Chapter 5 - Receivables and Sales, Ch 4: Cash and Internal Controls, CHAPTER 6: Cost of Goods Sold, ACC 210 E2

When adjusting the bank balance in a bank reconciliation, which item must be subtracted from the bank balance?

Outstanding checks

Which of the following are detective controls?

audits; reconciliation; performance reviews

The allowance method estimates sales discounts. trade discounts. uncollectible accounts. future sales.

uncollectible accounts.

Employee purchases should be included in the accounting records

by the end of the accounting period.

The asset most susceptible to fraudulent activity is(are)

cash

A bank reconciliation is a procedure used to determine if the cash balance in the bank statement equals

the ending balance of cash in the accounting records.

Rice Corp. noticed that a check written by the company for $1,000 was incorrectly recorded by the bank as $1,100. How should this error be handled in a bank reconciliation?

$100 should be added to the bank balance.

On March 17, Fox Lumber sells materials to Whitney Construction for $12,000, terms 2/10, n/30. Whitney pays for the materials on March 23. What amount would Fox record as revenue on March 17? Multiple Choice $12,400. $11,760. $12,000. $12,240.

$12,000.

On August 4, Sanders provides services to Frederickson for $5,000, terms 3/10, n/30. Frederickson pays for the services on August 12. What amount would Sanders record as revenue on August 4? Multiple Choice $4,850. $5,000. $5,150. $5,300.

$5,000

The amount of cash owed to a company by its customers from the sale of goods or services is referred to as a guarantee. accounts payable. uncollectible accounts. accounts receivable.

accounts receivable.

In a bank reconciliation, a deposit outstanding is

added to the bank balance

In a bank reconciliation, interest revenue earned on a company's bank account is:

added to the company's cash balance

The journal entry to record bad debt expense includes: (Select all that apply.) credit to allowance for uncollectible accounts debit to bad debt expense debit to allowance for uncollectible accounts credit to bad debt expense

credit to allowance for uncollectible accounts debit to bad debt expense

What types of inventory do merchandising firms have?

merchandise inventory only

net sales =

sales revenue - credit card discounts - sales discounts - sales returns and allowances

accounting for Payment for Shipping: Periodic - by SELLER

Debit - Freight Out Credit - Cash

Arcelia Corp.'s bank statement has an end balance of $40,000. The deposits outstanding were $7,000. A note was collected by the bank for $2,000. Checks outstanding at the end of the month were $1,000. Using the bank statement, what is the corrected cash balance?

$46,000

Malik Corp.'s bank statement has an end balance of $50,000. The deposits outstanding were $6,000. NSF checks were $1,000. Checks outstanding at the end of the month were $3,000. Using the bank statement, what is the corrected cash balance?

$53,000

On January 1, 2021, Nees Manufacturing lends $10,000 to Roberson Supply using a 9% note due in eight months. Calculate the amount of interest revenue Nees will record on September 1, 2021, the date that the note is due. rev: 03_20_2019_QC_CS-163432 Multiple Choice $300. $600. $900. $1,000.

$600.

On September 1, Bates Supplies borrows $30,000 from Vines Incorporated by signing an 8% note due in 12 months. Calculate the amount of interest revenue Vines will record on December 31, four months after the note is issued. Multiple Choice $0. $800. $1,600. $2,400.

$800.

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? $90,000 $107,000 $93,000 $97,000

$93,000

specific identification

- With large and expensive inventory items, it is east to track the cost of each individual item - When a unit is sold, its cost is included in the cost of goods sold - The cost of ending inventory is the sum of the cost of the individual units left in the inventory

sales revenue in merchandising firms is reduced by

- credit card discounts - sales discounts (cash discounts): discounts given to customers to encourage early payment - sales returns and allowances (these are all contra-revenue accounts)

inventory systems: Perpetual

- detailed records of the cost of each inventory purchase and sale - cost of goods sold determined and inventory account updated each time a sale occurs

On April 1, 20X1, Nelsen Inc. accepts a $100,000, 8% note. The note receivable and interest are due on March 31, 20X2 (one year later). On December 31, 20X1, Nelsen will accrue interest revenue of: Multiple Choice $8,000. $6,000. $2,000. $0.

6,000

List the steps for a bank reconciliation in the correct order.

