ACTG FINANCIAL FINAL
explain the process of calculating ending accounts receivable balance
"sales on account"- "cash collected from customers" = x. take x and add it to the beginning balance
what is the formula for depreciable exp (straight line method) ?
(historical cost- residual value) / useful life
is the income statement talking about cash?
NO
what is the income statement formula?
REV -COGS GP -OPERATING EXPENSES OPERATING INCOME -NON OPERATION EXPENSES equals: net income
What does the phrase, "Revenue is recognized at the point of sale" mean?
Revenue is recorded in the accounting records and reported on the income statement when goods are sold and delivered to the customer
The cost principle requires that companies record fixed assets
acquisition cost
for the Cash Balance from Bank Statement, do you "less" or "add" despot in transit?
add
from the bank reconciliation document, what figure should be put on the balance sheet?
adjusted cash balance
how do you calculate working capital?
assets-liabilites
how do you calculate the current ratio?
assets/liabilities
when is allowance method recorded?
at period of sale
when is the allowance method recorded?
at the period of sale
what is the JE for aging method?
dr bad debt expense cr allowance
what is the JE for credit sales?
dr bad debt expense cr allowance
Which of the following is not one of the four basic financial statements? a. Statement of financial position b. Statement of retained earnings c. Gross margin statement d. Profit & loss statement
c. Gross margin statement
what type of account is allowance?
contra asset
the four enhancing characteristics are bound by one constraint, what is that called?
cost constraint
Which one of the following would not appear on a bank statement for a checking account? a. Deposits b. Interest earned c. Service charges d. Outstanding checks
d. Outstanding checks
Which of the following is not shown in the heading of a financial statement? a. The title of the financial statement b. The name of the company c. The time period covered by the financial statement d. The name of the auditor
d. The name of the auditor
if you expense an asset, what is the affect on net income?
decrease
King Enterprises had 27 customers utilizing its financial planning services in 2013. Each customer paid King $25,000 for receiving King's assistance. King estimates that 2% of its $675,000 credit sales in 2013 will be uncollectible. During 2014, King wrote off $2,700 related to services performed in 2013. What is the JE?
dr bad debt expense 2700 cr AR 2700
what is the journal entry for a customer that owes you $50,000 and will not pay (direct write off method)
dr bad debt expense 50,000 cr acct receivable 50,000
what is the JE for direct write off?
dr bde cr ar
credit sales for the year were 1,000,000, our rate is 8%. what is the JE?
dr bde 80000 cr allowance 80000
March 1, HiTech sold 1,000 shares of common stock to several investors for cash of $12,000.
dr cash 12000 cr common stock 12000
A customer of Mutare paid for merchandise originally purchased on account with a check that has been erroneously entered into Mutare's cash account for $570 (it actually has been issued and paid for $750). what is the JE?
dr cash 180 cr AR 180
Note (2500) and interest (75) collected for Tiny Corp. on account. what is the JE?
dr cash 2575 cr note receivable 2500 cr interest 75
March 2, HiTech raised additional funds by borrowing $3,000 on a one-year, 8 percent note payable to First Third Bank of Cincinnati.
dr cash 3000 cr notes payable 3000
March 19, HiTech received $9,000 in advance for advertising services to be completed in the next three months.
dr cash 9000 cr unearned revenue 9000
March 31, HiTech declared and paid a cash dividend of $500 to its stockholders.
dr dividends 500 cr cash 500
Luigi, Inc., purchases a $3,000 computer from WorstBuy Electronics by paying $1,000 cash with the remainder due in 60 days. The journal entry would be
dr equipment 3000 cr cash 1000 cr accounts payable 2000
March 3, HiTech purchased office equipment (computer equipment) from Micro-Center, Inc., for $4,500 in cash.
dr equipment 4500 cr cash 4500
what is the typical adjustment JE with the key words "unrecorded and unpaid"
dr expense cr payable
what is the formula for book value?
historical cost - accumulated depreciation
what does NRV represent on the balance sheet?
how much you will collect
explain the current ratio ex: the company has a current ratio of 2
if you have a CR of 2, its saying you could pay for your liabilities twice with the assets you have
Under the gross method, the seller records discounts taken by the buyer:
in a contra-revenue account
The percentage of credit sales approach is closely related to which financial statement?
income statement
if you capitalize an asset, what is the affect on book value?
increase
The effects of purchasing inventory on credit are to
increase assets and increase liabilities.
for the Cash Balance from Bank Statement, do you "less" or "add" outstanding checks?
less
what type of companies use the direct write off method?
mom and pop companies
The internal audit function is part of what element of the internal control system?
monitoring
what is the formula for accounts receivable turnover?
net sales/average net income receivables
does the direct write off method follow the matching concept?
no
if you capitalize an asset, what is the affect on net income?
no effect
if you expense an asset, what is the affect on book value?
