ACC 210 test 2
Periodic inventory system
Sherman Company recognizes cost of goods sold after completing a physical inventory.
Using the perpetual inventory system, what is the effect of a sale of inventory on assets?
assets increase by the sales price of the inventory, assets decrease by the cost of the inventory
Meller purchases inventory on account. As a results, Meller's
assets will increase
With the allowance method, bad debt expense is recorded
at the end of the period when bad debts are estimated.
A trade discount is recognized
by reducing the revenue amount recorded.
A check that is NSF (nonsufficient funds) is a check that
cannot be paid because the account does not contain enough funds
The purchase price and all costs to bring an asset to its desired condition and location for use should be ______.
capitalized
The asset that is most susceptible to employee fraud is
cash
A bank reconciliation reconciles the bank statement with the company's
cash account in the balance sheet
Allowance for Uncollectible Accounts has a credit balance because it is a(n) _____ account.
contra-asset
A periodic inventory system measures cost of goods sold by
counting inventory at the end of the period.
The account "Allowance for Uncollectible Accounts" normally has a ___ balance.
credit
Under the allowance method, companies estimate _____ uncollectible amounts and report those estimates in the _____ year.
future; current
The direct write-off method is used when
uncollectible accounts are not anticipated or are immaterial.
The allowance method estimates
uncollectible accounts.
Where is a note receivable reported in the balance sheet?
In either current or noncurrent assets, as appropriate.
A company's plans to safeguard company assets and enhance the reliability and accuracy of accounting information are referred to as
Internal controls
The definition of inventory includes which of the following items?
Items held for resale, Items used currently in the production of goods to be sold, Items currently in production for future sale
Which of the following items are included in cash?
checks from customers, currency and coins, balance in checking accounts
Cash disbursements that have been recorded in the company's accounting records but are not yet recorded by the bank are called
checks outstanding
Preparation of a bank ___ helps maintain control of cash accounts.
reconciliation
A ___ difference in cash occurs when a company records a transaction either before or after the bank records the same transaction
timing
Perpetual
"Inventory"
Periodic
"Purchases"
Tudor Corp. has an ending balance in the accounts receivable account of $20,000. Tudor recorded bad debt expense of $1,000. Tudor has an ending balance in the allowance for uncollectible accounts of $2,000. What is the net accounts receivable balance?
$18,000
Prime Corp. has an ending balance in the accounts receivable account of $100,000. Prime recorded bad debt expense of $3,000. Prime has an ending balance in the allowance for uncollectible accounts of $7,000. What is the net accounts receivable balance?
$93,000
When an account previously written off is collected in full, which is required to ensure the accounting for the complete payment history of the customer?
An entry to reinstate the account receivable and an entry to record payment.
Raven receives a 3-year note receivable from a customer for goods sold. How should Raven report this note receivable in its financial statements?
As a noncurrent asset
Where is inventory reported in the financial statements?
Balance sheet as a current asset
When adjusting the company's cash account balance in a bank reconciliation, which item must be added to the cash account balance?
Collection of funds by the bank
The framework for designing an internal control system is provided by the
Committee of Sponsoring Organizations (COSO) of the Treadway Commission
The allowance method is required by
GAAP
Who has final responsibility for internal controls?
Management
Capitalized
Purchase price plus costs necessary to get asset ready for use
One of the most important internal controls for cash is the bank
Reconciliation
Which of the following are detective controls?
Reconciliations, performance reviews, and audits
Expensed
Research and development costs
Which of the following methods are not used for inventory costing?
Simple-average, NIFO
Which of the following methods are available for costing inventory?
Specific identification, LIFO, Weighted-average, FIFO
Who is responsible for providing an opinion on management's assessment of internal control?
The company's auditors
The account "Allowance for Uncollectible Accounts" is classified as
a contra asset to accounts receivable.
Accounting errors must be corrected
as soon as they are discovered
Under the periodic inventory system, purchase returns and purchase discounts accounts represent
contra purchases accounts.
