Final Review Flashcards
Using a perpetual inventory system, the entry to record the return of merchandise purchased on account includes a
debit Accounts Payable
credit Merchandise Inventory
Buyer sends seller a ____ memo
debit
Buyer or Seller? “record the return of merchandise purchased”
buyer (“purchased”)
Company side Bank Reconciliation
add Notes Receivables
add Interest
less NSF Checks
less Bank Service Charges
Bank side Reconciliation
add Deposits in Transit
less Outstanding checks
** less Electronic Transfers?
Credit Terms
arrangement between buyer and seller as to when payment is made
Credit Memos ____ to cash amount in bank reconciliation
add
Debit Memos ____ cash amount in bank reconciliation
deduct
Direct write-off method vs. allowance method of accounting for uncollectible accounts. direct write offs….
record uncollectibles as they occur at the time the account is determined worthless
Who uses direct write off system?
small businesses with few receivables
Equipment with a cost of $150,000 has an estimated residual value of $15,000 and an estimated life of 7 years or 15,000 hours. It is to be depreciated by the straight line method. What is the amount of depreciation for the first full year, during which the equipment was used 6,300 hours?
$19,285.71
(150,000-15,000) / 7
The most widely used depreciation method is
straight line method
Two methods of accounting for uncollectible receivables are the…
allowance method
direct write-off method
Dalton company uses the estimate based on analysis of receivables to account for uncollectible accounts. The company has determined that the Irish Company account is uncollectible. What is the journal entry to write-off this account?
debit ADA
credit AR-Irish co.
The term cash includes:
cash checks
credit cards
cash, coins, currency
money orders, money on deposit
When the three sections of a balance sheet are presented on a page in a downward sequence, it is called the ____
Report Form
Account form is the other way
Equation for the straight line depreciation calculation.
(cost- residual value) / useful life
Petty Cash (type of account and normal balance)
Asset, Debit Balance
An estimate based on an analysis of receivables shows that $10,090 of account receivables are uncollectible. The allowance for doubtful accounts has a debit balance of $1,120. The adjusting entry at the end of the year will include a credit to Allowance for Doubtful Accounts in the amount of:
$11,210
A machine with a cost of $200,000 has an estimated residual value of $8,000 and an estimated life of 10 years or 25,000 hours. It is to be depreciated by the units of production method. What is the amount of depreciation for the third full year, during which the machine was used 8,000 hours?
$61,440
Depreciation cost= (200,000-8,000)= 192,000
Total depreciation value / hours useful= (192,000/25,000)
=per hour rate = $7.68
(per hour rate= 7.68)(hours used=8,000)= 61,440
Merchandise with an invoice price of $7,000 is purchased on September 2 subject to terms of 3/10, n/30, FOB destination. Freight costs paid by the seller totaled $400. What is the cost of the merchandise if paid on September 12, assuming the discount was taken?
$6,790
(97%)(7000)=6790
do not add shipping (seller responsibility)
FOB destination
seller responsible for shipping
do NOT add to buyer
Expected useful life begins…
at time asset is placed in service.
Gross Profit
Sales- Merchandise Sold
excess of sales revenue is more than COGS
The method of determining depreciation that yields successive reductions in the periodic depreciation charge over the estimated life of the asset is
Double Declining Balance Method
At the end of the current year Accounts receivable has a balance $950,000. Net sales for the year total $5,000,000. Bad debt expense is estimated at 3/4 of 1% of net sales. The allowance for doubtful accounts has a credit balance of $55,000 after adjustment. Determine the net realizable value of accounts receivable.
$895,000
950,000-55,000=895,000
A note receivable due in 18 months is listed on the balance sheet under the caption
Investments
What is deducted from the balance per books on a bank reconciliation?
