chapter 6 and 7 test

Question 1

cash equivalent

Answer 1

an investment that is readily convertible to a known amount of cash and has an original maturity to the investor of three months or less

Question 2

bank statement

Answer 2

a detailed list, provided by the bank, of all activity for a particular account during the month

Question 3

outstanding check

Answer 3

a check was written by a company but not yet presented to the bank for payment

Question 4

deposit in transit

Answer 4

a deposit recorded on the books but not yet reflected on the bank statement

Question 5

bank reconciliation

Answer 5

a form used by the accountant to reconcile or resolve any differences between the balances shown on the bank statement for a particular account with the balance shown in the accounting records

Question 6

credit memoranda

Answer 6

additions on a bank statement for such items as interest paid on the account and notes collected by the bank for the customer

Question 7

debit memoranda

Answer 7

deductions on a bank statement for items such as NSF checks and various service charges

Question 8

internal control system

Answer 8

policies and procedures necessary to ensure the safeguarding of an entity’s assets, the reliability of its accounting records, and the accomplishments of overall company objectives

Question 9

Sarbanes-Oxley Act

Answer 9

an act of congress in 2002 intended to bring reform to corporate accountability and stewardship in the wake of a number of major corporate scandals

Question 10

internal control report

Answer 10

a report in which management assesses the effectiveness of the internal control structure

Question 11

Public Company Accounting Oversight Board

Answer 11

the five-member body created by the Sarbanes-Oxley Act that was given the authority to set auditing standards in the US

Question 12

Board of Directors

Answer 12

a group composed of key offices of a corporation and outside members responsible for general oversight of the affairs of the entity

Question 13

audit committee

Answer 13

a board of directors subset that acts as a direct contact between the stockholders and the independent accounting firm

Question 14

purchase requisition form

Answer 14

a form a department uses to initiate a request to order merchandise

Question 15

purchase order

Answer 15

a form sent by the purchasing department to the supplier

Question 16

invoice

Answer 16

a form sent by the seller to the buyer as evidence of a sale

Question 17

blind receiving report

Answer 17

a form used by the receiving department to account for the quantity and condition of merchandise received from a supplier

Question 18

invoice approval form

Answer 18

a form that shows the accuracy of all information about a purchase

Question 19

accounts receivable

Answer 19

a receivable arising from the sale of goods or services with a verbal promise to pay

Question 20

subsidiary ledger

Answer 20

the details of items that make up a general ledger account

Question 21

control account

Answer 21

the general ledger account that is supported by the subsidiary ledger

Question 22

net realizable value

Answer 22

the amount a company expects to collect on an account receivable

Question 23

direct write-off method

Answer 23

the recognition of bad debts expense at the point an account is written off as uncollectible

Question 24

allowance method

Answer 24

a method of estimating bad debts on the basis of either the net credit sales of the period or the accounts receivable at the end of the period

Question 25

allowance for bad debts

Answer 25

a contra-asset account used to reduce accounts receivable to its net realizable value

Question 26

aging schedule

Answer 26

a form used to categorize the various individual accounts receivable according to the length of time each has been outstanding

Question 27

accounts receivable turnover ratio

Answer 27

a measure of the number of times accounts receivable is collected during the period

Question 28

how to calculate the accounts receivable turnover ratio?

Answer 28

(net credit sales) / (average accounts receivable) = accounts receivable turnover ratio

Question 29

promissory note

Answer 29

a written promise to repay a definite sum of money on demand or at a fixed or determinable date in the future

Question 30

maker

Answer 30

the party that agrees to repay the money for a promissory note at some future date

Question 31

payee

Answer 31

the party that will receive the money from a promissory note at some future date

Question 32

note receivable

Answer 32

an asset resulting from the acceptance of a promissory note from another company

Question 33

note payable

Answer 33

a liability resulting from the signing of a promissory note

Question 34

principal (for promissory notes)

Answer 34

the amount of cash received, or the fair value of the products or services received, by the maker when a promissory note is issued

Question 35

maturity date (for promissory notes)

Answer 35

the date the promissory note is due

Question 36

term (for promissory notes)

Answer 36

the length of time between the date the promissory issued and the date it matures

Question 37

maturity value (for promissory notes)

Answer 37

the amount of cash the maker is to pay the payee on the maturity date of the note

Question 38

interest (for promissory notes)

Answer 38

the difference between the principal value of the note and its maturity value

Question 39

discounting (for promissory notes)

Answer 39

the process of selling a promissory note

Question 40

equity securities(stocks)

Answer 40

securities issued by corporations and governmental bodies as a form of borrowing

Question 41

debt securities(bonds)

Answer 41

securities issued by corporations or governmental bodies as a form of borrowing

Question 42

formula for interest

Answer 42

(principal) x (interest rate) x (time) = interest