Because cash normally is assumed to be available for spending, it is usually classified on the balance sheet as
current asset
The journal entry to record bad debt expense includes:
debit to bad debt expense, credit to allowance for uncollectible accounts
The two types of control procedures are preventive and
detective
When a sale occurs under the periodic inventory system, we record:
only the sale, but not the related cost of goods sold
Managers typically monitor inventory very closely to ensure that sufficient units are available for sale and to prevent inventory from becoming
outdated
Kilian Company's inventory balance at the end of the current year does not include $10,000 of inventory that was stored in a separate warehouse and accidentally excluded from the physical count. If the error is not discovered, the effect of this error on financial statements in the following year will be:
overstated net income
Ronald Corporation purchases inventory with terms FOB destination. The shipping costs are $300. The shipping costs are
paid by the supplier
When a business provides services to a customer, and the customer promises to pay later, this is referred to as
credit sales
Sales to customers in which the customers pay within 30 to 60 days are referred to as
credit sales or sales on account
The income statement approach for estimating bad debts uses a percentage of
credit sales.
When a customer returns a product for a refund, in which account is the entry recorded?
sales return
When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n)
sales return
A petty cash fund is used for
small amounts of cash needed for low-cost items.
Long-term assets are classified as
tangible and intangible
The list price in Boyton's catalog indicates that Product A sells for $3,000, with a trade discount of 5%. Boyton sells the goods to a customer who qualifies for the trade discount. At what amount should Boyton record the sale and related account receivable?
$2,850
Internal control consists of plans to
-provide accurate and reliable accounting information -safeguard company assets
What would cause a bank statement not to agree with the cash balance in the accounting records?
-the bank error in recording a deposit made by the company -the bank paid interest that the company has not recorded -deposits outstanding that have been recorded on the company records, but not the banks -the company made an error in recording a deposit
Which of the following items are not included in cash?
Accounts receivable from customers
In a bank reconciliation, which of the following will require a journal entry by the company?
Adjustments to the balance per books for items discovered on the bank reconciliation that were not yet recorded on the books
Amend Inc. debited Accounts Receivable and credited Allowance for Doubtful Accounts to reestablish an account previously written off. Amend Inc. should also debit _______ and credit _______.
Cash; Accounts Receivable
Because prices change over time, costs reported for these accounts tend to differ among inventory cost methods.
Cost of Goods Sold, Inventory
When an account previously written off is collected in full, the entry to reverse the previous write-off would require which of the following?
Credit Allowance for Uncollectible Accounts, Debit Accounts Receivable
Joyce Corp. uses the percentage-of-receivables method to account for bad debt expense. Joyce determines that a customer account of $20,000 should be written off as uncollectible. The write off of the account will include which of the following entries?
Credit to Accounts Receivable, Debit to Allowance for Uncollectible Accounts
Which of the following represent reasons why managers closely monitor inventory levels?
To minimize costs of inventory write-downs due to obsolete inventory, To ensure that sufficient units are available
Inventory is classified as
a current asset
Planters Corp. wrote off a customer's uncollectible account in April. In the following month, Planters collected from the customer in full. The entry to reinstate the account would require a
credit to Allowance for Uncollectible Accounts.
When a company finds out that an NSF check was written to the company, the company must ______ the balance in the cash account
decrease
Ophelia Inc. just learned that Patton Inc., one of its customers with an outstanding accounts receivable balance, filed for bankruptcy. Assuming that the company utilizes the allowance method, Ophelia should record a(n):
decrease in Accounts Receivable
In a bank reconciliation, an outstanding check is ______.
deducted from the bank balance
When the allowance method is used, the write-off of an uncollectible account:
has no effect on net income
A multiple-step income statement reports multiple levels of
income
Purchase returns are recorded in a separate contra purchase account in a ___ inventory system
periodic
Purchase discounts and purchase returns are recorded as a reduction in inventory cost in a ____ inventory system
perpetual
Freight-in costs are debited to Inventory in this inventory system:
perpetual only
A ____ inventory system updates the inventory account each time a sale or purchase is made, whereas a ____ inventory system calculates cost of goods sold and ending inventory at the end of the reporting period.
perpetual; periodic
Which of the following are preventive controls?
physical controls, separation of duties
Separation of duties and E-commerce controls are examples of ______ controls
preventive
Two important ratios that help in understanding a company's effectiveness in managing receivables are the:
receivable turnover ratio, average collection period
In a periodic inventory system, freight-in costs are
recognized in a temporary freight-in account.
