Exam 2 Vocab

Question 1

Accounting basis in which companies record, in the periods in which the events occur, transactions that change a company’s financial statements, even if cash was not exchanged.

Answer 1

Accrual-basis accounting

Question 2

Expenses incurred but not yet paid in cash or recorded.

Answer 2

Accrued expenses

Question 3

Revenues for services performed but not yet received in cash or recorded.

Answer 3

Accrued revenues

Question 4

A list of accounts and their balances after all adjustments have been made.

Answer 4

Adjusted trial balance

Question 5

Entries made at the end of an accounting period to ensure that the revenue recognition and expense recognition principles are followed.

Answer 5

Adjusting entries

Question 6

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

Answer 6

Book value

Question 7

Accounting basis in which a company records revenue only when it receives cash and an expense only when it pays cash.

Answer 7

Cash-basis accounting

Question 8

Entries at the end of an accounting period to transfer the balances of temporary accounts to a permanent stockholders’ equity account, Retained Earnings.

Answer 8

Closing entries

Question 9

An account that is offset against an asset account on the balance sheet.

Answer 9

Contra asset account

Question 10

The process of allocating the cost of an asset to expense over its useful life.

Answer 10

Depreciation

Question 11

The planned timing of revenues, expenses, gains, and losses to smooth out bumps in net income.

Answer 11

Earnings management

Question 12

The principle that matches expenses with revenues in the period when the company makes efforts to generate those revenues.

Answer 12

Expense recognition principle (matching principle)

Question 13

An accounting period that is one year long.

Answer 13

Fiscal year

Question 14

A temporary account used in closing revenue and expense accounts.

Answer 14

Income Summary

Question 15

An assumption that the economic life of a business can be divided into artificial time periods.

Answer 15

Periodicity assumption

Question 16

Balance sheet accounts whose balances are carried forward to the next accounting period.

Answer 16

Permanent accounts

Question 17

A list of permanent accounts and their balances after a company has journalized and posted closing entries.

Answer 17

Post-closing trial balance

Question 18

Expenses paid in cash before they are used or consumed.

Answer 18

Prepaid expenses (prepayments)

Question 19

Indicates the level of full and transparent information that a company provides to users of its financial statements.

Answer 19

Quality of earnings

Question 20

The principle that companies recognize revenue in the accounting period in which the performance obligation is satisfied.

Answer 20

Revenue recognition principle

Question 21

An entry made at the beginning of the next accounting period; the exact opposite of the adjusting entry made in the previous period.

Answer 21

Reversing entry

Question 22

Revenue, expense, and dividend accounts whose balances a company transfers to Retained Earnings at the end of an accounting period.

Answer 22

Temporary accounts

Question 23

Cash received and a liability recorded before services are performed.

Answer 23

Unearned revenues

Question 24

The length of service of a productive asset.

Answer 24

Useful life

Question 25

A multiple-column form that companies may use in the adjustment process and in preparing financial statements.

Answer 25

Worksheet

Question 26

The total cost of merchandise sold during the period.

Answer 26

Cost of goods sold

Question 27

An account that is offset against a revenue account on the income statement.

Answer 27

Contra revenue account

Question 28

The excess of net sales over the cost of goods sold.

Answer 28

Gross profit

Question 29

Gross profit expressed as a percentage by dividing the amount of gross profit by net sales.

Answer 29

Gross profit rate

Question 30

Sales less sales returns and allowances and sales discounts.

Answer 30

Net sales

Question 31

An inventory system in which a company does not maintain detailed records of goods on hand throughout the period and determines the cost of goods sold only at the end of an accounting period.

Answer 31

Periodic inventory system

Question 32

A detailed inventory system in which a company maintains the cost of each inventory item, and the records continuously show the inventory that should be on hand.

Answer 32

Perpetual inventory system

Question 33

Measures the percentage of each dollar of sales that results in net income, computed by dividing net income by net sales.

Answer 33

Profit margin

Question 34

A deduction made to the selling price of merchandise, granted by the seller, so that the buyer will keep the merchandise.

Answer 34

Purchase allowance

Question 35

A cash discount claimed by a buyer for prompt payment of a balance due.

Answer 35

Purchase discount

Question 36

A document that provides support for each purchase.

Answer 36

Purchase invoice

Question 37

A return of goods from the buyer to the seller for cash or credit.

Answer 37

Purchase return

Question 38

A measure used to indicate the extent to which a company's earnings provide a full and transparent depiction of its performance; computed as net cash provided by operating activities divided by net income.

Answer 38

Quality of earnings ratio

Question 39

A reduction given by a seller for prompt payment of a credit sale.

Answer 39

Sales discount

Question 40

A document that provides support for each sale.

Answer 40

Sales invoice

Question 41

Transactions in which the seller either accepts goods back from the purchaser (a return) or grants a reduction in the purchase price (an allowance) so that the buyer will keep the goods.