Adjust the banks cash balance Adjust the company's cash balance Update the company's cash account by recording items identified in the previous step

During the year, Bernard Company's cash balance increased by $10,000. The sum of which totals reported on Bernard Company's statement of cash flows would also be equal to $10,000?

Cash flows from Operating, Investing, and Financing Activities

When adjusting the company's cash account balance in a bank reconciliation, which item must be added to the cash account balance?

Collections 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.

accounting for Payment for Shipping: Periodic - by BUYER

Debit - Freight In Credit - Cash

Which of the following entries affect a company's cash flows?

Debit supplies; credit cash Debit rend expense; credit cash

True or false: All companies are required to have an independent auditor assess the adequacy of their internal control procedures.

False

True or false: Employee purchases using cash or purchase cards must be recorded immediately as business expense.

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

True or false: Variability in operating cash flows is unimportant as long as the total cash flows over a three-year period is sufficiently positive.

False

ownership of goods in transit

Freight On Board (FOB) Shipping Point - point of sending off from the seller Freight On Board (FOB) Destination [the buyer is responsible for the good as soon as it is shipped off]

Which of the following led to the passage of the Sarbanes-Oxley Act of 2002?

High profile accounting scandals during the early 2000s

For internal control purposes, risk assessment considers which two types of risk?

Internal and external risks

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

Smith's operating cash flows in millions were $100, $150, $80 during the past three years; while Jones' operating cash flows in millions were $105, $115, $110 during the same period. From the perspective of operating cash flows, which company would likely be perceived as riskier?

Smith

Independent financial statement audits are most commonly required of:

Stock exchange listed companies

Which of the following allows greater reliance by investors on reported financial statements?

Strong internal control systems

Test 1

Test 1

Test 2

Test 2

What would cause a bank statement not to agree with the cash balance in the accounting records?

The bank paid interest that the company has not recorded. Deposits outstanding that have been recorded on the company's records, but not on the bank's. The company made an error in recording a deposit. The bank made an error in recording a deposit made by the company.

Periodically, management should verify that amounts related to the company's physical assets agree with the _____ records.

accounting

Munchkin Inc. pays for promotional expenses by charging the company's credit card. Munchkin should debit an expense and credit

accounts payable

Flounder Corp. provided $12,000 of services on account. The entry to record this transaction would include a debit to accounts receivable. sales. accounts payable. retained earnings.

accounts receivable.

The PCAOB sets standards for

audited financial reports.

If the allowance for uncollectible accounts is 25% of year-end accounts receivable, this might indicate customers are taking the sales discount. credit policies are too lenient. the company has tightened credit policies. customers have returned excessive amounts of merchandise.

credit policies are too lenient.

hannon Corp. uses the aging method to account for bad debt expense. Shannon determines that a customer account of $10,000 should be written off as uncollectible. The write off of the account will include debit Accounts Receivable. debit Bad Debt Expense. credit Sales Returns and Allowances. debit Allowance for Uncollectible Accounts.

debit Allowance for Uncollectible Accounts.

Smith Company has a discrepancy of $50 at the end of the bank reconciliation. Smith has come to the conclusion that $50 of cash went missing somewhere. The journal entry to record this discrepancy includes:

debit miscellaneous expense $50 credit cash $50

In a bank reconciliation, the bank's charge of $10 for checking account fees is

deducted from the company's cash balance

Cash receipts that have been recorded in the company's accounting records but are not yet recorded by the bank are

deposits outstanding

The Committee of Sponsoring Organizations (COSO) of the Treadway Commission provided a framework for

designing an internal control system.

Lower Cost or Net Realizable Value (LCNRV)

inventory reported in the financial statements at whichever is lower: Cost or Net Realizable Value => cost is determined by one of the cost flow assumptions => net realizable value is the amount at which the company expects to sell its inventory (a direct application of conservatism)

Internal control consists of plans to

provide accurate and reliable accounting information. safeguard company assets.

if ending inventory is overstated in period 1

period 1: => COGS - Understated => gross profit & net income - Overstated period 2: => COGS - Overstated => gross profit & net income - Understated

Separation of duties and E-commerce controls are examples of ______ controls.

preventative

Two types of control activities are

preventative and detective controls.

