acc test 2 Flashcards
What is the difference between a service business and a merchandising business?
A merchandising company engages in the purchase and resale of tangible goods. Service companies primarily sell services rather than tangible goods.
What are the main differences between periodic and perpetual inventory system?
A perpetual inventory system is constantly updated as each sale / order happens; AKA perpetually updating the data. A periodic inventory system is updated manually after each accounting period; AKA periodically updating the data
When is cost of
goods sold recorded under periodic and perpetual inventory system?
The periodic inventory system uses an occasional physical count to measure the level of inventory and the cost of goods sold.
What accounts are affected at
point of sale under perpetual inventory system
When you sell products in a perpetual inventory system, the expense account increases and grows the costs of sale
What accounts are affected and how (increase/decrease) when inventory sold on account under
perpetual system?
Sales Revenue is increased. In a perpetual system, when inventory is sold on account: Sales Revenue is increased and Accounts Receivable is decreased.
What is the difference between profit and gross income margin. Which one is generally
bigger?
Gross profit is the revenue a company has left after subtracting the cost of goods sold (COGS), while gross margin is the percentage of revenue that represents gross profit. Gross profit margin is bigger than profit margin
When prices are rising, what method (FIFO, LIFO) produce highest/smallest COGS and ending
inventory?
If prices are rising through the year, using the recent inventory LIFO method will result in a higher COGS and lower ending inventory value than with the FIFO method. Using the LIFO accounting method here would yield lower profits and lower taxable income.
What transactions makes accounts receivable account increase and decrease
To show an increase in accounts receivable, a debit entry is made in the journal. It is decreased when these amounts are settled or paid-off – with a credit entry.
What accounts belong to tangible long-term assets?
land, buildings, furniture and fixtures, machinery and equipment, and vehicles;
What accounts belong to intangible
long- term assets?
patents, copyrights, trademarks, trade names, franchise licenses, government licenses, goodwill, and other items that lack physical substance
What are the elements of the long-term assets
What is an accounting treatment for the regular repairs?
Ordinary repairs are simply recorded as expenses in the current accounting period, leaving the book value of the related fixed asset unchanged. Expenses are costs recorded on a company’s income statement in the period in which the cost is incurred.
What is the journal entry for
regular repairs?
In the journal entry, you would debit “Repair and Maintenance Expense” for $1,000 and credit “Cash” or “Accounts Payable” (depending on whether you’ve paid the expense or not yet) for $1,000.
What asset types are subject to depreciation?
You can depreciate most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment.
What asset types are subject to amortization?
Amortization applies to intangible (non-physical) assets
