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Survey of Accounting > Chapter 3 > Flashcards

Chapter 3 Flashcards

1
Q

merchandising business

A

generate revenue by selling goods
the goods purchased for resale

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2
Q

net income is

A

revenue minus expenses

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3
Q

accounts payable

A

money a company owes

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4
Q

inventory transactions

A

purchase and sell
transportation/ shipping cost, discounts

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5
Q

cost of sales

A

indicates how much a retail or wholesale business spends on the products it purchases from suppliers for resale.

new vehicle, used vehicle

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6
Q

gross profit

A

total cost of sales

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7
Q

selling and administrative costs

A

costs not included in inventory sometimes called period costs

SG&A often includes rent, utilities, legal fees and insurance.

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8
Q

balance sheet holds the

A

inventory which is sold, becoming cost of sales (selling price) on the income statement

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9
Q

perpetual inventory system

A

inventory is perpetually (continuously) throughout the accounting period

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10
Q

inventory increased for

A

merchandise/ purchased

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11
Q

inventory decreased for

A

merch sold

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12
Q

purchasing inventory often involves (4)

A

1) return inventory or receiving purchase allowances
2) taking purchase discounts
3) incurring transportation costs
4) recognizing inventory shrinkage
- a deduction from the invoice price granted

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13
Q

FOB

A

Free on Board
shipping point or destination
- transport-in: FOB shipping point, pay transportation
- transportation-out: FOB destination means seller is responsible for the freight cost
- Freight cost: the amount paid to a carrier company for the transportation of goods from the point of origin to an agreed location.

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14
Q

merchandising business include

A

retail companies and wholesale companies to sell merchandise inventory

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15
Q

merchandise inventory is an

A

asset

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16
Q

manufactures may not have high margins that is the

A

dealer

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17
Q

inventory costs are

A

product costs
- price of goods purchased
- handling and shipping costs
- transit insurance

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18
Q

costs not included in inventory are

A

selling and administrative costs

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19
Q

asset account:
expense account:

A

merchandise inventory
costs of goods sold

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20
Q

difference between sales revenue and cost of goods sold is

A

gross margin or gross profit

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21
Q

modern companies record their inventory through the

A

perpetual inventory system

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22
Q

gross margin percentage is found by

A

total revenue - cost of goods sold = gross margain

gross margin - all other expenses = operating income (net income)

(total revenue - COGS)/ net sales x 100

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23
Q

find return on sales %

A

operating profit/ net sales

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24
Q

signature card

A

signatures of the people authorized to sign checks

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25
Q

bank statement

A

checking accounts- report the beginning balance, additions for customer deposits, subtractions for the payment of checks

bank statement debit memos; describe transactions that reduce the customer account balance (bank liability)

bank statement credit memos; describe activities that increase customers account balance (banks liability)

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26
Q

bank reconciliation

A

explain the differences between the cash balance from the bank statement and the cash balance recorded in the depositors accounting records

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27
Q

begins with unadjusted bank balance:

A

the cash balance recorded by the recorded by the bank

final total is the true cash balance

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28
Q

the true cash balance

A

add current non-cash assets together and subtract from the total current assets

TCB= non-cash assets - total current assets

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29
Q

The American Institute of Certified Public Accountants (AICPA)

A

requires members to comply with the code of professional conduct

not including control domain

30
Q

audits conducted by Certified Public Accountants (CPA)

A

In an audit, a CPA is required to obtain an understanding of a business’s internal control and assess fraud risk.

31
Q

financial statement audit, types of audit opinions

A

unqualified opinion : An unqualified report concludes that the financial statements of a company are fair and transparent based on thorough research

adverse opinion : An adverse opinion states that the financial statements do not present fairly the financial position, results of operations, or cash flows of the entity in conformity with generally accepted accounting principles.

qualified opinion : an auditor’s declaration that there is an area of uncertainty in a company’s financial statements.