Clover Corporation uses the perpetual inventory system. When Clover purchases inventory on account, the entry will include which of the following?
Debit inventory
Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest cost of goods sold?
FIFO
For internal record keeping, most companies carry their inventory using the _____ basis.
FIFO
Which inventory cost flow assumption is commonly used internally by companies that externally report under the LIFO cost flow assumption?
FIFO
True or false: Accounts receivable not expected to be collected should be counted in the assets of the company until they are later written off.
False
True or false: The entry for a sale to customers is different depending on whether the customer pays with cash or a check.
False
Which of the following led to the passage of the Sarbanes-Oxley Act of 2002?
High profile accounting scandals during the early 2000s
Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest ending inventory?
LIFO
The cumulative difference between reporting inventory at LIFO rather than FIFO is commonly referred to as the
LIFO reserve
The difference between LIFO and FIFO disclosed in the notes to the financial statements of a company currently utilizing the LIFO cost flow assumption is sometimes referred to as the
LIFO reserve
What is the formula for the receivables turnover ratio?
Net credit sales divided by average accounts receivable (net).
Which of the following items will require a journal entry following a bank reconciliation?
Notes collected by the bank, NSF checks
Effective internal control over cash requires segregation of duties. Which of the following duties should be segregated?
Opening the mail and deposit of checks in the bank, Depositing checks into the bank and recording receipts in the accounting records
Which of the following inventory systems requires a physical count in order to determine cost of goods sold?
Periodic inventory system
Perpetual inventory system
Peter Company recognizes cost of goods sold each time it recognizes a sale.
Net revenues is calculated as total revenues minus which of the following items?
Sales allowances, Sales returns, Sales discounts
When adjusting the company's cash account balance in a bank reconciliation, which items reduce the company's cash account balance?
Service charges, Charges for NSF checks
A trade discount is
a percentage reduction from list price
Mueller Inc. utilizes a periodic inventory system. When Mueller incurs shipping costs for purchased goods, the account debited should be
a separate freight-in account.
A(n)____ ____ is the legal right to receive cash from a credit sale and represents an asset of the company.
account receivable
The allowance for uncollectible accounts is a contra account to
accounts receivable
The amount of cash owed to a company by its customers from the sale of goods or services is referred to as
accounts receivable
In a bank reconciliation, a deposit outstanding is
added to the bank balance
In a perpetual inventory system, freight costs on purchases are
added to the inventory account.
The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the ____ method of accounts receivable.
aging, age, or ages
A partial adjustment to the amount owed by the customer for goods that were not returned, but did not fully meet the customer's expectations is referred to as a sales
allowance
To record an estimate for future bad debts at the end of the period, an adjustment would be made with a credit to
allowance for uncollectible accounts.
The lower of cost and net realizable value method was developed to
avoid reporting inventory at an amount that exceeds the benefits it provides.
The cost of estimated accounts receivable that will not be collected is referred to as ____ ____ expense
bad debt
The estimated expense for accounts that may not be collected is referred to as
bad debt expense.
Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to
be more accurate.
A sales allowance ____ the amount owed by the customer for merchandise that is _____ by the customer.
decreases; retained
Cash receipts that have been recorded in the company's accounting records but are not yet recorded by the bank are
deposit outstanding
The Committee of Sponsoring Organizations (COSO) of the Treadway Commission provided a framework for
designing an internal control system
The Accounts Receivable account is reduced when the seller:
determines that a specific customer account will not be collectible
In a perpetual inventory system, purchase discounts and purchase returns
directly reduce the Inventory account balance.
A trade discount is a reduction from the list price, which is used to
disguise real prices from competitors, change prices without publishing a new catalog, give quantity discounts to customers
The shipping term FOB stands for
free on board
Norma Inc. uses the perpetual inventory system. When the company records a sale, it should make entries to:
increase an asset and increase revenue, decrease an asset and increase an expense
Purchasing inventory on account:
increase assets, increase liabilities
In a LIFO inventory system, inventory costs shown in the balance sheet may be distorted because they may represent costs
incurred several years earlier.
