Exam 2 Study Topics Flashcards

1
Q

Merchandise Company vs. Service Company

A

-Difference is inventory (one has tangible goods, one does not)
-Merchandise company recognizes revenue when they deliver the product to the customer, while a Service company recognizes revenue as the service is performed

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2
Q

Periodic Inventory System

A

inventory entries are only recorded once a week, month, or year

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3
Q

Perpetual Inventory System

A

anytime a transaction occurs that affects inventory, inventory is directly affected most used today

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4
Q

Difference between Periodic and Perpetual Inventory Systems

A

Periodic: inventory is tracked at specific intervals
Perpetual: inventory is tracked continuously

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5
Q

Inventory Shrinkage

A

Difference between the inventory the company expects to have and the inventory they actually have (Expected ending inventory - Actual inventory)

Causes could be theft, damage, spoilage, fraud, or error

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6
Q

Single-Step vs Multi-Step Income Statement

A

Single-Step: Simple, less detailed, focuses on total revenues and expenses (SERVICE COMPANIES)
Multi-Step: More detailed, provides insights into gross and operating profits, preferred for larger or more complex businesses (MERCH COMPANIES)

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7
Q

Characteristics of the Specific Identification Inventory Cost System

A

-Companies use Specific ID when they want to record each cost separately
-Tracking each individual item in inventory, allowing for precise cost attribution to each unit sold

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8
Q

Lower-of-cost-or-market Principle

A

requires that merchandise inventory be reported in the financial statements at whichever is lower: the historical cost of the inventory or the market value of the inventory

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9
Q

Internal Controls Procedures

A

Assignment of Procedures, Segregate Duties, Restrict Access, Documents, Audit/Independently Verify

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10
Q

Internal Controls Components

A

CRIME
Control procedures, Risk assessment, Information system, Monitoring of controls, control Environment

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11
Q

Internal Controls Limitations

A

Human error, fraud, collusion, cost v benefit most important

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12
Q

Bank Reconciliation Purpose

A

to ensure that a company’s accounting records match the cash balances in its bank account (bank and book)

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13
Q

What journal entries are prepared after bank reconciliation is complete?

A

Bank Fees, Interest Earned, NSF Checks, and Errors

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14
Q

Goods Available for Sale

A

all the goods that could have been sold during this period (beginning inventory or purchases)

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15
Q

In periods of rising prices, FIFO presents…

A

higher gross profit, inventory, and taxes

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16
Q

Weighted average always presents a number between…

A

FIFO and LIFO

17
Q

Consistency Principle

A

must be consistent with methods used from year to year (i.e. FIFO, LIFO)

18
Q

Sarbanes-Oxley Act

A

a federal law that was passed to protect investors from fraudulent financial reporting by corporations

19
Q

Net Method

A

the company assumes that the customer will take the sales discount and, therefore, records the sale at the net (or discounted) amount

20
Q

Gross Method

A

requires the company to record the full (gross) sales amount at the time of the sale and then record the discount when the customer pays within the discount period

21
Q

“Tone at the Top”

A

Control Environment

22
Q

Disclosure Principle

A

requires companies to share all relevant information about their financial statements

23
Q

Materiality Concept

A

helps ensure that financial reports present relevant information that can aid stakeholders in making informed decisions
-only requires companies to disclouse information that is important

24
Q

Inventory turnover

A

measures how rapidly merchandise inventory is sold

25
Q

Bank Balance ALWAYS

A

Add Deposits in Transits
Subtract Outstanding Checks
Add/Subtract Corrections of Bank Errors

26
Q

Book Balance ALWAYS

A

Add Bank Collection, Interest Revenue, EFT checks
Subtract Service Charges/Fees, NSF Checks
Add/Subtract corrections of book errors

27
Q

1/10 net 30

A

Discount of 1% if paid in 10 days otherwise pay within 30 days

28
Q

FOB Origin vs. FOB Destination

A

FOB Origin: the buyer will arrange and pay for the shipping from the seller’s warehouse to their location

FOB Destination: the seller will arrange and pay for the shipping to deliver the goods to the buyer’s specified address