Ac test 2
The assumption a company makes about its inventory cost flow has
An effect on company's balance sheet and income statement
If a company wrote down its inventory to the lower replacement value than the affect would be an decrease in
Assets and stockholders equity
To record the estimated amount of bad credit sales is a debit to
Bad debt expense and a credit to allowance for doubtful accounts
If cost of acquiring inventory is rising, LIFO will result in which of the following compared to FIFO?
CGS would be higher, gross profit would be lower, income tax expense would be lower
What would be found on merchandisers income sheet and not on a service firms
Cost of good sold and sales revenue
Inventory balance on the balance sheet reports the
Cost of goods availabke for sale
To record a write down of inventory from cost to its lower market value includes a debit to
Cost of goods sold and credit to inventory
Using perpetual system, purchasing merchandise on account includes
Credit to accounts payable and debit to inventory
Purchase returns and allowances are accounted for with a
Credit to inventory and debit to cash/ accounts payable
Inventory is reported as
Current asset on balance sheet
What is recorded at the end of an accounting period when accounting for receivables using the allowance method
Estimate is recorded by debiting bad debt expense and crediting allowance for doubtful account in the same period as the related sale
Disadvantage of extending credit to customers is that the cost may _____ the additional sales revenue received through credit transactions
Exceed
Failing to record bad debt expense in the same period as the related revenue violates which principle
Expense recognition principle
An increase in a company's inventory balance from a prior year is
Good if the inventory turnover ratio is higher
If costs of goods sold increases than
Gross profit decreases
What is found on income statement of a merchandiser
Gross profit, cost of goods sold and sales revenue
Sales returns and allowances are reported on the
Income statement
Supplies is a current asset intended to be used
Internally, not sold
In a perpetual system what account is denoted when a company purchases merchandise on account
Inventory
Journal entry to record payment of cash to fedex for shopping costs for inventory purchased FOB shipping point includes a debit to
Inventory and credit to cash
Purchase returns and allowances are accounted for with a credit to
Inventory and debit to cash/ accounts payable
Why is inventory reported as current asset
Inventory is reported as a current asset because it will be converted into cash within a year of the balance sheet date.
The adjustment to record inventory shrinkage will decrease
Inventory on balance sheet
Walmart has highest
Inventory turnover ratio
What is occurring if a company is debiting cash and crediting notes receivable
It is collecting the principal on amounts lent earlier
the IFRS does not allow
LIFO
What companies sell goods that have been obtained from other companies
Merchandising
Net Sales on an income statement equals Sales Revenue ________.
Minus sales return, allowances and discounts
When accounting for accounts receivable, a primary objective is to
Not overstate assets and stockholders equity by the estimated amount of bad debt
Series of activities that the company undertakes to generate sales and cash
Operating cycle
Inventory records updated at end of accounting period
Periodic inventory
Allowance for doubtful accounts is a
Permanent account
Inventory account is updated every time inventory is bought
Perpetual
In perpetual inventory system what is true
Purchaser should record freight-in as an asset, inventory and the seller should record freight-out as a selling expense
Cost of goods sold equal beginning inventory plus _____ minus ending inventory
Purchases
What effect does the adjusting entry for interest earned but not yet received have on the accounting equation
Results in an increase in assets and stockholders equity
Issuing a gift card is recorded with debit to
Sales revenue/ inventory and a credit to deferred revenue and cost of goods sold
How should the seller of a bundle sale be recorded when the sale involves the delivery of a copier machine and a one year service agreement
Seller must split the money between product and service contract and recognize the revenue when delivered and the service is performed
Perpetual inventory system is able to estimate what
Shrinkage
Inventory is a current asset intended to be
Sold
Purchase transactions affect the
balance sheet and not the income statement
NSF Checks from customers should be subtracted from the ____ balance on a bank reconciliation
book
What is not allowed under GAAP
direct write off
Gross profit equals
net sales minus cost of goods sold
Discount period
10
discount percentage
2
Comparative format allows for comparisons of income statement line items over time by providing
3 consecutive years
When full amount is due
30
sales on account increases
Accounts receivable, assets and stockholders equity on balance sheet and sales revenue on income statement
Why is the bad debt expense on the income statement less than the allowance for doubtful accounts on the balance sheet
Allowance for doubtful accounts had an unadjusted credit balance
When a company records a sale of merchandise it must also record
Decrease in inventory and cost of goods sold which will appear on income statement
What accounts are temporary accounts closed at the end of the accounting period into retained earnings
Depreciation expense, bad debt expense, and sales revenue
What should be debited on inventory
Freight in and purchases of merchandise on account
Entry to record the purchase of inventory on account causes
Increase in assets and liabilities
If a company were to ignore the fact that the market value of its inventory is lower than its cost then
It's assets and stockholders equity would be overstated
Companies with high sales volume such as Walmart usually have
Low gross profit percentages
Companies generally report their accounting method for inventory in the
Notes to the financial statements
What inventory method is used for expensive and unique inventory items
Specific identification
Gross profit is
Subtotal on the income statement
Entry that includes a debit to allowance for doubtful accounts and a credit to accounts receivable is a
Write-off of a specific customers account