Test 2 Flashcards
What is Time Value of Money?
Indicates the relationship between time and money
Is a dollar worth more today or in the future and why?
Today because it can be invested today and make money on it (and because of inflation in the future)
What are Present value-based accounting measurements used for?
Notes
Bonds
Leases
Pensions
Business combinations
Disclosures
What is Interest?
Payment for the use of money
What are the 3 variables in interest computation?
Principal (p) - the amount borrowed or invested
Interest Rate (i) - a percentage of the outstanding principal
Time (n) - the number of periods that the principal is outstanding
What is the Simple Interest Formula?
P x I x N
What is Compound Interest?
Interest computed on both principal plus any interest earned (not yet paid)
When does an Ordinary Annuity of 1 occur?
End of period
When does an Annunity become due?
Payments occur at the beginning of each period
What is the most liquid asset?
Cash
What does Cash include?
Currency ($) and coin
Petty Cash
Available funds on deposit at the bank
Money Orders, Certified checks, Cashier’s checks
Personal checks and savings accounts
What are Cash Equivalents?
Short=term, highly liquid investments that can be converted to wash within 0-3 months
What are examples of Cash Equivalents?
Treasury Bills
Commercial paper
Money market funds
What is Restricted Cash?
Material funds set aside for a particular purpose; can be either short-term or long-term
What does Restricted Cash include?
Cash for plant expansion
Cash for retirement of long-term debt
Cash needed for compensating balance
What are some Non-Cash Items?
Post dated checks and IOUs
Travel Advances to employees
Postage on hand
Bank overdrafts
What is the Revenue Recognition Principle?
Company should recognize revenue when it satisfies its performance obligation by transferring the goods or services to the customer
Dr. A/R (+A)
Cr. Sales Revenue (+R)
What does a sales discount of 2/10, n/30 mean?
2% off sales price if paid within 10 days, or in full in 30 days
What type of account is Sales Discounts?
Contra Revenue (XR)
What type of account is Sales Returns and Allowances?
Contra Revenue (XR)
What type of account is Allowance for Sales Returns?
Contra Asset (XA)
What is Accounts Receivable recorded at per GAAP?
Net Realizable Value (NRV)
If a Notes Receivable’s stated rate is > market rate, what is this called?
Premium
If a Notes Receivable’s stated rate < market rate, what is this known as?
Discount
What is Sales without Recourse when regarding Disposition of A/R and Notes Rec.?
Seller of the receivables assumes no responsibility for any credit losses associated with the transferred receivables; factor assumes the risk of collectability and credit losses
What is Sales with Recourse?
Seller guarantees payment to purchaser in the event the debtor fails to pay
What is the Accounts Receivable Turnover Ratio?
Used to evaluate the liquidity of A/R
Measures the number of times a company collected receivables during the period
Net Sale / Average Net Accounts Receivables