no effect
does a corporation have tax advantages over the other forms of business organization.
no false
current accounting standards indicate that the costs of intangible assets with an indefinite life, such as goodwill should...
not be amortized, but reviewed annually for impairment
what is the formula for operating margin
operating income/net sales
what is the formula for calculating interest?
principal x rate x fraction of the year
what does the income statement tell you?
profitability for a set period of time
Allowing only certain employees to order goods and services for the company is an example of what internal control procedure?
proper segregation of duties
Does Accumulated Depreciation classify as a current asset or property, plant, and equipment?
property, plant, and equipment
what is the equation for the income statement?
rev-expenses
what is the equation for profit?
sales-cogs
The process by which firms package factored receivables as financial instruments or securities and sell them to investors is known as
securitzation
what does the cost constraint mean?
the benefit received from the accounting information should be greater than the cost of that providing info. So, if the cost exceeds the benefit- the info is not considered useful.
if a company has a significant reduction over time in their account receivables turnover ratio,what does it mean?
the company is extending credit 2 ppl who dont pay
what is the accounts receivable turnover used for?
to understand how efficient you are using your resources
what is the equation for gross profit
total rev-cost of rev
GAAP accepts both the Percentage of Credit Sales and Aging of Accounts for Bad Debts and both are widely used
true
T or F Sound internal control practice dictates that cash disbursements should be made by check, unless the disbursement is very small.
true
true or false Accrual-basis accounting records both cash and noncash transactions when they occur.
true
Having one employee prepare company checks and sign those checks relates to which internal control activity?
violation of proper segregation of duties
how do you calculate the preadjustment balance for AR?
bb + sales - collections - writeoffs
what is the retained earnings formula?
bb RE +net income -dividends = eb RE
explain the process of disposal of an asset? what is the first equation you use, what is the second. What does the figure tell you?
understand you are trying to interpret a gain or loss and by how much 1. find book value (cost-ad) 2. take the book value and plug into this equation (sale price- book value) 3. that value if positive is a gain, if negative a loss
explain the notation 2/10
what company has a 2% discount if payed with in 10 days
land is not depreciated bc
will provide future benefit for a company for an unlimited period of time
The effects of paying salaries for the current period are to (JE)
decrease assets and decrease stockholders' equity.
how do you calculate preadjustment balance for doubtful accounts?
writeoffs -allowance for doubtful accounts
what does the allowance represent on the balance sheet?
your guess of how much you will not be payed back on
explain the process for calculating the aging method
-add numbers in the chart to find the total AR -then find uncollectability rate by multiplying each individual number by the percentage -add all numbers together and you will have your ending balance -subtract ending balance from AR value to have the bad debt expense
in cash balance from company records, what three accounts do you "less"?
-service charges -recording error -NSF check
1)you are paying for advertising 2 years in advance ($240,000 worth), the company has not done the work for you yet. what is your journal entry? 2) you business closes its books on June 30th, what is the JE on this date?
1) dr pp advertising 240000 cr cash 240000 2) dr advertising expense 60000 cr prepaid advertising 60000
what are the two methods used to come up with the allowance figure?
1. aging method 2. credit sales
what are the four enhancing characteristics? CUVT
1. comparability 2. verifiability 3. timeliness 4. understanding
what are the two methods used for accounting for bad debts?
1. direct write off 2. allowance method
Rose Corporation sells upscale lamps to boutiques across the country. The average net trade accounts receivable for Rose is $540,000. In addition, the company has average net sales of $6,950,000. Required: Calculate Rose's accounts receivable turnover. Round your answer to two decimal places.
12.87
Ruby Red manufactures, markets, and distributes citrus flavored soft drinks across the globe. Ruby Red hired a collection agency in 2012 to increase collection rates from customers. As a result, Ruby estimates that only 2% of its 2013 credit sales will be written off, compared to the 4% of 2012's credit sales that were estimated to be uncollectible. At December 31, 2013, Ruby Red has a $12,800 credit balance in its allowance for doubtful accounts and credit sales of $1,570,000. Use % of credit sales to find bad debt expense
31400
Beginning accounts receivable were $43,375. All sales were on account and totaled $187,600. Cash collected from customers totaled $182,450. Calculate the ending accounts receivable balance.
48525
On August 31, 2013, Montana Corporation signed a 4-year contract to provide services for Minefield Company at $30,000 per year. Minefield will pay for each year of services on the first day of each service year, starting with September 1, 2013. Using the accrual basis of accounting, when should Montana recognize revenue?
Equally throughout the year as services are provided
what is the order of the financial statements?
IS-RE-BS-CF
T or F, the aging method and credit sales have the same JE?
TRUE
When is revenue from the sale of merchandise normally recognized?
When the seller ships the merchandise FOB shipping point.
