Accounting exam 2
Under GAAP, companies can choose which inventory system?
LIFO yes FIFO yes
Intangible assets
Long-lived assets that do not have physical substance.
Harpo's Used Cars uses the specific identification method of costing inventory. During March, Harpo purchased three cars for $12,000, $14,400, and $19,200, respectively. During March, two cars are sold for a total of $36,400. Harpo determines that at March 31, the $14,400 car is still on hand. What is Harpo's gross profit for March?
$5,200
A company just starting in business purchased three merchandise inventory items at the following prices. First purchase $65; Second purchase $78; Third purchase $68. If the company sold two units for a total of $200 and used FIFO costing, the gross profit for the period would be
$57
. Financial information is presented below: Operating Expenses $ 65,000 Sales Revenue 220,000 Cost of Goods Sold 138,000 Gross profit would be
$82,000.
Standard classification Assets
- Current assets - long-term investments - property, plant, and equipment - Intangible assets
Standard classification liabilities
- Current liabilities - Long-term liabilities - Owners (stockholders) equity
Owners equity
- Proprietorship - one capital account. - Partnership - capital account for each partner. - Corporation - Common Stock and Retained Earnings.
What steps would be in the accounting cycle generally be performed daily?
1. Journalize transactions 2. Post to ledger accounts 3. Analyze business transactions
If a company has net sales of $600,000 and cost of goods sold of $372,000, the gross profit percentage
38%
Net income
= gross profit - operating expenses
Gross profit rate
= gross profit / net sales
Gross profit
= net sales - costs of goods sold
Principles of an efficient and effective accounting information system include all of the following except
All of these answer choices are principles : cost effectiveness. flexibility. useful output.
Current Assets
Assets that a company expects to convert to cash or use up within one year or the operating cycle, whichever is longer.
Accounts is closed to income summary
Expenses & revenue
Until we sell the inventory
it is part of current assets in the balance sheet.
Retailers
merchandising companies that purchase and sell directly to consumers
Wholesalers
merchandising companies that purchase and sell directly to retailers
Net income is gross profit less
operating expenses
Long-term Liabilities
Obligations a company expects to pay after one year
Which of the following is a true statement about inventory systems?
Perpetual inventory systems require more detailed inventory records
system that shows inventory continuously ex. is amazon
Perpetual system
Under GAAP, companies can choose which inventory system?
Perpetual yes -- Periodic no
The step that would not be preformed daily ?
Prepare adjusting entries
The accounts payable subsidiary ledger provides detailed information about amounts owed to creditors
true
The cost of goods available for sale consists of the beginning inventory plus the cost of goods purchased.
true
The major difference between the balance sheets of a service company and a merchandising company
true
The revenue recognition principle applies to merchandisers by recognizing sales revenues when the performance obligation is satisfied.
true
Transactions that affect inventories on hand have an effect on both the balance sheet and the income statement.
true
Which of the following is a true statement about manual and electronic accounting systems?
The design and structure of manual and electronic systems are essentially the same
Cash and supplies are both classified as current assets.
True
We use all asset and liability account balances as well as owners capital and drawing account create balance sheet
True
We use all revenue and expense account balances to create income statement.
True
Which of the following statements is incorrect?
When an accounting system is designed, no consideration needs to be given to the needs and knowledge of the various users.
On November 2, 2016, Yakima Company has cash sales of $7,000 from merchandise having a cost of $3,900. The entries to record the day's cash sales will include:
a $3,900 credit to Inventory.
The one characteristic that all entries recorded in a cash payments journal have in common is
a credit to the cash account
On a classified balance sheet, inventory is classified as
a current asset
The one characteristic that all entries recorded in a cash receipts journal have in common is
a debit to the cash account
A subsidiary ledger is
a group of accounts with a common characteristic that provides detailed information about a control account in the general ledger
Cost of goods sold is determined only at the end of the accounting period in
a periodic inventory system.
Closing entries produce
a zero balance in each temporary account.
Liquidity
ability to pay obligations expected to be due within the next year.
Common examples of current liabilities are
accounts payable, salaries and wages payable, notes payable, interest payable, income taxes payable current maturities of long-term obligations.
A current asset is
an asset that a company expects to convert to cash or use up within over a year.
In developing an accounting system, cost effectiveness does not imply that
an electronic system must be cheaper than the system it is replacing
Current liabilities
are obligations that the company is to pay within the forthcoming year
Balance sheet and owner's equity statement are prepared from
balance sheet columns, includes assets, liabilities, owner's capital, and owner's drawings for personal use.
Companies can prepare financial statements
before they journalize and post adjusting entries.
Cost of goods sold is computed from the following equation:
beginning inventory + cost of goods purchased - ending inventory.
Costs of goods sold =
beginning inventory + purchase of inventory - ending inventory
inventories effect
both the balance sheet and the income statement
In which journal would a cash purchase of inventory be recorded?
cash payment journal
In which journal would a customer's partial payment on account be recorded?
cash receipts journal
Perpetual system
companies record the cost of goods sold each time a sale occurs and then record remaining inventory.