An asset that has no physical substance is referred to as a(n)
intangible asset
A major difference between companies that provide services and companies that manufacture or sell goods is that those that manufacture or sell goods must account for:
inventory
Items held for sale in the normal course of business are referred to as
inventory
Margot Inc, which uses the perpetual inventory system, purchases 500 units of inventory to be held for resale. Margot should debit the purchase to:
inventory
What type of company purchases raw materials and makes goods to sell?
manufacturers
What is the effect of recording a sale of inventory under the perpetual inventory system on the financial statements?
total assets increase, net income increases, stockholders' equity increases
If a company uses the perpetual inventory system, how many entries are made when a sale occurs?
two
In a perpetual inventory system, when a company sells inventory on account, how many entries are required?
two
Kilian Company's inventory balance at the end of the year does not include $10,000 of inventory that was stored in a separate warehouse and accidentally excluded from the physical count. If the error is not discovered until the following year, the financial statement effect in the current year will be:
understated assets, retained earnings, and net income
When the direct write-off method is used, an entry for bad debt expense is required
when the account receivable is determined to be uncollectible.
FOB shipping point means title to the goods passes
when they are shipped
The two most common sources of occupational fraud are
misuse of company resources, financial statement manipulation
Differences between the bank statement balance and the cash account balance in the accounting records are primarily caused by timing differences and
error
Gwendolyn uses the allowance method to account for uncollectible receivables. Gwendolyn should record _____ bad debt expense ______.
estimated; at the end of the year
True or false: Under the perpetual inventory system, an adjusting entry is needed to close temporary inventory-related accounts, record cost of goods sold, and adjust the inventory account balance.
false
Which of the following steps are necessary to reconcile the bank balance and the cash account balance.
first adjust banks cash balance, second adjust the company's cash balance, third record items that reconcile the company's cash balance
The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employer's resources is called occupational
fraud
When a person intentionally deceives another person or company for personal gain, this is referred to as
fraud
Which of the following are common controls over cash receipts?
having two different employees take custody of the checks and make the deposit, opening mail daily and making a detailed list of checks received
In times of rising prices, cost of goods sold determined using the LIFO inventory assumption typically will be _____ than cost of goods sold determined using the FIFO inventory assumption.
higher
Gerald Corporation purchases inventory FOB shipping point. The shipping costs are $300. The shipping costs are
included in Gerald's inventory.
Using a percentage of each period's net credit sales to estimate bad debt expense is a(n) ____ ____ approach to measuring bad debts.
income statement
The type of income statement that reports a series of subtotals such as gross profit, operating income, and income before taxes is a ______ income statement.
multiple-step
Total revenues less discounts, returns, and allowances are referred to as ____ revenues.
net
Pixie Inc. writes off a specific accounts receivable. If Pixie is using the allowance method, the write off will _____ net income.
not affect
Receivables not expected to be collected should
not be counted in assets of the company.
A formal credit arrangement between a creditor and debtor is called a(n)
note receivable
A formal, signed credit agreement between a lender and a borrower is called a(n) _____ by the lender.
note receivable.
If a company uses the periodic inventory system, how many entries are made when a sale occurs?
one
The exclusive legal right to manufacture a product or to use a process is called a(n)
patent
A cash discount representing a reduction in the amount to be paid by a credit customer if the customer pays within a specified period of time is also referred to as a(n) ___ discount
sales
Long-lived assets are typically classified in two categories:
tangible and untangible
Accounts receivable are typically classified as current assets because
they will be converted to cash within 1 year.
A bank reconciliation compares the company's cash records with the bank statement and discovers differences in those amounts due to
timing differences and errors
A company that expects that some of its customers will not pay the agreed upon sales price must utilize the
allowance method
The receivables turnover ratio and the average collection period provide information about a company's
effectiveness in managing receivables
Major differences between service companies and retail or manufacturing companies is that retailers and manufacturers must account for
inventory, cost of goods sold
In a perpetual inventory system, when inventory is purchased, the ____ account is debited, whereas in a periodic system, the ____ account is debited.
inventory; purchases
In times of rising prices, ending inventory determined using the LIFO inventory assumption will be ____ than ending inventory determined using the FIFO inventory assumption.
lower
The ______ method of valuing inventory was developed to avoid reporting inventory at an amount that is ______ than the benefits it can provide.
lower of cost and net realizable value; greater
The most common source of occupational fraud is
misuse of company resources
Which of the following is a discount in the amount to be paid if the customer pays within a specified time period?
sales discount