F3 Flashcards
1
Q
items not cash or cash equivalents
A
- time certificates of deposits (maturity over 90 days)
- legally restricted deposits held as compensating balances arrangements with a lending institution
2
Q
cash is classified as
A
restricted or unrestricted
3
Q
restricted cash
A
cash that has been set aside for a specific use or purpose
4
Q
unrestricted cash
A
- cash that is used for all current operations
- the nature, amount, and timing of restrictions should be disclosed in the footnotes
5
Q
deposits in transit
A
- funds sent by the depositor to the bank that have not been recorded by the bank and deposits made after the banks cutoff date will not be included in the bank statement
- in both cases, the balance per the depositor’s records will be higher than those of the bank
6
Q
outstanding checks
A
checks written for payment by the depositor that have not been presented to the bank will result in a higher balance per the bank records than per depositors records
7
Q
service charges
A
- service charges are deducted by the bank
- the depositor will not deduct this amount from its records until it is made aware by the bank (following month)
- balance per books is overstated until this amount is subtracted
8
Q
bank collections
A
- the bank may make collections on the depositor’s behalf -> this increases the depositors bank balance
- if the depositor is not aware of the collection was credited to its balance, the balance per depositor’s records will be understated
9
Q
errors
A
errors made by either the bank or the depositors will cause a difference
10
Q
non-sufficient funds (NSF)
A
- the bank may have charged the depositor’s account for a dishonored check and the check may not have been redeposited until the following month
- this would overstate the depositor’s book balance as of the balance sheet date
11
Q
interest income
A
- usually the depositor does not keep track of average daily cash balances, and so will add this amount to its records once made aware of the revenue
- balance per books is understated until this amount is added
12
Q
accounts receivable
A
oral promises to pay debts and are generally classified as current assets
13
Q
accounts receivable should be initially values at
A
the original transaction amount
14
Q
gross method
A
- records a sale without regard to the available discount
- if payment is received within the discount period, a sales discount (contra-revenue) account is debited to reflect the sales discount
15
Q
net method
A
- records sales and account receivable net of the available discount
- if payment is received after the discounted period, a sales discount not taken account (revenue) must be credited
16
Q
trade discounts
A
- quoted in percentages
- applied sequentially
17
Q
accounts receivable should be presented on the balance sheet at
A
their net realizable value
18
Q
direct write-off method (NOT GAAP)
A
- account is written off and the bad debt is recognized when the account becomes uncollectible
19
Q
current expected credit losses model
A
once the selling entity determines that collection for goods or services provided is probable, an estimate of expected losses over the life of the receivable should be recorded
20
Q
when specific know estimate amounts are written off they are debited to the
A
allowance account
21
Q
percentage of accounts receivable at year end method
A
- the amount calculated is the ending balance that should be in the allowance for doubtful accounts on the balance sheet
- the difference between the unadjusted balance and the desired ending balance is debited/credited to the bad debt expense account
22
Q
aging of accounts receivable
A
- schedule prepared by days/months outstanding
- each category total dollar amount is multiplied by percentage representing uncollectibility based on past experiences
23
Q
bad debt expense includes the following
A
- provision made each period throughout the year
- an adjustment made at year-end to increase/decrease the balance in the allowance for uncollectible accounts
24
Q
sale return allowance is what type of account
A
contra-revenue
25
pledging
the company uses existing accounts receivable as collateral for a loan
26
factoring
a company can convert its receivables into cash by assigning them to a "factor" either without or with recourse
27
without recourse
- the sale is final and the assingee (factor) assumes the risk of any losses on collection
- if the buyer is unable to collect all the accounts receivable, it has no recourse against the seller
28
due from factor protects against
sales returns, sales discounts, allowances, and customer disputes
29
if the returns, discounts, and allowances are less than the retained amount then
the balance will be returned to the seller
30
with recourse
the factor has an option to re-sell any uncollectible receivables back to the seller
31
if accounts receivable are transferred to a factor with recourse these two treatments are possible
sale or borrowing
32
securitization
accounts receivable are transferred to a different entity such as a trust or subsidiary
33
subledger
used to record and store the more detailed information that is summarized in the control account in the general ledger
34
trade receivable subledger
used to manage the company's customers and receipts
35
inventory subledger
used to manage the movement of inventory and prices
36
PPE subledger
contains detailed information for each asset categorized as PPE
37
accounts payable and accrued liabilities subledger
used to manage amounts owned to suppliers and subsequent payments made
38
the balance in the controls accounts in the general ledger must equal
the total from the accounts in the subledger
39
if there is a difference between the general ledger and the subledger then
you must reconcile to identify and correct the differences
40
how often should a reconciliation process be done
on a monthly basis
41
notes receivable
a written promise to pay a debt called a promissory notes
42
unearned interest and finance charges are deducted from
