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acct > exam 2 > Flashcards

exam 2 Flashcards

1
Q

credit sales

A

company provide services to customers on account
- informal credit agreement supported by invoice

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2
Q

invoice

A

document that identifies date of sale, the customers, and specific item sold, dollar amount, and payment term

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3
Q

benefits of extending credit

A
  1. convenient for buyers to purchase goods
  2. increase profitability of the company
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4
Q

Costs of extending credit

A
  1. customer may not end up paying
  2. reduce operating efficiency
  3. lower profitability
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5
Q

nontrade receivable

A

originate from sources other than customers
- ex:
- tax refund claim
- interest receivable
- stockholder equity

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6
Q

note receivable

A

receivable from a formal credit arrangement made with written debt notes

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7
Q

net revenue

A

total revenue - amounts of returns, allowance, and discounts

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8
Q

trade discounts

A

represent reduction in the listed price of good or services
ex: 20% trade discount for buying bulks

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9
Q

sale returns

A

returned goods from previous purchase

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10
Q

contra revenue account

A

account w a balance that is opposite of revenue account
ex:
sale return, discount, allowance

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11
Q

sale allowance

A

seller initiate price reductions to customer account due to problem with the buyer’s order
(partial refund)

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12
Q

sale discount

A

reduction in amount to be received from a credit customer if collection occurs within a period of time
ex: 2/10 = 2%

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13
Q

discount terms

A

short hand way to communicate amount of discount and time period
ex: 2/10
2% discount if paid in 10 days

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14
Q

Bad debt (uncollectible) accounts

A

customers account receivable that is no longer expected to be collected
“bad debt”

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15
Q

upside of extending credit

A

boost sales

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16
Q

downside of extending credit

A

not all customer will pay it back

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17
Q

allowance method

A

method to estimate the amount the company expects will be uncollectible
- GAAP required
- report as contra asset to account receivable in balance sheet

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18
Q

Step 1 of allowance method

A
  1. establish an allowance for uncollectible account

ex:
account receivable: 6000
estimate to be uncollected: 50% (so 3000)

bad debt expense DR
allowance uncollectible CR

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19
Q

allowance for uncollectible account

A

contra asset account that represent amount of account receivable not expected to be collected

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20
Q

net accounts receivable

A

total account receivable - allowance uncollectible

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21
Q

bad debt expense

A

represent cost of estimated future bad debts that is reported as an expense in current year

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22
Q

Step 2 of allowance method

A
  1. writing off account receivable

allowance uncollectible DR
account receivable CR
- no change in net receivable or total asset (cuz we already estimated it)

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23
Q

collecting account receivable that was written off

A

account receivable DR
allowance uncollectible CR
cash DR
account receivable CR

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24
Q

Step 3 of allowance method

A
  1. adjusting the allowance in subsequent year
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25
Q

percentage-of-receivable method

A

method of estimating uncollectible account based on the percentage of account receivable expected to not be collected

  • base estimate of bad debts in balance sheet
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26
Q

aging method

A

base estimate of future bad debts on various age of individual account receivable
- higher % for old account
- lower % for new account

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27
Q

subsidiary ledger

A

Track each individual account

ex: customer A, B , C ( multiple T table)

Whereas general ledger is a combinations of the account (1 T table)

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28
Q

direct write-off method

A

write off bad debts only at time it actually become uncollectible
- NOT GAAP
cause asset to be overstated
expense understated
- use by tax reporting company

Bad debt expense DR
Account Receivable CR

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29
Q

interest

A

face value x annual interest rate x fraction of the year

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30
Q

receivable turnover ratio

A

provide measure of company abilities to collect cash from customers

  • show NUMBER OF TIME that average AR balance is collected (turnover)
  • more turnover = more effective in gaining credit and collecting cash
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31
Q

net credit sales

A

total credit sales of net discount/return/allowance

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32
Q

average account receivable

A

reported in this period and last period balance sheet

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33
Q

average collection period

A

show approximate NUMBER OF DAYS the average AR balance is outstanding

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34
Q

percentage of credit sale method

A

estimate uncollectible account using percentage of credit sale
- base estimate on income statement

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35
Q

inventory

A

items a company intends for sale to customers

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36
Q

manufacturing companies

A

produce the inventories they sell

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37
Q

raw material inventory

(manufacturing company inventory)

A

cost of material used to make finished good

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38
Q

work-in-progress inventory

(manufacturing company inventory)

A

material that are waiting to be assemble

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39
Q

finish good inventory

(manufacturing company inventory)

