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Acct 101 > Exam 2, ch. 4-5 > Flashcards

Exam 2, ch. 4-5 Flashcards

Ch. 4-5

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1
Q

Revenue recognition principle

A

Revenues are recognized in the accounting period in which the performance obligation is satisfied

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2
Q

Expense recognition principle

A

Expenses are matched with revenues

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3
Q

Accrual-basis accounting

A

Transactions that change a company’s financial statements are recorded in periods in which the events occur

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4
Q

Cash-basis accounting

A

Companies record revenue when they receive cash (not in accordance with GAAP)

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5
Q

Adjusting entries

A

Ensure that the revenue recognition and expense recognition principles are followed; every adjusting entry includes one income statement and one balance sheet account

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6
Q

Deferrals

A

Prepaid expenses, unearned revenues

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7
Q

Accruals

A

Accrued revenues, accrued expenses

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8
Q

Prepaid expenses

A

Expenses paid in cash before they are used or consumed; costs that expire either with the passage of time or through use

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9
Q

Deferrals: supplies

A

Dr. Supplies expense Cr. Supplies

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10
Q

Deferrals: prepaid insurance

A

Dr. Insurance expense Cr. Prepaid insurance

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11
Q

Accumulated depreciation

A

Contra asset account

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12
Q

Deferrals: depreciation

A

Dr. Depreciation expense Cr. Accumulated Depreciation

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13
Q

Book value

A

The difference between the cost of any depreciable asset and its related accumulated depreciation

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14
Q

Deferrals: unearned service revenue

A

Dr. Unearned service revenue Cr. Service revenue

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15
Q

Accruals: accrued revenues

A

Dr. Accounts receivable Cr. Service Revenue

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16
Q

Formula for computing interest

A

Face value of note x Annual interest rate x Time in terms of one year = Interest

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17
Q

Accruals: accrued interest

A

Dr. Interest expense Cr. Interest payable

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18
Q

Accruals: accrued salaries

A

Dr. Salaries and wages expense Cr. Salaries and wages payable

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19
Q

Closing entries

A

Dr. Service Revenue Cr. Expenses Cr. Retained Earnings Cr. Dividends

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20
Q

Merchandising company

A

Sells merchandise rather than performs services

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21
Q

Retailers

A

Merchandising companies that sell directly to consumers

22
Q

Wholesalers

A

Merchandising companies that sell to retailers

23
Q

Perpetual inventory system

A

Records continuously show inventory on hand

24
Q

Periodic inventory system

A

Cost of goods sold is determined at the end of the accounting period

25
Q

Periodic COGS

A

Cost of goods on hand beg. + Cost of goods purchased - Cost of goods on hand end.

26
Q

Journal entry: purchase of merchandise perpetual

A

Dr. Inventory

Cr. Accounts Payable

27
Q

FOB shipping point

A

Buyer pays freight costs

28
Q

FOB destination

A

Seller pays freight costs

29
Q

Journal entry: freight costs incurred by buyer perpetual

A

Dr. Inventory

Cr. Cash

30
Q

Journal entry: freight costs incurred by seller perpetual

A

Dr. Freight-out

Cr. Cash

31
Q

Journal entry: purchase returns perpetual

A

Dr. Accounts Payable

Cr. Inventory

32
Q

2/10 n/30

A

2% discount if paid within 10 days, otherwise must be paid within 30 days

33
Q

Journal entry: purchase discounts perpetual

A

Dr. Accounts Payable

Cr. Cash

Cr. Inventory

34
Q

Journal entry: sale of merchandise perpetual

A

Dr. Accounts Receivable

Cr. Sales revenue

Dr. Cost of goods sold

Cr. Inventory

35
Q

Journal entry: sales returns perpetual

A

Dr. Sales Returns and Allowances

Cr. Accounts Receivable

Dr. Inventory

Cr. Cost of goods sold

36
Q

Sales returns and allowances, Sales discounts

A

Contra revenue accounts

37
Q

Journal entry: sales discounts perpetual

A

Dr. Cash

Dr. Sales discounts

Cr. Accounts receivable

38
Q

Multiple-step income statement

A
  1. Net sales - COGS = gross profit
  2. Gross profit - operating expenses = income from operations
  3. Add/subtract results of activities not related to operations = net income
39
Q

Other revenues and gains

A

Interest revenue, dividend revenue, rent revenue, gain from the sale of PPE

40
Q

Other expenses and losses

A

Interest expense, casualty losses, loss from the sale or abandonment of PPE, loss from strikes by employees and suppliers

41
Q

Cost of goods sold (periodic)

A

Beginning inventory

+ Cost of goods purchased

= Cost of goods available for sale

  • Ending inventory

= Cost of goods sold

42
Q

Gross profit rate

A

Gross profit / Net sales

43
Q

Purpose of gross profit rate

A

Measures the margin by which selling price exceeds cost of goods sold

44
Q

Purpose of profit margin

A

Measures the extent by which selling price covers all expenses

45
Q

Profit margin

A

Net income / Net sales

46
Q

Journal entry: purchase of merchandise periodic

A

Dr. Purchases

Cr. Accounts payable

47
Q

Journal entry: freight costs periodic

A

Dr. Freight-In

Cr. Cash

48
Q

Journal entry: purchase returns and allowances periodic

A

Dr. Accounts payable

Cr. Purchase returns and allowances

49
Q

Journal entry: purchase discounts periodic

A

Dr. Accounts payable

Cr. Purchase discounts

Cr. Cash

50
Q

Journal entry: sale of merchandise periodic

A

Dr. Accounts receivable

Cr. Sales revenue

51
Q

Journal entry: sales returns and allowances periodic

A

Dr. Sales returns and allowances

Cr. Accounts receivable

52
Q

Journal entry: sales discounts periodic

A

Dr. Cash

Dr. Sales discounts

Cr. Accounts receivable

Acct 101 (3 decks)

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