Cash and cash equivalents

Question 1

Define working capital

Answer 1

Working capital is the excess of current assets over current liabilities

Question 2

Define current assets

Answer 2

Current assets consist of cash and other assets reasonable expected to be realized in cash or sold or consumed in operations within one year or an operating cycle, whichever is longer

Question 3

List 8 examples of current assets

Answer 3

1. cash (unrestricted)
2. marketable debt and equity securities
3. other short-term investments
4. accounts and notes receivables
5. trade installment receivables
6. inventories
7. other short-term receivables
8. pre-paid expense

Question 4

Define current liabilities

Answer 4

Current liabilities represent obligations whose liquidation is expected to require the use of current assets or the creation of other current liabilities

Question 5

What is the objective of the bank reconciliation?

Answer 5

to compare the cash balance per the company’s books with the cash balance per the bank statement for purposes of detecting any errors and identifying any needed adjustments to the cash account.

Question 6

The bank reconciliation consists of a schedule identifying the differences between the cash balance per the bank stmt and the cash balance per books. These differences can be categorized into 3 types. What are they?

Answer 6

1. bank errors
2. time lag differences
3. book errors

Question 7

What is the four-column bank reconciliation called?

Answer 7

proof of cash

Question 8

What are receivables?

Answer 8

claims against others for money, goods or services

Question 9

What are the 2 types of receivables?

Answer 9

1. trade receivables

2. non-trade, or other, receivables

Question 10

What are trade receivables?

Answer 10

they arise from the sale of goods and services

Question 11

What are the 2 principal types of trade receivables?

Answer 11

1. accounts receivable

2. notes receivable

Question 12

What are the 2 approaches to estimating uncollectible accounts?

Answer 12

1. income statement approach

2. balance sheet approach

Question 13

What is the income statement approach to estimating uncollectible accounts receivable?

Answer 13

This approach attempts to relate the amount of losses from uncollectible accounts to the amount of credit sales. The term stems from the fact that primary attention is focused on uncollectible accounts expense rather than on the net realizable value of the YE A/R

Question 14

What is the balance sheet approach to estimating uncollectible accounts receivable?

Answer 14

This approach emphasizes the net realizable value of AR at the end of the period rather than the amount of uncollectible accounts expense

Question 15

What are the 2 most common forms of the balance sheet approach to estimating uncollectible accounts receivable?

Answer 15

1. Percentage of outstanding AR

2. aging of AR

Question 16

What is the percentage of outstanding AR form?

Answer 16

bases the accounting for uncollectible accounts on an estimate of the percentage of year-end AR that will prove to be uncollectible. Percentage is based on previous experience

Question 17

What is the aging of accounts receivable form?

Answer 17

requires the enterprise to set up an aging schedule. The aging schedule identifies how long each account has been outstanding and relates the likelihood of collection to the age of the receivable

Question 18

What is pledging (AR)?

Answer 18

a process by which receivables are pledged as collateral for a loan

Question 19

A manufacturing concern usually has 3 types of inventories. What are they?

Answer 19

1. finished goods
2. work in process
3. raw materials and supplies

Question 20

What is the primary basis of accounting for inventories?

Answer 20

cost, which is the cash equivalent of the expenditures necessarily incurred to bring the items to the condition and location necessary for their intended use.

Question 21

What are the 4 cost flows for inventory?

Answer 21

1. first-in, first out FIFO
2. average
3. last-in, first-out LIFO
4. specific identification

Question 22

For inventory of a merchandising concern, what is included in the net purchase price?

Answer 22

indirect acquisition costs such as freight-in and handling. FASB ASC 330-10-30-7 specifies that abnormal amounts of freight-in and handling must be treated as period changes rather than inventory costs

Question 23

In a practical matter, how are the normal portion of indirect costs such as freight in and handling treated?

Answer 23

as a period cost rather than inventory

Question 24

What costs are included in the work-in-process and finished goods inventory?

Answer 24

applicable materials, labor costs and representative share of the manufacturing overhead costs

Question 25

How does FASB ASC 330-10-30-3 specify the allocation of fixed manufacturing overhead to inventory?

Answer 25

base on the normal capacity of the production facilities

Question 26

How are selling expenses recorded?

Answer 26

as a period charge not inventory cost

Question 27

What 3 conditions must be present in order to capitalize interest expense?

Answer 27

1. expenditures for the asset have been made
2. activities that are necessary to get the asset ready for its intended use are in progress
3. interest cost is being incurred

Question 28

When does the capitalization of interest end?

Answer 28

when the asset is substantially complete and ready for its intended use

Question 29

At the balance sheet date, how should goods in transit shipped FOB shipping point be recorded?

Answer 29

included in the inventory of the buyer

Question 30

At the balance sheet date, how should goods in transit shipped FOB destination point be recorded?

Answer 30

included in the inventory of the seller

Question 31

How should the goods out on consignment be counted for inventory purposes?

Answer 31

in the inventory of the consignor.

Question 32

What are the 2 general inventory systems?

Answer 32

1. periodic

2. perpetual

Question 33

What is the periodic inventory system?

Answer 33

units and costs (ending inventory and COGS) are determined at the end of the period based on physical count of inventory

Question 34

What is the perpetual inventory system?

Answer 34

1. units ad costs are accounted for on a perpetual basis. Inventory subsidiary ledger is kept in agreement with the controlling inventory ledger account on a continuous basis
2. units are only accounted for on a perpetual basis, but costs (ending inventory and COGS) are determined only at the end of the period

Question 35

Under IFRS IAS 2, what cost flow system is not permitted?

Answer 35

LIFO

Question 36

Which inventory cost flow method comes closes to matching current costs against current revenues?

Answer 36

LIFO

Question 37

Which inventory cost flow method results in inventory being stated in terms of oldest costs?

Answer 37

LIFO

Question 38

In periods of rising prices, which inventory cost flow method will produce smaller inventory costs and larger COGS?

Answer 38

LIFO

Question 39

In periods of declining prices, which inventory cost flow method will produce smaller inventory costs and larger COGS?

Answer 39

FIFO

Question 40

In periods of rising prices, which inventory cost flow method will produce larger inventory costs and smaller COGS?

Answer 40

FIFO

Question 41

In periods of declining prices, which inventory cost flow method will produce larger inventory costs and smaller COGS?

Answer 41

LIFO