32
Q

outstanding check

A

a written check that hasn’t been cleared by the bank

33
Q

deposit in transit

A

money that has been received by the company and recorded in the company’s system

34
Q

true cash balance =

A

unadjusted bank balance + the deposit in transit - outstanding checks

35
Q

NSF

A

non-sufficient funds
banks refuse payment because the customer doesn’t have enough in that account

36
Q

COSO’s framework

A

Control Environment; the integrity and ethical values the company has

Risk Assessment; monuments process of identifying potential risks in misted financial statements

Control Activities; “internal controls, segregation of duties”

Information and Communication; the internal and external reporting process

monitoring; assessing companies quality and watching overtime

37
Q

The fraud Triangle is the concept that explains why workers commit fraud at a workplace this consists of;

A

opportunity, pressure, rationality

38
Q

the “book”=

A

cash account

39
Q

separation of duties include

A

authorization, recording, and custody of assets

40
Q

cash is important because

A

its difficult to prove to rightful owner, has a universal appeal, and small quantities can hold a lot

41
Q

human error is a common cause of

A

internal failure

42
Q

in a checking account it reports

A

customer deposits made during the period
checks paid during the period
bank accounts beginning balance

43
Q

cash is; checks,

A

money orders, bank drafts, and certain saving accounts

44
Q

materiality

A

The materiality concept of accounting guides the recognition of a transaction. It means that transactions of little importance should not be recorded. A transaction may be recorded, but its relevance and significance should be kept in mind. For example, a newly purchased pencil is an asset of the business.

45
Q

account receivable
notes receivable
are both…

A

buy now, pay later, usually short periods of time, not a lot of money

longer period, bigger amount of money, involves interest

are both assets

46
Q

net realizable value of accounts receivable

A

represents the amount of receivables a company will actually collect

the face value less an allowance for doubtful accounts is equal to the net realizable value of the receivables.

47
Q

allowance for doubtful accounts
what are the two accounts?
% of

A

estimate of what they don’t collect (uncollectables)

percentage of sales/ revenue (income statement approach)

percentage of accounts receivable (balance sheet approach)

48
Q

net realizable value =

A

accounts receivable - allowance for doubtful accounts

49
Q

when uncollectible accounts are estimated

A

there is a better change of matching revenues and expenses
the balance sheet reports the amount of cash the company expects to collect

50
Q

bad debts expense

A

estimated uncollectible accounts expense

51
Q

writing off uncollectible accounts is an

A

asset source transaction

52
Q

FIFO

A

first-in, first-out
highest gross margain

53
Q

LIFO

A

last-in, first out

54
Q

Weighted average

A

average

55
Q

beginning inventory + purchase = goods available to sell - cost of goods sold

A

= ending inventory

56
Q

tangible resources include

A

property, equipment, natural resources

57
Q

historical cost concept

A

an asset must be recorded at the amount paid for it
this amount includes the purchase plus any costs necessary to get the asset in the location and condition for its intended use

once the asset is recorded at its original cost on the balance sheet, it cannot be adjusted for any changes in its market value.

58
Q

straight line depreciation expense=

A

use up asset as your making revenue

(asset cost - salvage value) / useful life

59
Q

salvage value

A

expected market value of a fully depreciated asset

60
Q

straight line method

A

same amount of depreciation expense each period

(cost - salvage value) / useful life = depreciation expense

61
Q

double-declining balance

A

an accelerated method, produces more depreciation expense in the early years of an assets life and declining expense later

1/useful life x 2 = DDB rate

BV of asset BOY x DDB rate = depreciation expense

62
Q

units of production

A

varying amounts of depreciation expense in different accounting periods

cost - salvage value / useful life in units = units of production

UoP rate x actual usage each year = depreciation expense

63
Q

to calculate depreciation you need;

A

cost of the asset
useful life
any salvage

64
Q

double-declining balance depreciation;

A

straight line rate percentage (1 / useful life) x 2 = DDB rate

65
Q

promissionary note

A

legally documented credit agreements to settle potential disputes about payment terms like credit on a recently passed due account

maker, payee, principle, interest, maturity date, collateral

66
Q

aging of accounts receivable

A

the longer an account is pasted due the less likely it will be paid

67
Q

promissionary note; collateral

A

assets belonging to the maker that are assigned as security to ensure that the principle and interest will be paid when due

68
Q

2/10 n/30

what is the discount? what are the days?

A

2% discount

A buyer will receive a 2% discount on the net amount if they pay the invoice in full within the first ten days of the invoice date. Otherwise, the full invoice amount is due in 30 days without a discount.

69
Q

the inventory cost flow methods are;

A

LIFO, FIFO, Weighted Average

70
Q

To determine the depreciation expense you

A

depreciation cost - salvage value

71
Q

The recognition of depreciation expense acts to:

A

Decrease assets and stockholders’ equity, and does not affect cash flow

72
Q

What term is used to describe the situation where there is a permanent decline in the value of an intangible asset

A

impairment`

Survey of Accounting (3 decks)

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