Ch 5-8 terms and formulas

Question 1

an attempt to deceive others for personal gain

Answer 1

fraud

Question 2

Terms of a loan agreement that if broken, entitle the lender or force repayment

Answer 2

loan covenants

Question 3

Actions taken to promote efficient and effective operations, protect assets, enhance accounting info, and adhere to laws and regulations

Answer 3

internal control

Question 4

assign each task to one employee

Answer 4

establish responsibility

Question 5

do not make one employee responsible for all parts of a process

Answer 5

segregate duties

Question 6

do not provide access to assets or info unless it is needed to fulfill assigned responsibilities

Answer 6

restrict access

Question 7

prepare documents to show activities that have occured

Answer 7

document process

Question 8

check other’s work

Answer 8

independently verify

Question 9

A process for approving and documenting all purchases and payment on account

Answer 9

Voucher system

Question 10

A process that controls the amount paid to others by limiting the total amount of money available for making payments to others

Answer 10

Imprest system

Question 11

And internal report prepared to verify the accuracy of both the bank statement and the cash accounts of a business or individual

Answer 11

Bank reconciliation

Question 12

Money or any instrument that banks will except for deposit and immediately credit to a company’s account

Answer 12

Cash

Question 13

Short term, high liquid investments purchased within three months of maturity

Answer 13

Cash equivalents

Question 14

Not available for general use but rather restricted for a specific person

Answer 14

Restricted cash

Question 15

Assets acquired for resell to customers

Answer 15

Inventory

Question 16

Cost of the goods sold formula

Answer 16

Beginning inventory plus purchases minus ending inventory

Question 17

Ending inventory formula

Answer 17

Beginning inventory plus purchases minus cost of goods

Question 18

Inventory records are updated periodically, at the end of the accounting period. To determine how much merchandise has been sold, periodic systems require that inventory be physically counted at the end of the period.

Answer 18

Periodic inventory system

Question 19

Inventory records are updated perpetually, every time inventory is bought, sold, or returned.

Answer 19

Perpetual inventory system

Question 20

The cost of inventory lost to theft, fraud, and error

Answer 20

Shrinkage

Question 21

A term of sale indicating that goods are owned by the buyer the moment they leave the sellers premises.

Answer 21

FOB shipping point

Question 22

A term of sale indicating that goods are owned by the seller until they are delivered to the buyer.

Answer 22

FOB destination

Question 23

A reduction in the cost of inventory purchases associated with unsatisfactory goods

Answer 23

Purchase returns and allowances

Question 24

A cash discount received for prompt payment of a purchase on account.

Answer 24

Purchase discount

Question 25

Refunds and price reduction's given to customers after goods have been sold and found unsatisfactory

Answer 25

Sales returns and allowances

Question 26

A sales price reduction given to customers for prompt payment of their account balance

Answer 26

Sales discount

Question 27

Present important subtitles, such as gross profit, to help distinguish core operating results from other, less significant items that affect net income

Answer 27

Multistep income statement

Question 28

Gross profit formula

Answer 28

Net sales minus cost of good sold.

Question 29

Gross profit is a – – –, not an account

Answer 29

Subtotal

Question 30

A ratio indicating the percentage of profit earn on each dollar of sales, after considering the cost of product sold

Answer 30

Gross profit percentage

Question 31

The inventory costing method that identifies the cost of the specific item that was sold

Answer 31

Specific identification

Question 32

Assumes that the costs of the first goods purchased are the costs of the first goods sold

Answer 32

First in, first out. FIFO

Question 33

Assumes that the costs of the last goods purchased are the costs of the first goods sold

Answer 33

Last in, first out. LIFO

Question 34

I know inventory costing assumption that uses the weighted average unit cost of the goods available for sell for both cost of goods sold and ending inventory

Answer 34

Weighted average cost

Question 35

A valuation rule that requires inventory to be written down when it's market value falls below its cost

Answer 35

Lower of cost or market

Question 36

The process of buying and selling inventory

Answer 36

Inventory turnover

Question 37

A measure of the average number of days from the time inventory is bought two the time it is sold

Answer 37

Days to sell

Question 38

Inventory turnover ratio formula

Answer 38

Cost of goods sold/average inventory

Question 39

Days to sell formula

Answer 39

365/inventory turnover ratio

Question 40

A promise that requires another party to pay the business according to a written agreement

Answer 40

Note receivable

Question 41

Amounts owed it to a business by its customers

Answer 41

Accounts receivable

Question 42

A method of accounting that reduces accounts receivable for an estimate of uncollectible accounts

Answer 42

Allowance method

Question 43

Reports that estimated amounts of this. His credit sales that customers will fail to pay

Answer 43

Bad debt expense

Question 44

The act of removing and uncollectible account and its corresponding allowance from the accounting records

Answer 44

Write off

Question 45

Estimates bad that based on the historical percentage of sales that lead to bad that losses

Answer 45

Percentage of credit sales method

Question 46

Estimates uncollectible accounts based on the age of each account receivable

Answer 46

Aging of accounts receivable method

Question 47

Estimated uncollectible percentage for 0 to 30 days

Answer 47

1%

Question 48

Estimated uncollectible percentage for 31 to 60 days

Answer 48

10%

Question 49

Estimated uncollectible percentage for 61 to 90 days

Answer 49

20%

Question 50

Estimated uncollectible percentage for over 90 days

Answer 50

40%

Question 51

Interest formula

Answer 51

Principal times interest rate times time

Question 52

The process of selling and collecting on account. determines the average number of times this process occurs during the period.

Answer 52

Receivables turnover

Question 53

A measure of the average number of days from the time a sale is made on account to the time it is collected

Answer 53

Days to collect

Question 54

Receivables turnover ratio

Answer 54

Net sales revenue/average net receivables

Question 55

Days to collect formula

Answer 55

365/receivables turnover ratio

Question 56

And arrangement where receivables are sold to another company for immediate cash

Answer 56

Factoring

Question 57

A non-GAAP alternative to the allowance method of accounting for uncollectible accounts

Answer 57

Direct write off method