TEST 2 ACCT Flashcards
elected by the shareholders to represent their interests
- its audit committee is responsible for maintaining the integrity of the company’s financial reports
Board of Directors
The procedures designed to ensure that the company is managed in the interest of the shareholders
Corporate Governance
Predictions of earnings for the future accounting period, prepared by financial analysts
Earning Forecasts
The private sector body given the primary responsibility to work out the details rules that become generaly accepted accounting principles
Financial accounting standards Board
The report used by publicly traded companies to disclose any material event not previously reported that is important to investors
Form 8-K
The annual report that publicly traded companies must file with the SEC
Form 10-K
The quarterly report that publicly traded companies must file with SEC
Form 10-Q
Net sales less cost of goods sold
Gross Profit (Gross margin)
Managers of pension, mutual, endowment, and other funds that invest of the behalf of others
Institutional investors
Suppliers and financial institutions that lend money to companies
Lenders(creditors)
Amounts that are large enough to influence a user’s decision
Material Amounts
A written public news announcement normally distributed to major news services
Press Release
Individuals who purchase shares in companies
Private investors
The private sector body given the primary responsibility to work out detailed auditing standards
Public company accounting oversight Board(PCAOB)
The U.S government agency that determines the financial statements and other disclosures that public companies must provide to stockholders and the measurement rules that they must use in producing those statements
Securities and Exchange program
Auditors statement that the financial statements are fair presentations in all material respects in conformity with GAAP and that the company maintained effective internal controls over financial reporting
Unqualified(Clean) Audit opinion
Measures the excess of sales prices over the costs to purchase or produce the goods or services sold as a percentage
Gross profit percentage
Measures how much the firm earned for each dollar of investment
Return on assets
Credit card discounts and sales or cash discounts must be recorded as ______ that reduce net sales
contra-revenues
sales return and allowances should be treated as ______
contra-revenue
sales of bundled items must be accounted for using a _____ process to allocate sales price to perform obligations
5 step
When recievables are material, companies must employ the allowance method to account for uncollectibles. The steps in process are:
- end of period adjusting entry to record bad debt expense estimates
-writing off specific accounts determined to be uncollectible during the period
This ratio measures the effectiveness of credit-granting and collection activities
Receivables turnover ratio
When a net decrease in accounts receivable for the period occurs, cash collected from customers is always more than revenue and cash flows from operations increase
Effects on cash flow
Measures the effectiveness of credit-granting and collection activites
receivables turnover ratio
Open accounts owed to the business by trade customers
accounts recievable
Estimates uncollectible accounts based on the age of each account receivable
Aging of accounts receivable methods
Contra-asset account containing the estimated uncollectible accounts receivable
Allowance for doubtful accounts
Bases bad debt expense on an estimate of uncollectible accounts
Allowance method
Expense associated with estimated uncollectible accounts receivable
Bad debt expense( doubtful accounts expense, uncollectible accounts expense, or provision for uncollectible accounts)
Process of verifying the accuracy of both the bank statement and the cash accounts of a business
bank reconciliation
a monthly report from abank that shows deposits recorded, checks cleared, other debits and credits, and a running bank balance
Bank statement
short-term investments with original maturities of three months or less that are readily convertible to cash and whose value is unlikely to change
Cash equivalents
Fee charged by the credit card company for it services
Credit card discount
The top line reported on the income statement.
Net sales
net sales= sales revenue- (credit card discounts + sales discounts + sales return and allowances)
Written promise that requires another party to pay the business under specified conditions
Note receivable
Base bad debt expense on the historical percentage of credit sales that result in bad debts
Percentage of credit sales method
cash discount offered to encourage prompt payment of an account receivable
Sales (or cash) discount
A reduction of sales revenues for return of or allowances for unsatisfactory goods
Sales return and allowances
principle requires that revenues be recorded when earned. For most merchandisers and manufacturers this principle is the time of shipment or delivery of goods
Revenue recognition principle
Revenue recorded at point of shipping, because title changes hands at shipment
Freight on Board shipping point
revenue recorded at point of destination, because title changes hands on delivery
FOB destination
companies accept credit cards for several reasons
credit card discounts
credit card discount formula
sales* credit card fee rate
If goods are defective, damaged, or unsatisfactory
sales return and allowance (x-tra rev account)
credit card discounts, sales discounts, and sales return and allowances are ALL ____
Contra revenue accounts
When a company sells on credit, it knows that some of these customers will NOT pay their debts
Accounting for bad debts
requires recording of bad deb expense in the same accounting period in which the related sales are made, but at the end of the period of salem the company doesnt know which customers will not pay
Matching principle
-make the end-of-period adjusting entry to record estimated bad debt expense
-write off specific accounts determinded to be uncollectible during the period
allowance method of accounting for bad debts
contra-asset account containing the estimated uncollectible accounts receivable
allowance for doubtful accounts
selling, general and adiminstrative expense in income statement
bad debt expense
write-offs specific accounts deteermined to be ______ during the period
uncollectible
two methods are allowed under GAAP to estimate bad debt expense
-percentage of credit sales
-aging of accounts receivable
relies on the fact that as accounts receivable becomes older and more overdue, it is less likely that they will be collected
aging of accounts receivable method