A

cost of finished good but unshipped

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40
Q

total inventory

A

raw material + work-in-process + finish good

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41
Q

merchandising company

A

Company buy good and resell then for a higher price

2 type
Retail
Wholesale

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42
Q

wholesalers

A

Purchase good from merchandising or manufacture and sell inventory to retailers in bulks

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43
Q

retailers

A

Sells good directly to customers

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44
Q

cost of good sold

A

cost of inventory that was sold during the period

-expense

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45
Q

multiple step income statement

A

income statement that report multiple levels of income

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46
Q

gross profit

(multiple step income)

A

net revenue or sales - cost of goods

  • record 1st
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47
Q

operating income

(multiple step income)

A

gross profit - operating expense

  • record 2nd
  • measure profitability from primary operations
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48
Q

income before income taxes

(multiple step income)

A

operating income + nonoperating income

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49
Q

net income

A

revenue - expense

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50
Q

specific identification

(inventory cost method)

A

method that match or identify each unit of inventory w actual cost

  • use by company w unique and low sale volume
  • ex: jewelry
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51
Q

first in first out (FIFO)

(inventory cost method)

A

first units (oldest) purchased are first one sold

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52
Q

last in first out (LIFO)

(inventory cost method)

A

last unit (newest) purchase are firsts one sold

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53
Q

weighted - average cost

(inventory cost method)

A

both cost of goods sold and ending inventory consist of a random mixture of all goods available for sale

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54
Q

LIFO reserve

A

different amount between LIFO and FIFO

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55
Q

perpetual inventory system

A

continual record of inventory purchase and sold

56
Q

periodic inventory system

A

does not continually record inventory amount

  • calculate balance of inventory once per PERIOD
57
Q

LIFO adjustment

A

used to convert a company own inventory records maintained throughout the year on a FIFO basis to LIFO basis for preparing financial statement at the end of the year

58
Q

freight charfes

A

shipping or delivery charges from suppliers or to customers

59
Q

FOB

A

free on board

60
Q

FOB shipping point

A

title passes (ownership) when sellers ship the inventory

  • seller pays fees
61
Q

FOB destination

A

title passes (ownership) when inventory reach buyers destination

  • buy pays fees
62
Q

freight-in

A

money that the business spends to transport in goods to the business

  • cost of good sold
63
Q

freight-out

A

cost of shipping good to customers

  • selling expense
64
Q

purchase discount

A

lower cost of purchase in made within a time frame for customers

seller pov: discount = sale discount
buyers pov: discount = purchase discount

65
Q

purchase return

A

company return damage inventory to suppliers

66
Q

net realizable value

A

value of inventor falls below original cost
- estimate selling price of inventory

67
Q

lower of cost and net realize value

A

company report inventory in balance sheet at lower of cost and net realizable values

net realizable = estimate selling price of inventory - cost of completion, disposal, & transportation

68
Q

inventory turnover ratio

A

show NUMBER OF TIMES the firm sells average inventory

69
Q

gross profit ratio

A
  • measure amount by which the sale of inventory exceed cost per dollar of sales
70
Q

average days in inventory

A

indicate approximate NUMBER OF DAYS the average inventory is held

71
Q

intangible asset

A

nonphysical item that has potential revenue

72
Q

tangible asset

A

physical asset owned by company

73
Q

capitalize

A

record an expenditure (payment) of an asset

74
Q

land

(tangible)

A

land account represent land a company is using for operation

75
Q

capitalize land

A

all expenditures necessary to get it read to use

76
Q

land improvement

(tangible)

A

improvement to land such as paving, lighting, landscaping, that are subjected to depreciation

77
Q

building

(tangible)

A

building cost + other cost

78
Q

equipment

(tangible)

A
79
Q

basket purchase

A

when companies purchase more than 1 asset at the same time for 1 purchase price

80
Q

fair value

A

estimated price an asset was brought or sold

81
Q

natural resources

(tangible)

A

oil, natural gas, timber, salt

82
Q

patent

(intangible)

A

exclusive rights to manufacture a product or to use a process

-20 years

83
Q

copyright

(intangible)

A

exclusive right to copy, distribute, and display works (no one else can)

84
Q

trademark

(intangible)

A

words/slogan/symbol that distinctively identifies a company, product, or service

85
Q

franchise

(intangible)

A

local outlet that pays for exclusive right to use franchiser company name and sell its products

86
Q

goodwill

(intangible)

A

purchase price - fair value of net assets required

-ONLY RECORD when 1 company acquires another company

-often the largest intangible asset

87
Q

capitalize and expense

A

capitalize expenditures as an asset if it increase FUTURE benefits

expense expenditures if it benefit only the CURRENT period

88
Q

repairs & maintenance
(current)