NSF checks, Bank errors, service charges
balance “per books” means
company balance
Businesses use the bank reconciliation as a method of
Internal Control
Items that would be subtracted from the balance per bank on a bank reconciliation
outstanding checks
Proper sequence for the steps in the accounting cycle:
- Transactions
- Post to Ledger
- Trial Balance
- Adjustment Data
- Prepare Financial Statements
- Journalize closing entries
- Post closings to the ledger
In recording the cost of merchandise sold for cash, based on data available from perpetual inventory records, the journal entry is:
debit COGS
credit MI
Allowance for Doubtful Accounts- type of account and normal balance
Contra-Asset
Credit Balance
Alternative names for Bad Debt Expense are…
Doubtful accounts expense
Uncollectible Account Expense
The depreciation method that does NOT use residual value in calculating the first years depreciation expense is
Double Declining Balance
A $140 petty cash fund has cash of $18 and receipts of $100. The journal entry to replenish the account would include a
debit Expense 100
debit Cash Short and Over 22 (118[cash left = 18 = 100 receipts]+?=140)
credit Cash 122
Cash Short and Over is used when
the cash fund or register is not in balance
OVER: revenue (cr.)
SHORT: expense (dr.)
Maturity Value
(Face amount) + (Interest)
Interest
(face amount)(rate)(time)
A 90 day, %15 note for $15,000, dated May 1, is received from a customer on account. The maturity value of the note is
15,000+(15,000)(15%)(90/360)= $17258
The form of income statement that derives its name from the fact that the total of all expenses is deducted from the total of all revenues is called a
single step statement
The financial statement that presents a summary of the revenues and expenses of a business for a specific period of time, such as a month or year, is called a(n)
Income statement
A machine with a cost of $85,000 has an estimated residual value of $15,000 and an estimated life of 3 years or 28,000 hours. What is the amount of depreciation for the second full year, using the double declining balance method?
Double declining rate = straight line x 2= (1/3) x 2 = 66%
66%(85,000)= 56,100 (depreciation exp for the 1st year)
first year book value = (85,000- 56,100)= $28,900
66%(28,900)= $19,074 (2ND YeaR DEPRECIATION EXP!)
When a buyer returns merchandise purchased for cash, the buyer may record the transaction using the following entry:
debit Cash
credit Merchandise Inventory
On the balance sheet, the value of the accounts receivables is reduced to the amount that is expected to be collected; this amount is called __________
Net realizable value
Formula for depreciation cost is
(Cost of Asset)- (Residual or Salvage)
The retained earnings statement shows
Net income, Net loss, dividends
The primary difference between a periodic and perpetual inventory system is that a
perpetual is updated each time inventory changes
periodic is once a year or once a period
Which of the following is NOT a true statement about the accounting equation and its elements?
a) the accounting equation is Assets= liab- SE
b) Assets are the resources a business possesses
c) Liabilities represent debts of a business
d) examples of assets are cash, land, buildings, and equipment
a) The accounting equation is Assets= Liabilities- Stockholder’s Equity
Which fixed asset account will NOT have a related contra asset account?
Land (does not depreciate)
A fixed asset with a cost of $50,000 and accumulated depreciation of $48,500 is sold for $4,500. What is the amount of the gain or loss on disposal of the fixed asset?
$3,000
50,000-48,000=1,500
4,500-1,500= 3,000
Internal control policies and procedures consist of
- Protecting Assets
- Help managers achieve goals
- Report accurate information
After all of the account balances have been extended to the Balance Sheet columns of the work sheet, the totals of the columns show debits of $132,000 and the credits of $87,000. What is the amount of net income(loss)?
$45,000 = net income(loss)
132,000-87,000= 45,000
Allowance for Doubtful accounts has a credit balance of $2,200 at the end of the year (before adjustment), and an analysis of customers accounts indicates doubtful accounts of $14,900. Which of the following entries records the proper provision for doubtful accounts?
debit BDE 12,700
credit ADA 12,700
ADA- credit 2,200; ADJ 12,700; bal. 14,900
*analysis method to calc estimate -> 14,900 in ADA at END of period means after the adjustment.
When the amount of use of a fixed asset varies from year to year, the method of determining depreciation expense that best matches allocation of cost with revenue is
Units of Production Method.