Klein Company's accountant is unable to reconcile the current year bank and cash account balances. If no cause can be determined to explain this difference, the difference should be

recognized as miscellaneous expense or revenue.

One of the most important internal controls for cash is the bank _____.

reconciliation

Sales to customers in which the customers pay within 30 to 60 days are referred to as (Select all that apply.) nonaccrued sales. deferred sales. sales on account. credit sales.

sales on account. credit sales.

cost of inventory on hand

the inventory reported as an asset on the balance sheet

cost of inventory that has been sold

the cost of goods sold reported as an expense on the income statement

Companies commonly restrict cash for which of the following reasons?

to pay off a large loan when due to finance a major purchase of equipment to have cash available for future investment opportunities

accounting for Purchases of Inventory: Perpetual

Debit - Inventory Credit - Cash or Accounts Payable

accounting for Purchases of Inventory: Periodic

Debit - Purchases (temporary expense account) Credit - Cash or Accounts Payable

if ending inventory is understated in period 1

period 1: => COGS - Overstated => gross profit & net income - Understated period 2: => COGS - Understated => gross profit & net income - Overstated

Careful consideration of internal and external factors that may cause harm to a company is called _____ assessment.

risk

First-In First-Out (FIFO)

- oldest units are sold first - cost of inventory consists of the newest items

inventory quantities

- physical count - at the end of the accounting period, determine whats included in inventory

What types of inventory do manufacturing firms have?

- raw materials - work in process - finished goods

finding the discount - example

A customer paid $2000 within the discount period to settle accounts payable with terms 2/10, n/45. What was the discount? $2000 = 98% of the full amount 0.98x = $2000 x = $2000 / 0.98 = $2040.82 discount = $2040.82 - $2000 = $40.82

Inventory

an asset held for resale or used to produce goods and services for sale - on the Balance Sheet

Cost of Goods Sold

an expense on the income statement

Under the allowance method, companies estimate _____ uncollectible amounts and report those estimates in the _____ year. future; future future; current current; current current; future

future; current

When a person intentionally deceives another person or company for personal gain, this is referred to as _____.

fraud

If a bank reconciliation included a deposit outstanding of $670, the company's entry for this reconciling item would include:

Nothing, the deposit has already been recorded

The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employer's resources is called occupational _____.

fraud

if the beginning of the year, beginning inventory is overstated...

=> COGS - Overstated => net income - Understated => assets - correctly stated => equity - correctly stated

if at the end of the year, ending inventory was overstated...

=> COGS - Understated => net income - Overstated => assets - Overstated => equity - Overstated

if the beginning of the year, beginning inventory is understated...

=> COGS - Understated => net income - Overstated => assets - correctly stated => equity - correctly stated

accounting for Sales of Inventory: Periodic

Debit - Cash or Accounts Receivable Credit - Sales Revenue

A company has the following account balances at the end of the year: Credit Sales = $400,000 Accounts receivable = $80,000 Allowance for Uncollectible Accounts = $400 debit The company estimates future uncollectible accounts to be 4% of accounts receivable. At what amount would Bad Debt Expense be reported in the current year's income statement? Multiple Choice $400. $2,800. $3,200. $3,600.

3,600

The Sarbanes-Oxley Act applies to

companies that are required to file with the SEC.

Largo Corp. discovered $2,000 for an NSF check in its bank reconciliation. When the cash account is updated for items that affect the company's cash balance, the entry will include

credit Cash, $2,000

When a business provides services to a customer, and the customer promises to pay later, this is referred to as credit sales. cash sales. operating sales. current sale.

credit sales.

The bank will show a customer's deposit on bank statements as a ______.

credit, because a deposit is a liability from the bank's point of view

Because cash normally is assumed to be available for spending, it is usually classified on the balance sheet as a(n) _____ _____.

current asset

Margot, a prospective investor, wants to know how much cash Ziegler Inc. has on December 31. Margot can find the information in Ziegler's:

statement of cash flows balance sheet

the gross profit method for estimating inventory

the Gross Profit method is used to estimate inventory balance using available information: - sales - beginning inventory - purchases - historical gross profit percentage (under the periodic system, the balance of inventory is not available until the end of the accounting so companies would like to have an estimate of inventory balance)

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? $17,000 $18,000 $20,000 $19,000

$18,000

A company has the following account balances at the end of the year: Credit Sales = $400,000 Accounts receivable = $80,000 Allowance for Uncollectible Accounts = $400 credit The company estimates 1% of credit sales will be uncollectible. At what amount would Allowance for Uncollectible Accounts be reported in the current year's balance sheet? Multiple Choice $4,000. $4,400. $3,600. $800.