Answer 41

Sales returns and allowances

Question 42

Primary source of revenue for a merchandising company.

Answer 42

Sales revenue

Question 43

An inventory costing method that uses the weighted-average unit cost to allocate the cost of goods available for sale to ending inventory and cost of goods sold

Answer 43

Average-cost method

Question 44

Goods held for sale by one party although ownership of the goods is retained by another party.

Answer 44

Consigned goods

Question 45

The cost of purchasing the same goods at the present time from the usual suppliers in the usual quantities.

Answer 45

Current replacement cost

Question 46

Measure of the average number of days inventory is held; calculated as 365 divided by inventory turnover.

Answer 46

Days in inventory

Question 47

Manufactured items that are completed and ready for sale.

Answer 47

Finished goods inventory

Question 48

An inventory costing method that assumes that the earliest goods purchased are the first to be sold.

Answer 48

First-in, first-out (FIFO) method

Question 49

Freight terms indicating that ownership of goods remains with the seller until the goods reach the buyer.

Answer 49

FOB destination

Question 50

Freight terms indicating that ownership of goods passes to the buyer when the public carrier accepts the goods from the seller.

Answer 50

FOB shipping point

Question 51

A ratio that indicates the liquidity of inventory by measuring the number of times average inventory sold during the period; computed by dividing cost of goods sold by the average inventory during the period.

Answer 51

Inventory turnover

Question 52

Inventory system in which companies manufacture or purchase goods just in time for use.

Answer 52

Just-in-time (JIT) inventory

Question 53

An inventory costing method that assumes that the latest units purchased are the first to be sold.

Answer 53

Last-in, first-out (LIFO) method

Question 54

For a company using LIFO, the difference between inventory reported using LIFO and inventory using FIFO.

Answer 54

LIFO reserve

Question 55

A basis whereby inventory is stated at the lower of either its cost or its market value as determined by current replacement cost.

Answer 55

Lower-of-cost-or-market (LCM)

Question 56

Basic goods that will be used in production but have not yet been placed in production.

Answer 56

Raw materials

Question 57

An actual physical-flow costing method in which particular items sold and items still in inventory are specifically costed to arrive at cost of goods sold and ending inventory.

Answer 57

Specific identification method

Question 58

Average cost that is weighted by the number of units purchased at each unit cost.

Answer 58

Weighted-average unit cost

Question 59

That portion of manufactured inventory that has begun the production process but is not yet complete.

Answer 59

Work in process

Question 60

The process of comparing the bank's account balance with the company's balance, and explaining the differences to make them agree.

Answer 60

Bank reconciliation

Question 61

A statement received monthly from the bank that shows the depositor's bank transactions and balances.

Answer 61

Bank statement

Question 62

Obtaining insurance protection against theft by employees.

Answer 62

Bonding

Question 63

Resources that consist of coins, currency, checks, money orders, and money on hand or on deposit in a bank or similar depository.

Answer 63

Cash

Question 64

A projection of anticipated cash flows, usually over a one- to two-year period.

Answer 64

Cash budget

Question 65

Short-term, highly liquid investments that can be readily converted to a specific amount of cash and which are relatively insensitive to interest rate changes.

Answer 65

Cash equivalents

Question 66

Deposits recorded by the depositor that have not been recorded by the bank.

Answer 66

Deposits in transit

Question 67

A disbursement system that uses wire, telephone, or computer to transfer cash from one location to another.

Answer 67

Electronic funds transfer (EFT)

Question 68

A dishonest act by an employee that results in personal benefit to the employee at a cost to the employer.

Answer 68

Fraud

Question 69

The three factors that contribute to fraudulent activity by employees: opportunity, financial pressure, and rationalization.

Answer 69

Fraud triangle

Question 70

Company employees who continuously evaluate the effectiveness of the company's internal control systems.

Answer 70

Internal auditors

Question 71

All the related methods and measures adopted within an organization to safeguard assets and enhance the reliability of accounting records, increase efficiency of operations, and ensure compliance with laws and regulations.

Answer 71

Internal control

Question 72

A check that is not paid by a bank because of insufficient funds in a bank account.

Answer 72

NSF check

Question 73

Checks issued and recorded by a company that have not been paid by the bank.

Answer 73

Outstanding checks

Question 74

A cash fund used to pay relatively small amounts.

Answer 74

Petty cash fund

Question 75

Cash that is not available for general use but instead is restricted for a particular purpose.

Answer 75

Restricted cash

Question 76

Law that requires publicly traded companies to maintain adequate systems of internal control.

Answer 76

Sarbanes-Oxley Act (SOX)

Question 77

Employee responsible for the management of a company's cash.

Answer 77

Treasurer

Question 78

An authorization form prepared for each expenditure in a voucher system.

Answer 78

Voucher

Question 79

A network of approvals by authorized individuals, acting independently, to ensure that all disbursements by check are proper.

Answer 79

Voucher system