Exam 3 Definitions

Question 1

Formal Process by which managers at all levels gain information about
performance of the organization and employee tasks within the firm and judge that performance against preestablished criteria as set out in financial statements, budgets, plans, and goals.

Answer 1

Performance Measurement System

Question 2

– a company’s plan to 1.) Safeguard the company’s assets, and 2.) Improve the accuracy
and reliability of accounting information.

Answer 2

Internal controls

Question 3

authorizing transactions, recording transactions, and maintaining control of related
assets should be separated among different employees.

Answer 3

Separation of duties

Question 4

– inventory costing method that assumes the first units purchased (the firstin) are the first ones sold (the first-out).

Answer 4

First-In, First-out Method (FIFO)

Question 5

inventory costing method that assumes the last units purchased (the lastin) are the first ones sold (the first out)

Answer 5

Last-in, First-out method

Question 6

an income statement that reports multiple levels of income (or profitability)

Answer 6

Multi-Step Income Statement

Question 7

he amount the company expects to receive from selling the assets at the end of its service life.

Answer 7

Residual (S- 7

alvage) value

Question 8

allocated an equal amount of depreciation to each year of the assets
service life

Answer 8

Straight line depreciation calculation

Question 9

a accelerated method that allocates a higher

depreciation in the earlier years of the asset’s life and lower depreciation in later years

Answer 9

Double declining balance depreciation calculation

Question 10

long-term assets that lack physical substance, and whose existence is often based on a legal
contract.

Answer 10

Intangible asset

Question 11

calculation: total revenues less any discounts, returns, and allowances.

Answer 11

Net Revenues

Question 12

calculation: sales revenue less cost of goods sold.

Answer 12

Gross profit

Question 13

calculation: original cost of long-term asset less accumulated depreciation.

Answer 13

Book Value

Question 14

– an account with a balance that is opposite, or contra, to that of its related
(companion) revenue account

Answer 14

Contra Revenue Account

Question 15

contra asset account representing the amount of accounts receivable
that we do not expect to collect. Major category - contra asset, asset; Normal balance - credit; Financial
statement - Balance Sheet.

Answer 15

Allowance for uncollectible accounts

Question 16

seller reduction of customers’ balance owed or provision of a partial
refund because of some deficiency in the company’s product or service. Major category - contra revenue,
revenue; Normal balance - debit; Financial statement – Income Statement

Answer 16

Sales Allowance (Contra Revenue)

Question 17

reduction in the amount to be paid by a credit customer if payment on
account is made within a specified period of time. Major category - contra revenue, revenue; Normal balance
- debit; Financial statement – Income Statement.

Answer 17

Sales Discount (Contra Revenue)

Question 18

customer returns a product. Major category - contra revenue, revenue;
Normal balance - debit; Financial statement – Income Statement.

Answer 18

Sales Return (Contra Revenue)

Question 19

the amount of the adjustment to allowance for uncollectible accounts, representing the
cost of estimated future bad debts charged to the current period. Major category - Expense; Normal balance -
debit; Financial statement – Income Statement.

Answer 19

Bad Debt Expense

Question 20

cost of inventory that was sold during the period. Major category - Expense; Normal
balance - debit; Financial statement – Income Statement.

Answer 20

Cost of goods sold

Question 21

allocation of the cost of an intangible asset over its service life. Major category -
Expense; Normal balance - debit; Financial statement – Income Statement.

Answer 21

Amortization Expense