the bank section or book section of bank reconciliation?
What 3 common items would be listed as increases or decreases to the bank statement balance on "Balance per Bank Statement" section of bank reconciliation?
Deposit on Transit, Outstanding Checks and Bank Errors.
Will all adjusting journal entries made from the bank reconciliation affect the cash account?
What is a control account?
The general ledger account that is supported by a subsidiary ledger.
What are 3 control accounts?
Accounts Receivable, Plant and Equipment, and Accounts Payable.
What is a subsidiary ledger?
The detail for a number of individual items that make up a single general ledger account. 500 from one person 600 from another if the general ledger was 1100.
What are 2 methods to account for bad debts?
Direct write off method and the Allowance method.
What is the equation for Net Realizable Value of Accounts Receivable?
Accounts Receivable - Allowance for Doubtful Accounts
What is the Weighted Average Method?
The inventory costing method that assigns the same unit cost to all units available for sale during the period.
What is the Specific Identification Method?
An inventory costing method that relies on matching unit costs with actual units sold.
What does FIFO stand for?
First in first out.
What does LIFO stand for?
Last in first out.
If ending inventory is overstated, then in the same year....
Net Income will be overstated, Assets will be overstated, and Retained Earnings will be overstated.
If beginning inventory is overstated, but ending inventory is correct, then in the same year....
Net income will be understated, Assets will be ok, and Retained Earnings will be ok.
If ending inventory is understated in 2011, but is correct in 2012, then in 2012....
Net income will be overstated, Assets will be ok, and Retained Earnings will be ok.
What are the two methods of Bad Debt Expense?
The Direct Write-off Method and The Allowance Method.
What are the two estimate approaches for the Allowance Method?
Income Statement approach, Balance Sheet approach.
What are the differences between the two estimate approaches?
The Income Statement approach focuses on Bad Debt Expense, is based on a percentage of credit sales, and the result of the percentage is the desired ending balance in the Bad Debt Expense account. The Balance Sheet approach focuses on uncollectible accounts, is based on a percentage of Accounts Receivable, and the result of the percentage is the desired ending balance in allowance for doubtful accounts.
What account would most likely appear on the income statement of a merchandise company, but not on the income statement of a service company?
Cost of Goods Sold.
Items should be reported as part of the company's "inventory" at year end, if they are:
Purchased from a creditor, available for sale, and paid for the following year.
What is the equation for Gross Profit?
Net Sales - Cost of Goods Sold
What is the equation for Net Income?
Gross Profit - Operating Expenses
What is the maturity time of a cash equivalent?
3 months or less.
What amount signals the Income Statement Approach?
Net Credit Sales
What amount signals the Balance Sheet Approach?
Recommended textbook explanations
Glencoe Accounting: First Year Course
David Spiceland, Don Herrmann, Wayne Thomas
Fundamental Financial Accounting Concepts
Alvin A Arens, Mark A Beasley, Randal J Elder
Loose-leaf for Managerial Accounting
Ray H Garrison
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