chapter 6: reporting and interpreting sales revenue, receivables, and cash Flashcards

1
Q

what is the free on board shipping point

A

title of the product changes hands to customer once its ships

customer usually pays for shipping

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2
Q

what is the free on board destination point

A

title of the product changes hands to customer once its arrived at the destination

customer usually pays for shipping

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3
Q

revenues for FOB shipping point are recognized when?

A

upon shipping

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4
Q

revenues for FOB destination point are recognized when?

A

upon delivery

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5
Q

credit card discount

A

the fee that credit card companies will charge once a sale is made

you gotta take it off from the recognized revenue

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6
Q

what does n/30 mean?

A

the full amount of the invoice is due in max 30 days

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7
Q

what is a sales ( or cash ) discount?

A

a discount that will encourage the customer to buy live or before the full invoice is due

for ex: 90/10, you get gyu 90% discount

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8
Q

what us the advantage of a sales ( or cash ) discount?

A

cash gets to company faster, hence they don’t need loans or additional funds to buy shit

since customer pays earlier, decreases the chances of the subject to be broke all of a sudden and not be able to pay

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9
Q

where does the discount go in the A = L + SE equation?

A

it becomes negative in the SE section

it debits from the retained earnings

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10
Q

how do you calculate the interest rate?

A

amount saved / amount paid = interest for the difference of day limits (of discount and full invoice payment)

interest rate per day: you divide by whatever amount the difference per day was

interest day per year: you multiply the interest rate per day by 365

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11
Q

sales returns and allowances

A

reduction of gross sale revenues because of returns or allowances of deg products

costs of sales are also reduced

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12
Q

what is the gross profit percentage

how do you calculate it?

what does it measure?

A

to find how effective management is at selling goods and services for more than the costs of sales

gross profit / net sales

how many dollars of profit were produced per dollar of net sales

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13
Q

what are trade receivables?

A

open accounts owed to the business by trade customers

happens when there is a sale of merchandise on credit

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14
Q

what is a non trade receivable

A

a transaction other than a normal selling transaction

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15
Q

what is a note receivable and what does it contain

A

written promise that requires another party ti pay the business under specific conditions

must include a principal

must include a maturity date

a specified amount of integers true at one or more future dates

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16
Q

what is a principal

A

a specified amount of money on a note receivable

17
Q

what is a maturity date

A

specified amount of interest at one or more future dates

18
Q

what is the allowance method?

what are the steps in apllying this method?

A

bases bad debt expense on an estimate of uncollectible accounts

1, estimating and recording bad debts expense

  1. writing off specific accounts determined to be uncollectible during the period
19
Q

what is a bad debt expense?

where do you record it, or how?

A

expense associated with estimated uncollectible accounts receivable

accounts receivable that cannot be collected

recorded through an adjusting journal entry at end of accounting period

20
Q

if bad debt expenses is considered as a debited expense, what does it do to the Net earnings and SE?

A

it decreases both of them

21
Q

which account does the credit to match the bad debt expense go to?

A

the allowance for doubtful accounts account

22
Q

what is the allowance for doubtful accounts?

A

contra asset account

contains estimated estimated uncollectible accounts receivable

it is always taken off from the assets if recorded as an expense

debited in assets when cancelling AR

23
Q

what are the steps for the whole bad debts process

A
  1. record estimated bad debts adjust adjustment

2, identify and write off actual bad debts

  1. record recovery¡y of bad debts that were previously written off
24
Q
  1. record estimated bad debts adjust adjustment

when is it recorded?

which accounts affected?

what happens to accounts in financial statements ?

A

recorded at the end of period in which sales are made

bad debt expense (E)
allowance for doubtful accounts (XA)

net earnings decrease
assets decrease

25
Q

2, identify and write off actual bad debts

when is it recorded?

which accounts affected?

what happens to accounts in financial statements ?

A

throughout period as bad debts are known

Allowance for doubtful accounts (XA)
Accounts receivable

net earnings have no effect
assets have no effect (they cancel out)

26
Q
  1. record recovery¡y of bad debts that were previously written off

when is it recorded?

which accounts affected?

what happens to accounts in financial statements ?

A

throughout the period as bad debts are recovered

Accounts receivable
allowance of doubtful accounts (XA)
Cash
Accounts receivable

net earnings have no effect
assets decrease
Cash increases (they cancel out den)

27
Q

what is the aging of accounts receivable method

A

estimates uncollectible accounts based on the age of each account receivable

28
Q

what is the receivables turnover ratio used for

how is it calculated?

A

to assess effectiveness of overall credit granting and collection activities

reflects how many times average accounts receivable are recorded and collected during the period

the higher the ratio, the faster the collection of receivables

net credit sales / average net accounts receivable

average net accounts receivable = (beginning + end) / 2

29
Q

what is the average collection period?

how do you calculate it

A

to check how many days are needed to turn accounts receivable over once?

365 / receivables turnover ratio

30
Q

what does the term internal control refer to?

A

the process by which the board of directors, management, and other personnel provide reasonable assurance regarding the reliability of the company’s financial reporting, effectiveness and efficiency of operations, and if it respects rules.

31
Q

what is cash?

A

money or any instrument that banks will accept for deposit and immediate credit to the company’s account

cheque, money order , bank draft

32
Q

what are cash equivalents?

A

short term, highly liquid investments that are readily convertible to known amounts of cash

they are subject to insignificant amount risk or change in value

bank certificates of deposit

treasury bills issued by big G to finance activities

33
Q

what is a bank statement

A

provided by a bank to a company

lists each despot recorded by the bank during the period

each cheque cleared by the bank during the period

other debits and credits

running balance in the company’s accounts

34
Q

what is a bank reconciliation

A

process of verifying the accuracy of both the bank statement and the cash accounts of a business

35
Q

what are the most common causes of differences between ending cash balances of bank statement and cash accounts?

A

bank service charges

NSF cheques (bad cheque)

interest

deposits in transit (cash deposits not yet recorded by bank)

outstanding cheques ( cheques that credit on cash accounts but not recorded in bank statement)

errors

36
Q

what is the completed contract method?

A

records revenue when the product is completed and delivered to customers

37
Q

what is the percentage completion method?

A

records revenues based on a reliable measure of the percentage of work completed

38
Q

what is the zero profit method?

A

records revenue that is equal tot eh actual costs incurred during the accounting period

39
Q

what must be written on note receivable?

A

a specified amount of money (a principal) due at a certain maturity date

a specified amount of interest at one or future dates