ACG2021 USF EXAM 2

Cash Ratio=

(Cash + Cash equivalents)/ Total current liabilities

Cash ratio best scenario

0.5<x<1

3 docs needed for payments to vendors

1.) invoices 2.) order receipts 3.) purchase orders

3/15 in n/45?

3% discount if paid in 15 days, due in 45 days

days' sales in receivables=

365 days/ accounts receivable turnover

Days' Sales in inventory

365 days/ inventory turnover

when is a cash ratio good?

< 1.0 ((not large amount go idle cash generating v little return))

% net credit sales X % estimated uncollectible=

Bad Debts Expense

ending merch OVERSTATED period 2

COGS Over Gross Profit under

ending merch UNDERSTATED period 1

COGS Over Gross Profit under

ending merch OVERSTATED period 1

Cogs under Gross profit Over

ending merch UNDERSTATED period 2

Cogs under Gross profit Over

when writing off an account on allowance method, what effect on financial statement?

Debit- acct receivable Credit- Allowance for bad debts reduces asset account receivable

which to report: LIFO

Highest COGS, lowest gross profit & net income

what account does periodic inventory and perpetual inventory system

Merchandise inventory account

Maturity value of note=

Principal x (1+ Rate x Time)

#of units on hand=

X Unit cost / ending merch inventory

# units sold=

X Unit cost/ COGS

Conservatism?

a business should report the least favorable figures in the financial statements when two or more possible options are presented

Materiality Concept

a company must perform strictly proper accounting only for items that are significant to the business' financial situation

Allowance for Bad Debts

a contra asset acct, related to accts receivable that hold the ammts of uncollectible ammts

Bank Reconciliation

a document explaining the reasons for the difference between a depositor's cash records & the depositors cash balance in its bank account

EFT?

a system that transfers cash by electronic communication rather than by paper documents, cash payments are recorded by bank before the company knows

Book Balance ADD

add bank collections, interest revenue & eft reciepts

GAAP req for companies with material amount of bad debt expense?

allowance method is used to accomplish the matching of bde to the sales of the period and to report receivables at net realizable value

why are there no journal entries on the book side of the bank reconciltiation

already recorded in the business' cash account

First-In, First out

an inventory costing method in which the first costs into inventory are the first costs out to cogs. Ending inventory is based on the cost of most recent purchases.

Specific ID Method

based on specific cost of particular units f inventory; only companies w unique items (carefully ID inventory sold, requires detained COGS)

who is responsible for shipping in FOB shipping point?

buyer

weighted average costs per unit=

cost of goods available for sale/ # units available

lower, company can sell its inventory quickly

days' sales

Journal entry for recording payment of an invoice

debit Merch inventory, credit cash

best way to discourage theft in retail store

deposit cash frequently in the bank

change in merchandise inventory

diff b/w sales return & allowance in perpetual inventory system?

separation of duties

dividing responsibilities b/w 2 or more to ensure accuracy

direct write off method not compliant with GAAP?

does not use an allowance account

advantages to taking credit card

don't need to check the customer's credit rating, no need to maintain accts receivable records, don't need to worry about collecting cash from customer

disadvantages to taking credit card

fee for processing debit & credit card transactions

Order of income statement?

gross profit, operating income, total other revenue and expenses, Net income

What does a merchandiser report but a service company does NOT?

gross proft

ptherrevenues and expenses

interest expense, gain (/ loss) sale of plant asset

Last-In, First-Out

last costs into inventory are the first costs out toCOGS. The method leaves the oldest costs (those of beginning inventory & the earliest purchases of the period) in neding inventory

which to report: FIFO

lowest COGS, highest gross profit & net income

cash receipts by mail (checks)

mailroom, checks, treasurer, deposit, bank

Periodic inventory-diff b/w perpetual & periodic

merchandise inventory is updated in the closing process in periodic, theres separate accounts for purchases in periodic

lowest cost of market rule

merchandise inventory should be reported in the financial statements @ whichever is lower: historical cost & market value

Allowance method?

method of accounting for uncollectible receivables in which the company estimates bad debts expense instead of waiting to see which customers the company will not collect from

appropriate documents in a good external control system that would be needed b4 a company would pay a supplier

purchase order, invoice, receiving report

what account does ONLY periodic inventory systems use

purchases, purchase discounts, purchase returns and allowances, and freight in cost

Internal controls

safeguard assets, encourage employees to follow company policies, promote operational efficiency, & ensure accurate reliable accounting record

who is responsible for shipping in FOB Destination?

seller

Book Balance SUBTRACT

service charges, NSF checks, & eft payments (+/-) corrections of book errors

what to measure days' sales in receivable

tells how many days it takes to collet the avg level of accoutns receivable

What does gross profit percentage measure?

the profitability of each sales dollar above the cost of goods sold (GPP= Gross profit/ net sales revenue)