the face amount of the related promissory note
43
discounted notes receivable arise when
the holder endorses the note to a third party and receives a sum of cash
44
if the note is discounted with recourse, the holder remains contingently liable for
the ultimate payment of the note when it becomes due
45
if the note is discounted without recourse the holder assumes
no further liability (because it is sold outright)
46
when a discounted note receivable is dishonored, the contingent liability should be removed by
- debit to notes receivable discounted
- credit to notes receivable
47
retail inventory
inventory that is resold in substantially the same form in which it was purchased
48
raw material inventory
inventory that is being held for use in the production process
49
work in progress inventory
inventory that is in production but incomplete
50
finished goods inventory
production inventory that is complete and ready for sale
51
FOB shipping point
title passes to the buyer when the seller delivers the goods to the common carrier
52
FOB destination
title passes to the buyer when the buyer receives the goods from the common carrier
53
what happens if the seller ships the wrong goods
the title reverts to the seller upon rejection by the buyer
54
consigned goods
the seller (consignor) delivers goods to an agent (consignee) to hold and sell on the consigners behalf
55
should the consignor (seller) include the consigned goods in inventory
yes because title risk or loss is retained by the consignor (seller) even though the consignee (agent) possesses the goods
56
public warehouses
goods store in a public warehouse and evidenced by a warehouse receipt should be included in the inventory of the company holding the warehouse receipt
57
sales with a mandatory buyback
the seller should includes the goods in inventory even though title has passed to the buyer
58
installment sales
if the seller sells goods on an installment basis but retains legal title as a security for the loan, the goods should be included in the seller's inventory if the percentage of uncollectible debts cannot be estimated. if can be estimated it would be a sale
59
inventories are generally accounted for at
cost
60
precious metals and farm products are accounted for at
net realizable value
61
the write-down of inventory is usually reflected in
cost of goods sold
62
can you reverse inventory write-downs
no
63
when does lower of cost or market and lower of cost and net realizable value rules not apply
- the subsequent sales price of an end product is not affected by its market value
- company has a firm sales price contract
64
lower of cost and net realizable value method is used for all inventory that is not costed using
LIFO or the retail inventory method
65
net realizable value
an item's net selling price less the costs to complete and dispose of the inventory
66
lower cost or market
used when inventory costed using LIFO or the retail inventory method
67
market value
median of an inventory item's replacement cost
68
replacement cost
the cost to purchase the item of inventory as of the valuation date
69
market ceiling
item's net selling price less the costs to complete and dispose
70
market floor
market ceiling less a normal profit margin
71
substantial and unusual losses from the subsequent measurement of inventory should be
disclosed in the financial statements
72
periodic inventory system
the quantity of inventory is determined only by physical count
73
perpetual inventory system
the inventory record for each item of inventory is updated for each purchase and each sale as the occur
74
units of inventory on hand
modified perpetual system
75
specific identification method
the cost of each item in inventory is uniquely idenified to that item
76
FIFO
the first costs inventoried are the first costs transferred to cost of goods sold
77
weighted average method
at the end of each period the average cost of each item in inventory would be the weighted average of the costs of all items in inventory
78
the weighted average is determined by
dividing the total costs of inventory available by the total number of units of inventory available
79
moving average method
computes the weighted average cost after each purchase by dividing the total cost of inventory available after each purchase by the total units available after each purchase
80
in periods of rising prices, the _____ method generally results in the lowest ending inventory, the highest COGS, and the lowest net income
- LIFO
- LIFO = Lowest
81
gross profit method
used for interim financial statements as part of a periodic inventory system
82
firm purchase agreement
a legally enforceable agreement to purchase a specified amount of goods at some time in the future
83
historical cost
basis for valuation of purchased fixed assets
84
donated fixed assets
recorded at FMV
85
cost of land
all costs incurred up to excavation for the new building are considered land costs
86
interest costs
interest costs during the construction period should be added to the cost of land improvements based on the weighted average of accumulated expenditures
87
construction period interest should be capitalized based on
weighted average of accumulated expenditures as part of the cost of producing the fixed assets
88
weighted average amount of accumulated expenditures
capitalized interest costs for a particular period are determined by applying an interest rate to the average amount of accumulated expenditures for the qualifying asset during the period
89
interest rate on borrowings
should be used to determine the amount of interest cost to be capitalized for the period
90
interest rate on excess expenditures
if the average accumulated expenditures outstanding exceed the amount of the related specific new borrowing, interest costs should be computed on the excess
91
not to exceed actual interest costs
total capitalized interest costs for any particular period may not exceed the total interest costs actually incurred by an entity during that period
92
