Exam 2 Concepts Flashcards
Companies report interest revenue as…
other revenue and gains
________ controls:
- Safeguarding assets
- Enhancing reliability of accounting records
- Increases efficiency of operations
- Ensures compliance with laws and regulations
Internal
This fluctuates based on how much it is used.
Unit-of-activity
Repairs or maintainenances are _______, which means they are ________.
expenses; debited
______________ is required to maintain a system of internal control.
- Independent outside auditors must attest to the adequacy of internal controls.
Sarbane Oxley Act
The amount of bad debt expense that should be recorded in the adjusting entry is the difference between the _______ _______ and the _______ _________ in the allowance account.
required balance; existing balance
________ _______ = cost less accumulated depreciation.
Book Value
How to account for the disposal of plant assets:
- Eliminate book value of that useful asset at date of disposal
- Record cash proceeds, if any
- Account for the difference between book value and cash proceeds as a gain or loss
To properly manage receivables, management must:
- Determine to whom to extend credit
- Establish a payment period
- Monitor collections
- Evaluate liquidity
- Accelerate cash receipts
^^^
Promissory notes may be used :
(1) when individuals and companies lend or borrow money,
(2) when the amount of the transaction and the credit period exceed normal limits, and
(3) in settlement of accounts receivable.
Costs incurred to increase:
- Operating efficiency
- Productive Capacity
- Useful life of a plant asset
Are a _______ to the ______ asset.
debit; plant
_______ items such as the following produce time lags:
- Deposits in transit
- Outstanding checks
- Bank memoranda
- Errors
Reconciling
Improvements to land AFTER its initial *land aquisition *include:
- Walkways
- Parking Lots
- Irrigation Systems
- Landscaping
_______ _______ are amounts customers owe on account.
Accounts receivable
With Decreasing Prices:
______ is more profitable and has lower cost of goods sold.
LIFO
Cost of Goods Available for Sale/Total Units Available for Sale =
Average Cost
When the account is written off, accounts receivable are _______ and allowance for doubtful accounts are ________.
credited; debited
**Please note: The WRITE-OFF is reversed if the company pays the amount that has been written-off. **
________ is the process of allocating to expense the cost of a plant asset over its useful life.
Depreciation
Intangible assets with _______ lives should **NOT **be amortized.
indefinite
Indefinite Life of an Intangible asset, ___________.
NO AMORTIZATION
Accelerating Depreciation (declining balance) every company will take it because…
there are less taxes
______ value is the **estimate **of the asset’s value at the end of it’s useful life.
Salvage
Depreciation reflects an asset’s decreasing _______ and _________ producing ability, resulting from wear and tear or becoming obsolete.
usefulness; revenue
______ reports lower earnings, but LESSER taxes.
LIFO
_________ _____________
costs incurred to acquire a plant asset that are expensed immediately.
Revenue Expenditure
Additions and improvements are _________.
capitalized
Beginning inventory + Purchases - Returns and Discount Allowances = _______________
Goods Available Sold
Whether companies are at the point-of-sale of merchandise on account, or performing a service on account…companies record _______ _______.
accounts receivable
Aquisition costs are those that prepare land for its intended use, which include
- Grading & Filling
- Draining
- Cleaning
- Removing
- Closing Costs
- Cost of Land Acquired
^^
Short-term receivables are considered ______ _______ and are located below ______________________ on the balance sheet.
current assets; short-term investments
With the declining balance method we have _____ in the beginning and _______ in the end.
more; less
In a contra asset account, bad debts expense are ________ and allowance for doubtful accounts are __________.
debited; credited
Cost - Salvage Value / Useful Life =
Straight-Line Depreciation
_____ ______ are claims evidenced by formal instruments of credit.
Notes Receivable
With the Allowance Method, losses are _________.
estimated
Goods held on ________ are not accounted in the inventory.
consignment
Effective Cash Management:
- Keep inv low
- Monitor payments of liabilities
- Plan timing of major expenditures
- Invest idle cash
^^^
Units-of Activity =
Depreciable cost / Total Units
**Accumulated Depreciation **is a _____________ acccount.
contra-asset
Companies only make revisions of periodic depreciation in ______ and _______ periods.
present; future
The party making the promise to pay is called the ________.
maker
If an intangible asset has a _______ life, its cost should be allocated (amortized) over its useful life.
limited
_______ is when you get rid of the old shit first because you have the risk of it going bad or going out of fashion.
FIFO
With ______ we use the new coal first because it is NOT like the old coal is going to go bad like food does!
LIFO
The cost of ______ _______ includes all expenditures to acquire the asset and make it ready for its intended use.
Plant Assets
Companies report **intangible assets **at their cost *less *any amounts amortized.
If a company issues cash in exchange for a note, the entry is a ______ to Notes Receivable and a _______ to Cash in the amount of the loan.
debit; credit
If Laird Company decides to establish a $100 fund on March 1, the entry in jounral form is:
Mar 1. Petty Cash 100
Cash 100
(To Establish a petty cash fund)
What would the adjusting entry be if Laird Company decided on July 1st to increase the size of the fund to $250?
Petty Cash $150
Cash $150
Notes can be held to ________.
maturity
_____________ is when the ownership of the goods remains with the seller until the goods reach the buyer.
FOB destination
_______ when item increases efficiencies/productive capacity/expected life.
Capitalize
Companies report bad debt and service charge expenses in the _______ _______ as operating expenses.
income statement
A gain or loss up until you sell a product is an increase or decrease to _________ ________.
Stockholder’s Equity
The party to whom the payment is to be made is called the ________.
payee
________ have 20 year renewals.
Trademarks
_______ ______ are costs included in a plant asset account.
Capital Expenditure
Understating ending inventory **overstates **_____________________.
Cost of Goods Sold
How do you compute interest on notes receivables?
Face Value of Note x Annual Interest x Time (in years)
Cost *less *accum. depreciation = ____
NBV
Eliminate fixed assets by
- ________ Accumulated Depreciation
- *________ *the Asset Account
*debiting; *crediting
Losses are placed on the _______ side, gains are placed on the ______ side.
*debit; *credit
A Direct Write-Off is theoretically __________.
undesirable
A _________ ________ is a written promise to pay a specified amount of money in a definite time.
promissory note
Ordinary repairs are ________.
expensed
Goods Available Sold - Ending Inventory =
Cost of Goods Sold
With Rising Prices:
______ is more profitable and has lower cost of goods sold.
FIFO
Limited life of an intangible asset ______ asset account *or *accummulated depreciation.
credit
______ is when the current replacement cost is less than the cost.
LCM
_______________ is when the buyer has legal title to goods after the goods have been shipped.
FOB Shipping Point
The following should be considered when recording periodic **depreciation expense **on *plant assets: *
- Salvage Value
- Estimated Useful Life
- Cost
^^
Declining Balance By the BV x Double Declining Bal Rate =
Annual Expense