(expenditures)

A

maintaining a given level of benefit

period benefit: current

accounting treatment: expense

89
Q

repairs & maintenance
(future)

(expenditures)

A

making major repairs that increase future benefits

period benefits: future

accounting treatment: capitalize

90
Q

addition

(expenditures)

A

adding new major components

period benefits: future

accounting treatment: capitalize

91
Q

improvement

(expenditures)

A

replacing new major component

period benefits: future

accounting treatment: capitalize

92
Q

legal defense of intangible asset

(expenditures)

A

incurring litigation cost to defend the legal right to the asset

period benefits: future

accounting treatment: capitalize

93
Q

materiality

A

items are materiality if its large enough to influence a decisions

94
Q

depreciation

A

allocation (distribute) of asset cost to an expensive over time

  • tangible asset
95
Q

amortization

A

process cost allocation for intangible asset

96
Q

accumulated depreciation

A

contra asset account

97
Q

book value

A

original cost of assets - current balance accum depreciation

98
Q

service life

A

estimate benefit the company expects to receive from asset before disposing it

99
Q

residual value

A

amount company expects to receive from selling the asset

100
Q

depreciation method

A

pattern in which the asset depreciable cost is allocated over time

101
Q

straight line method

A

allocate EQUAL amount of depreciation cost to each year of asset service life

102
Q

accelerated depreciation method

A

allocates higher depreciation in earlier year of asset life

lower depreciation in later year

103
Q

declining balance method

A

record more depreciation in earlier years

less depreciation in later year

  • higher than straight line in earlier year
  • lower in later year
  • result same depreciation
104
Q

activity based depreciation

A

allocate an asset cost based on its use

  • straight line n declining balance measure TIME
105
Q

tax depreciation

A
106
Q

intangible assets SUBJECT to amortization

A

intangible have finite useful life that can be estimated

107
Q

intangible assets NOT SUBJECT to amortization

A

intangible have unlimited life

108
Q

sale

(asset disposal)

A

sale long term asset and gain cash

  • a gain or loss can occur in income statement
109
Q

gain

A

occur when asset sold for more than book value

110
Q

loss

A

asset sold for less than book value

111
Q

retirement of long term asset

(asset disposal)

A

long term asset is no longer useful but cannot be sold

112
Q

exchange of long-term asset

A

2 company trade assets

  • use cash to make up for any differences in fair value between asset
113
Q

return on asset

A

measure amount of net income generated for each dollarp

114
Q

profit margin

A

ratio indicates the earning per dollar of sales

115
Q

asset turnover

A

ratio measure the sales per dollar of asset invested

116
Q

liability

A

what company owe

117
Q

current liability

A

due in 1 yr

118
Q

long term liability

A

due in more than 1 yr

119
Q

note payable

A

written promise to repay amount borrow with interest

120
Q

line of credit

A

informal agreement that permit a company to borrow up to a prearranged limit

121
Q

commercial paper

A

company borrow from another company

122
Q

account payable

A

amount owe to suppliers or services

123
Q

deferred revenue

A

company receive payment but provide service in future date

124
Q

gift card breakage

A

point in time when gift cards expires or the likelihood of redemption is viewed as remote

125
Q

sale tax payable

A

current liability account that keep track of sale tax from customers and pay sale tax to government later

126
Q

current portion of long term debt

A

amount that will be paid within 1 yr

127
Q

reclassification

A

long term liability are reclassified and reported as current liabilities when they become payable within the next year

128
Q

contingencies

A

uncertain situation that can result in a gain or loss for a company

129
Q

contingent liability

A

existing uncertain situation that might result in loss depending on future event outcome
- ex:
lawsuit

130
Q

contingent gain

A

existing uncertain situation that might result in gain

-ONLY RECORD GAIN when gain is CERTAIN

131
Q

liquidity

A

have sufficient cash to pay currently maturing debts

  • lack of liquidity = financial difficulties or bankruptcies
132
Q

working capital

(measure liquidity)

A

different between current asset and current liability

-not the best measurement

133
Q

current ratio

(measure liquidity)

A

current ratio > 1 = asset > liability

current ratio < = asset < liability

higher ratio = greater company liability

134
Q

acid test ratio

(measure liquidity)

A

similar to current ratio but more conservative measure of current asset available to pay

  • provide better measurement than current ratio
135
Q

quick asset

A

include only cash, current investment, and AR

136
Q

debt covenant

A

agreement between a borrowers and a lender that requires certain minimum financial measure to be met or the lender can recall the debt

acct (3 decks)

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