Chapter 5-7

Question 1

Contra revenue

Answer 1

is a deduction from the gross revenue reported by a business, which results in net revenue. Contra revenue transactions are recorded in one or more contra revenue accounts, which usually have a debit balance (as opposed to the credit balance in the typical revenue account).Mar 5, 2013

Question 2

Periodic Inventory System

Answer 2

s a system of inventory in which updates are made on a periodic basis. This differs from perpetual inventory systems, where updates are made as seen fit. In a periodic inventory system no effort is made to keep up-to-date records of either the inventory or the cost of goods sold.

Question 3

What is the cost of goods sold?

Answer 3

The direct costs attributable to the production of the goods sold by a company. This amount includes the cost of the materials used in creating the good along with the direct labor costs used to produce the good. It excludes indirect expenses such as distribution costs and sales force costs.

Question 4

perpetual inventory system

Answer 4

updates inventory accounts after each purchase or sale. Inventory subsidiary ledger is updated after each transaction. Inventory quantities are updated continuously. Periodic Inventory System. Periodic inventory system records inventory purchase or sale in “Purchases” account.

Question 5

Gross Profit

Answer 5

updates inventory accounts after each purchase or sale. Inventory subsidiary ledger is updated after each transaction. Inventory quantities are updated continuously. Periodic Inventory System. Periodic inventory system records inventory purchase or sale in “Purchases” account.

Question 6

profit margin

Answer 6

the amount by which revenue from sales exceeds costs in a business.

Question 7

gross profit rate

Answer 7

A financial metric used to assess a firm’s financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold.

Question 8

purchase discount

Answer 8

is an offer from the supplier to the purchaser, to reduce the sellinis made within a certain period of time. For example, a purchaser brought a $100 item, with a purchase discount term 3/10, net 30. If he pays within 10 days, he will only need to pay $97.

Question 9

purchase return

Answer 9

A purchase return occurs when a buyer returns merchandise that it has purchased from a supplier.

Question 10

sales discount

Answer 10

A sales discount is an incentive the seller offers in exchange for prompt payment on credit sales. Sales discounts are recorded in another centra‐revenue account, enabling management to monitor the effectiveness of the company’s discount policy.

Question 11

sales invoice

Answer 11

An invoice, bill or tab is a commercial document issued by a seller to a buyer, relating to a sale transaction and indicating the products, quantities, and agreed prices for products or services the seller had provided the buyer. Payment terms are usually stated on the invoice.

Question 12

sales returns and allowances

Answer 12

Sales returns occur when customers return defective, damaged, or otherwise undesirable products to the seller. Sales allowances occur when customers agree to keep such merchandise in return for a reduction in the selling price.

Question 13

sales revenue

Answer 13

In business, revenue or turnover is income that a company receives from its normal business activities, usually from the sale of goods and services to customers. In many countries and states, revenue is referred to as turnover.

Question 14

average cost method

Answer 14

Under the ‘Average Cost Method’, it is assumed that the cost of inventory is based on the average cost of the goods available for sale during the period. The average cost is computed by dividing the total cost of goods available for sale by the total units available for sale.

Question 15

first-in, first out (FIFO) method

Answer 15

The First-in, First-out Method (FIFO) FIFO Inventory Method. The first in, first out (FIFO) method of inventory valuation is a cost flow assumption that the first goods purchased are also the first goods sold.

Question 16

last-in, first out (LIFO) method

Answer 16

The last in, first out (LIFO) method is used to place an accounting value on inventory. The LIFO method operates under the assumption that the last item of inventory purchased is the first one sold.

Question 17

days in inventory

Answer 17

The calculation of the days’ sales in inventory is: the number of days in a year (365 or 360 days) divided by the inventory turnover ratio. For example, if a company had an inventory turnover ratio of 9, the company’s inventory turned over 9 times during the year.

Question 18

inventory turnover

Answer 18

The calculation of the days’ sales in inventory is: the number of days in a year (365 or 360 days) divided by the inventory turnover ratio. For example, if a company had an inventory turnover ratio of 9, the company’s inventory turned over 9 times during the year.

Question 19

cash

Answer 19

money in coins or notes, as distinct from checks, money orders, or credit.

Question 20

fraud

Answer 20

wrongful or criminal deception intended to result in financial or personal gain.

Question 21

internal auditors

Answer 21

nternal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations.

Question 22

What is Sarbanes-oxley act

Answer 22

An act passed by U.S. Congress in 2002 to protect investors from the possibility of fraudulent accounting activities by corporations. The Sarbanes-Oxley Act (SOX) mandated strict reforms to improve financial disclosures from corporations and prevent accounting fraud.

Question 23

what is Voucher system

Answer 23

A school voucher, also called an education voucher, with the system overall being called the voucher system, is a certificate of funding issued by the government, which the parents of a schoolchild have control of and are able to direct towards the public or private school of their own choosing to fully or partially …

Question 24

cash equivalents

Answer 24

Cash equivalents are one of the three main asset classes, along with stocks and bonds. These securities have a low-risk, low-return profile. Cash equivalents include U.S. government Treasury bills, bank certificates of deposit, bankers’ acceptances, corporate commercial paper and other money market instruments.

Question 25

what is fraud triangle

Answer 25

The Fraud triangle is a framework designed to explain the reasoning behind a worker’s decision to commit workplace fraud. The three stages, categorised by the effect on the individual, can be summarised as pressure, opportunity and rationalisation.

Question 26

internal control

Answer 26

Internal control, as defined in accounting and auditing, is a process for assuring achievement of an organization’s objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies.

Question 27

what is a voucher

Answer 27

A voucher is often a prenumbered form used in the accounts payable department to standardize and enhance a company’s internal control over payments to its vendors and service providers. A voucher is usually prepared after a vendor’s invoice has been matched with the company’s purchase order and receiving report.