Which of the following is not one of the five components of internal control? a. Analysis of control procedures b. Information and communication c. Risk assessment d. Control environment
a. Analysis of control procedures
The rules for recording accounting transactions do NOT include which of the following? a. Both sides of the accounting equation must be affected. b. Every transaction's net amount on the left side of the equation must equal the net amount on the right side. c. Total assets must always equal total liabilities plus total equity. d. Every transaction affects the financial statements of the business.
a. Both sides of the accounting equation must be affected.
Which of the following is not a characteristic of useful information? a. Reflective b. Understandability c. Comparability d. Timeliness
a. Reflective
Which of the following statements regarding the income statement is true? a. The income statement provides information about the profitability and growth of a company. b. The income statement shows the results of a company's operations at a specific point in time. c. The income statement consists of assets, expenses, liabilities, and revenues. d. Typical income statement accounts include sales revenue, unearned revenue, and cost of goods sold.
a. The income statement provides information about the profitability and growth of a company.
Which of the following is not an assumption that underlies accounting? a. All of these choices are correct. b. Historical cost c. Going concern d. Economic entity
b. Historical cost
A trial balance: a. lists only revenue and expense accounts. b. lists all accounts and their balances. c. will help detect omitted journal entries. d. detects all errors that could be made during the journalizing or posting steps of the accounting cycle.
b. lists all accounts and their balances.
what does the credit sales give you?
bad debt expense
Which of the following statement(s) are true? I. Debits represent decreases and credits represent increases. II. Debits must always equal credits. III. Assets have normal debit balances while liabilities and stockholder's equity have normal credit balances. a. I. b. I. and II. c. II. and III. d. All of these are true. e. None of these are true.
c
Revenues are recorded when: a. Work is begun on the job. b. The company signs a contract. c. The work is completed on the job, whether or not the cash is received. d. Cash is received from the customer.
c. The work is completed on the job, whether or not the cash is received.
what is the formula for gross profit margin?
gp/net sales
Which of the following is not one of the criteria for revenue recognition? a. Delivery has occurred or services have been provided. b. Persuasive evidence of an arrangement exists. c. Collectability is certain. d. The seller's price to the buyer is fixed and determinable.
c. Collectability is certain.
Which of the following statements concerning retained earnings is true? a. Retained earnings is the difference between revenues and expenses. b. Retained earnings is increased by dividends and decreased by net income. c. Retained earnings represents accumulation of the income that has not been distributed as dividends. d. Retained earnings is reported as a liability on the balance sheet.
c. Retained earnings represents accumulation of the income that has not been distributed as dividends.
Taylor Company recently purchased a piece of equipment for $2,000 which will be paid within 30 days after delivery. At what point would the event be recorded in Taylor's accounting system? a. When Taylor signs the agreement with the seller. b. When Taylor receives an invoice (a bill) from the seller. c. When Taylor receives the asset from the seller. d. When Taylor pays $2,000 cash to the seller.
c. When Taylor receives the asset from the seller.
Internal control systems provide assurance in each of the following areas except a. effectiveness and efficiency of the company's operations. b. compliance with applicable laws and regulations. c. consolidation of departments within the accounting function. d. reliability of financial reporting.
c. consolidation of departments within the accounting function.
how do you calculate adjusted cash balance (ch.4)?
cash balance from bank statement + deposit in transit - outstanding checks
If a company uses the direct write-off method of accounting for bad debts, a. it will report accounts receivable on the balance sheet at their net realizable value. b. it is applying the matching principle. c. it will reduce the Accounts Receivable account at the end of the accounting period for estimated uncollectible accounts. d. it will record bad debt expense only when an account is determined to be uncollectible.
d. it will record bad debt expense only when an account is determined to be uncollectible.
When depreciation on equipment is recorded each period, what account is debited?
depr expense
how do you calculate credit sales?
divide credit sales by the rate
On March 15, HiTech sold advertising services to the Cincinnati Enquirer for $3,300. HiTech agreed to accept full payment in 30 days.
dr accounts receivable 3300 cr service revenue 3300
what is the JE for the allowance method?
dr allowance cr AR
what is the journal entry for the allowance method?
dr allowance cr accounts receivable
what is the JE for allowance method?
dr allowance cr ar
NSF check for $615 from Green Corp (deposited by Tiny Corp.) for goods purchased on account. what is the JE?
dr ar 615 cr cash 615
what is the JE for "write offs"?
dr bad debt expense cr AR
March 4, HiTech purchased a six-month insurance policy for $1,200 in cash.
dr prepaid insurance 1200 cr cash 1200
Salaries that were earned in December are unrecorded and unpaid. what is the JE on 12/31?
dr salary expense cr salary payable
what does the aging method give you?
ending balance
Which principle requires that expenses be recorded and reported in the same period as the revenue that it helped generate?
expense recognition or matching