The consistent application of an inventory costing method is essential for
comparability
Accounts Receivable and Accounts Payable are examples of
controlling accounts
The operating expense section of an income statement for a wholesaler would not include
cost of goods sold
Two categories of expense for merchandising companies
cost of goods sold & operating expense
Two categories of expenses for merchandising companies are
cost of goods sold and operating expense
Posting a sales journal to the accounts in the general ledger requires a
debit to Accounts Receivable and a credit to Sales Revenue.
service companies
do not need inventory
The principles of developing an accounting information system do not include
elimination of human involvement.
Operating expense
expenses for goods/materials not for sale ex. office computers, supplies, etc. (are not for sale but for office use)
In a perpetual inventory system, the cost of goo
false
Inventory is reported as a long-term asset on the balance sheet.
false
Sales minus operating expenses equals gross profit.
false
Sales revenues are earned during the period cash is collected from the buyer.
false
In a manufacturing business, inventory that is ready for sale is called
finished goods inventory
The principle of an efficient accounting system that states that an accounting system should accommodate a variety of users is
flexibility
Which of the following is not a special journal?
general journal
Sales revenue less cost of goods sold is called
gross profit
Income from operations will always result if
gross profit exceeds operating expenses.
Merchandising companies need
inventory
Operating cycle
is the average time that it takes to purchase inventory, sell it on account, and then collect cash from customers.
Inventory
is the physical storage of goods
once we sell inventory
it becomes our expenses or the costs of goods sold.
At the end of the accounting period, the company
makes the account ready for the next period
sales revenue
may be recorded before cash is collected
After gross profit is calculated, operating expenses are deducted to determine
net income
Closing entries formally recognize in the ledger the transfer of
net income (or net loss) and owner's drawings to owner's capital.
Companies generally journalize and post closing entries
only at the end of the annual accounting period.
Records cost of goods sold and remaining inventory only at the end of each month
periodic system; example is walmart
Two systems of recording inventory
perpetual system & periodic system
Equipment is classified in the balance sheet as
property, plant and equipment
Items waiting to be used in production are considered to be
raw materials
inventory is
reported as a current asset on the balance sheet.
A merchandising company that sells directly to consumers is a
retailer
Companies group
similar assets and similar liabilities together
Which one of the following inventory methods is often impractical to use?
specific identification
The LIFO inventory method assumes that the cost of the latest units purchased are
the first to be allocated to cost of goods sold.
Income statement is prepared from
the income statement columns, includes revenue and expenses.
Inventory is reported in the financial statements at
the lower-of-cost-or-market.
Cost of goods sold
the total cost of goods/merchandise sold during the period --- "sold inventory"
For companies that use a perpetual inventory system, all of the following are purposes for taking a physical inventory except
to determine ownership of the goods.
. Inventory is classified as a current asset in a classified balance sheet.
true
A cash receipts journal can be used to record all transactions involving cash coming into the business, regardless of the source.
true
An accounting information system involves data collection, data processing, and information dissemination.
true
An accounting information system should be cost effective; that is, the benefits of the information must outweigh the cost of providing it.
true
If net sales are $800,000 and cost of goods sold is $600,000, the gross profit rate is 25%.
true
Under a perpetual inventory system, the cost of goods sold is determined each time a sale occurs.
true
Under the FIFO method, the costs of the earliest units purchased are the first charged to cost of goods sold.
true
If a company determines cost of goods sold each time a sale occurs, it
uses a perpetual inventory system
In a perpetual inventory system, cost of goods sold is recorded
with each sale
Property, plant and equipment
- Long useful lives. - Currently used in operations. - Depreciation - allocating the cost of assets to a number of years. - Accumulated depreciation - total amount of depreciation expensed thus far in the asset's life. - Sometimes called as fixed assets or plant assets
Current liabilities
- Obligations the company is to pay within the coming year or its operating cycle, whichever is longer. - Usually list notes payable first, followed by accounts payable. Other items follow in order of magnitude.
Long-term investments
- investments in stock and bonds of other companies - Investments in long-term assets such as land or buildings that is not currently being used in operating activities - Long-term notes receivable
accounting cycle
1. Analyze business transactions 2. Journalize the transactions 3. Post to ledger accounts 4. Prepare a trial balance 5. Journalize and post adjusting entries 6. Prepare an adjusted trial balance 7. Prepare financial statements 8. Journalize and post closing entries 9. Prepare a post-closing trial balance
What kind of accounting information system?
3 principles 1. Cost effectiveness - cost<benefits; benefits is higher than cost 2. Useful output - helpful for decision making process 3. Flexibility
Which of the following economic events would not be recorded in the cash receipts journal?
Cash purchases of merchandise
Periodic system
Companies record costs of goods sold only at the end of the accounting period and then record inventory at hand.
