Exam 3 Flashcards
warranties
when companies guarantee their products or services
current (short term asset)
expected to be converted to cash or consumed within 1 year
current ratio?
current assets/current liabilities
current (short term liability)
those within 1 year or an operating cycle
solvency
ability to repay liabilities in the long run
Liquidity
this looks at the short term (within year)
solvency
focuses on long term (greater than year)
List of current assets:
cash
Marketable securities
AR
short tern NR
interest receivable
investing
supplies
pre-paid items
List of current liabilities:
AP
short term NP
wages payable
taxes payable
interest payable
internal control
policies and procedures used to provide reasonable assurance that the objectives of an entreprise will be accomplished
accounting controls
(safe assets) designed to safeguard company assets and ensure reliable accounting records
administrative controls
concerned with evaluating performance and assessing the degree of compliance with the company and policies and public laws
bank recognition
companies prepare this to explain differences between the cash balance reported on the bank statement and cash balance recorded in depositors accounting records
segregation of duties
Frequently used as a deterrent to corruption. the likely hood of fraud or theft is reduced if employees must work together to accomplish it
quality of employees
cheap labor is not a bargain if employees are incompetent. employees should be trained properly
bonded employees
the best way to ensure employee honesty to hire individuals with high levels of personal integrity. uses a fidelity bond which provides insurance that protects a company from losses caused by employee dishonesty
required absences
employees should be allowed to take vacations
procedures manual
appropriate accounting procedures should be documented here. Periodic reviews should be conducted to ensure that employees are following the procedures outlines in the manual
authority and responsibility
employees are motivated by clear lines of authority and responsibility. they work harder when they have authority to use their own judgement, and they exercise reasonable caution when they are held responsible for their actions
pre-numbered documents
keep a record of your documents. businesses also pre-number checks to avoid unauthorized use of their bank accounts
physical control
employees can walk away with billions of dollars of business assets each other
performance evaluations
a physical count of inventory
notes receivable
notes specify’s the maturity date, interest rate and other credit items
account receivable
company’s right to collect cash in the future
where is accounts and notes receivable located on a balance sheet?
under assets
net realizable value
represents amount of receivables a company estimates it will actually collect
allowance for doubtful accounts (ADA)
a company’s estimate of the amount of uncollectible receivables
maker
borrower or debtor
payee
person whom note is made payable
Principal
amount of money loaned by payee to borrower
interest
economic benefit earned by payee for loaning the principal to the maker
maturity date
date maker must repay principal and any unpaid interest
collateral
assets belonging to maker assigned as security for the not in the event of the makers default on the note
promissory note
legal document that sets forth credit terms such as, interest rate and maturity date
How do you find net income?
sales revenue
<COGS>
---------------
gross margin
<operating>
----------------
operating income
\+ or - other expenses
------------------
pre-tax income
<tax>
------------------
Net Income (NI)
</tax></operating></COGS>
How do you find NRV?
A/R
<ADA>
------------
NRV
</ADA>
FIFO (first in, first out)
first items purchased, first items sold
LIFO (last in, first out)
last items purchased are first ones sold
weighted average (WA)
average cost per unit
flow of costs
determines cost of inventory items that are sold when preparing a financial statement
physical flow of goods
actual timing when goods are sold
weighted average equation
total units
