Exam 2 Study Guide Flashcards
How is inventory reported on a classified balance sheet?
broken down into categories:
ASSETS - inventory in current assets
What values are included when calculating the total cost of merchandise purchased?
shipping, import, taxes, discount, returns
(2/10, n/30)
$10000 - $600 = $9400 * .98 = $9212 + 50 + 10 = X
return = $600
discount = 98% (2%)
total cost of merchandise = X
What are credit terms?
2/10, n/30
2%
10 days discount period
due in 30 days
ending inventory
inventory not sold at the end of a period (becomes beginning inventory at beginning of next period)
credit terms
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net sales
gross profit / gross profit percent
FOB destination
seller owns it until it reaches destination and pays shipping cost
FOB shipping point
as soon as it ships, the buyer owns it
Why did congress pass Sarbanes-Oxley?
to deter fraud and reinstate confidences
consignment
Consignment occurs when goods are sent by their owner (the consignor) to an agent (the consignee), who undertakes to sell the goods. The consignor continues to own the goods until they are sold, so the goods appear as inventory in the accounting records of the consignor, not the consignee.
Why are public companies required to have internal controls?
to try to deter fraud and safeguard assets
What is the relationship between customers’ deposits and the bank?
Customer deposits, such as checking accounts, savings accounts, money market accounts, and CDs, provide banks with the capital to make loans. Customers who deposit money into these accounts effectively lend money to the bank and are paid interest.
Why do you need to do periodic bank reconciliations?
bank and business numbers were off
Understand the effects of petty cash replenishment (recording of expenses).
$30 office supplies $5 shipping expense $11 miscellaneous expense (expenses decrease retained earnings) ($46 check out of cash = assets) ($30 supplies means only $16 were lost on assets)
Be able to identify weaknesses in internal control.
separate duties!
petty cash fund
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bank reconciliation
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How do you calculate the interest of a note?
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Be able to calculate the maturity value of a note.
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Understand the differences between the allowance method and direct-write off method for uncollectible accounts.
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What are weaknesses/advantages of the allowance method and direct-write off method for uncollectible accounts?
direct-write of: weakness = does not follow GAAP
Be able to calculate the end of year adjusting entries for allowance for doubtful accounts using the percentage of sales method and the aging of receivable method.
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promissory note
[a maker writes a note to the payee to pay a specified amount on a certain day]
$1000, 90 days, 8%
face value (par value) = $1000
interest = 1000 * .08 * portion of year (90/360) = $20
maturity value = $1020
face of value of a note
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