$4,400.

On December 31, the Accounts Receivable ending balance is $80,000. Assume that the unadjusted balance of Allowance for Uncollectible Accounts is a debit of $500 and that the company estimates 7% of the accounts receivable will not be collected. The amount of bad debt expense recorded on December 31 will be: Multiple Choice $5,000. $5,100. $5,600. $6,100.

$6,100.

When a company provides services on account, which of the following accounts is debited? Multiple Choice Service Revenue. Accounts Payable. Accounts Receivable. Cash.

Accounts Receivable.

Which method of accounting requires estimating bad debt expense and recording the expense in the same period as the related revenue? Allowance method Return method Direct write-off method

Allowance method

Accounts receivable are best described as Multiple Choice Liabilities of the company that represent the amount owed to suppliers. Amounts that have previously been received from customers. Assets of the company representing the amount owed by customers. Amounts that have previously been paid to suppliers.

Assets of the company representing the amount owed by customers.

The cost of estimated accounts receivable that will not be collected is referred to as ________ _________ expense.

Bad debt

On March 5, Oak Corp. provided services on account to Pine. Oak initially recorded this as an account receivable but it later became apparent Pine could not pay quickly so Oak required Pine to sign a $100,000, 12%, 2-month interest-bearing note. The journal entry required by Oak when Pine signs the note includes Debit Notes Receivable $100,000; credit Accounts Receivable $100,000. Debit Notes Receivable $100,000; credit Service Revenue $100,000. Debit Notes Receivable $102,000; credit Service Revenue $102,000. Debit Notes Receivable $102,000; credit Accounts Receivable $102,000.

Debit Notes Receivable $100,000; credit Accounts Receivable $100,000.

Adrian Corp. sells goods on account for $100,000 on May 1. On May 15, the customer returns $40,000 of the merchandise. The customer has not yet paid for any of the goods. What will Adrian record on May 15? (Select all that apply.) Debit to Sales Expense. Credit to Allowance for Sales Returns. Debit to Sales Returns. Credit to Accounts Receivable.

Debit to Sales Returns. Credit to Accounts Receivable.

Which of the following is classified as part of the control environment?

Overall ethical tone of the organization with respect to internal control

A manager compares the monthly sales revenue to the amount forecasted. Which type of internal control is this?

Performance review

Which of the following are preventive controls?

Physical controls Separations of duties

What is the primary purpose of a bank reconciliation?

To ensure the bank balance per reconciliation is equal to the company balance per reconciliation

The individual or groups of individuals who are most able to override internal control features is (are):

Top management

To record an estimate for future bad debts at the end of the period, an adjustment would be made with a credit to sales returns and allowances. allowance for uncollectible accounts. bad debt expense. accounts receivable.

allowance for uncollectible accounts.

Internal control procedures for cash disbursements (other than small disbursements from petty cash) should include that

checks are signed by authorized individuals. all expenditures are authorized. all disbursements are made by check, debit card, or credit card.

The accounting term for a situation where two or more people act in coordination to circumvent internal controls is _____

collusion

Recording bad debt expense: (Select all that apply.) increases net income increases expenses decreases net income increases assets decreases expenses decreases assets

increases expenses decreases net income decreases assets

Strong internal control systems allow greater reliance by investors on:

reported financial statements

The key provisions of the Sarbanes-Oxley Act include

requiring that corporate executives certify financial statements. restricting activities of auditors to prevent conflicts of interest. requiring documentation and assessing effectiveness of internal controls.

Glasser Corp. provided $20,000 of services on account. The account that should be credited is accounts payable. accounts receivable. service revenue. cash.

service revenue.

high ratio of allowance for uncollectible accounts to total accounts receivable can indicate: (Select all that apply.) the company's customers are high-risk stringent credit policies the company extends too much credit the company should extend additional credit

the company's customers are high-risk the company extends too much credit

In a bank reconciliation, which of the following items does not need to be recorded to adjust the company's cash balance?

