Ch 5-8 terms and formulas Flashcards
an attempt to deceive others for personal gain
fraud
Terms of a loan agreement that if broken, entitle the lender or force repayment
loan covenants
Actions taken to promote efficient and effective operations, protect assets, enhance accounting info, and adhere to laws and regulations
internal control
assign each task to one employee
establish responsibility
do not make one employee responsible for all parts of a process
segregate duties
do not provide access to assets or info unless it is needed to fulfill assigned responsibilities
restrict access
prepare documents to show activities that have occured
document process
check other’s work
independently verify
A process for approving and documenting all purchases and payment on account
Voucher system
A process that controls the amount paid to others by limiting the total amount of money available for making payments to others
Imprest system
And internal report prepared to verify the accuracy of both the bank statement and the cash accounts of a business or individual
Bank reconciliation
Money or any instrument that banks will except for deposit and immediately credit to a company’s account
Cash
Short term, high liquid investments purchased within three months of maturity
Cash equivalents
Not available for general use but rather restricted for a specific person
Restricted cash
Assets acquired for resell to customers
Inventory
Cost of the goods sold formula
Beginning inventory plus purchases minus ending inventory
Ending inventory formula
Beginning inventory plus purchases minus cost of goods
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.
Periodic inventory system
Inventory records are updated perpetually, every time inventory is bought, sold, or returned.
Perpetual inventory system
The cost of inventory lost to theft, fraud, and error
Shrinkage
A term of sale indicating that goods are owned by the buyer the moment they leave the sellers premises.
FOB shipping point
A term of sale indicating that goods are owned by the seller until they are delivered to the buyer.
FOB destination
A reduction in the cost of inventory purchases associated with unsatisfactory goods
Purchase returns and allowances
A cash discount received for prompt payment of a purchase on account.
Purchase discount
Refunds and price reduction’s given to customers after goods have been sold and found unsatisfactory
Sales returns and allowances
A sales price reduction given to customers for prompt payment of their account balance
Sales discount
Present important subtitles, such as gross profit, to help distinguish core operating results from other, less significant items that affect net income
Multistep income statement
Gross profit formula
Net sales minus cost of good sold.
Gross profit is a – – –, not an account
Subtotal
A ratio indicating the percentage of profit earn on each dollar of sales, after considering the cost of product sold
Gross profit percentage
The inventory costing method that identifies the cost of the specific item that was sold
Specific identification
Assumes that the costs of the first goods purchased are the costs of the first goods sold
First in, first out. FIFO
Assumes that the costs of the last goods purchased are the costs of the first goods sold
Last in, first out. LIFO
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
Weighted average cost
A valuation rule that requires inventory to be written down when it’s market value falls below its cost
Lower of cost or market
The process of buying and selling inventory
Inventory turnover
A measure of the average number of days from the time inventory is bought two the time it is sold
Days to sell
Inventory turnover ratio formula
Cost of goods sold/average inventory
Days to sell formula
365/inventory turnover ratio
A promise that requires another party to pay the business according to a written agreement
Note receivable
Amounts owed it to a business by its customers
Accounts receivable
A method of accounting that reduces accounts receivable for an estimate of uncollectible accounts
Allowance method
Reports that estimated amounts of this. His credit sales that customers will fail to pay
Bad debt expense
The act of removing and uncollectible account and its corresponding allowance from the accounting records
Write off
Estimates bad that based on the historical percentage of sales that lead to bad that losses
Percentage of credit sales method
Estimates uncollectible accounts based on the age of each account receivable
Aging of accounts receivable method
Estimated uncollectible percentage for 0 to 30 days
1%
Estimated uncollectible percentage for 31 to 60 days
10%
Estimated uncollectible percentage for 61 to 90 days
20%
Estimated uncollectible percentage for over 90 days
40%
Interest formula
Principal times interest rate times time
The process of selling and collecting on account. determines the average number of times this process occurs during the period.
Receivables turnover
A measure of the average number of days from the time a sale is made on account to the time it is collected
Days to collect
Receivables turnover ratio
Net sales revenue/average net receivables
Days to collect formula
365/receivables turnover ratio
And arrangement where receivables are sold to another company for immediate cash
Factoring
A non-GAAP alternative to the allowance method of accounting for uncollectible accounts
Direct write off method