Deposit outstanding

When adjusting the bank balance in a bank reconciliation, which item must be added to the bank balance?

Deposits outstanding

On April 1, 20X1, Nelsen Inc. accepts a $100,000, 8% note. The note receivable and interest are due on March 31, 20X2 (one year later). Assuming Nelson Inc. has a December 31 year-end, on March 31, 20X2, Nelson Inc. will record interest revenue of: Multiple Choice $8,000. $6,000. $2,000. $0.

$2,000.

On November 1, year 1, ABC, Inc., received a 3-month, 8%, $1,500 note receivable with interest and principal to be collected on February 1 of year 2. What is the amount of interest revenue that should be recorded for year 1? $120 $60 $30 $20 $80

$20

Neumann, Inc.'s books show an ending cash balance of $20,000 before preparing the bank reconciliation. Given that the bank reconciliation shows outstanding checks of $2,000; deposits outstanding of $3,000; NSF check of $200; and interest earned on the bank account of $30, the company's up-to-date ending cash balance equals:

$20,000-$200+$30= $19,830

Acme, Inc.'s books show an ending cash balance of $10,000 before preparing the bank reconciliation. Given that the bank reconciliation shows outstanding checks of $3,000; deposits outstanding of $2,000; NSF check of $100; and interest earned on the bank account of $10, the company's up-to-date ending cash balance equals:

$9,910

Melon Corp. noticed that a check written by the company for $2,100 was incorrectly recorded in the accounting records as $1,200. How should this error be handled in a bank reconciliation?

$900 should be subtracted from the cash balance in the accounting records.

Schmidt Company's Accounts Receivable balance is $100,000, its adjusted balance in Allowance for Uncollectible Accounts is $4,000, and its bad debt expense is $3,800. The net realizable value of accounts receivable is: Multiple Choice $96,000. $96,200. $100,000. $104,000.

$96,000.

discount terms

(discount %)/(# of days in the discount period) n/(maximum # of days in the credit period) e.g. 2/10 n/30 => 2% discount if you pay within 10 days, pay the full amount if the purchase is $100 - if the customer pays within 10 days, they save $100 x 0.02 = $2 - if the customer pays after 30 days, the pay the full amount, $100

when inventory costs are increasing

- FIFO cost of goods sold is lower because it is based on the older, less expensive costs => higher gross profit and net income (FIFO also results in a higher inventory balance because it represent the more recent and expensive purchases) - Weighted Average cost of goods sold is higher because it is based on the average of the costs for the period => lower gross profit and net income

inventory systems & cost flow assumptions approach

- always calculate => total units available for sale => cost of goods available for sale - under the periodic system => total units sold => units in ending inventory

Perpetual inventory system & cost flow assumptions

- apply the cost flow assumption after each sale - the weighted average cost changes after each purchase

Periodic inventory system & cost flow assumptions

- assumes all sales are made after all the purchases - with average cost, the cost per unit = the cost of goods available for sale / total units available for sale

merchandising and manufacturing

- cost of goods sold - sales revenue - gross profit - operating expenses

inventory errors

- errors can be made in taking physical count of ending inventory - since ending inventory is one period is the beginning inventory of the following period, inventory errors affect the financial statements of two consecutive years - inventory errors counterbalance in two consecutive period (beginning and ending inventory have opposite effects of COGS therefore after two periods, an inventory error washes out/counterbalances)

the Disclosure principle

- financial statements should disclose enough information for users to make informed decisions (information should be relevant and representationally faithful) - should include accounting methods used, substance of material transactions, etc.

the Comparability principle

- investors compare a company's financial statements from one period to the next to use this information to make decisions - the same accounting method for inventory must be used from one period to the next - a change in the accounting method can be made if it can be justified, but prior statements must be adjusted and the effect of the change on the current financial statements should be disclosed in the notes to the financial statements according to the disclosure principle

inventory systems: Periodic

- no detailed records of purchases and sales - cost of goods sold are determined and inventory account updated only at the end of the accounting period when a physical inventory count is take (adjusting entry required)

when customers are sold damaged merchandise, they can either:

- return the merchandise and receive full refund => sales return - keep the merchandise and receive some credit (reduction in accounts receivable, store credit or cash) => sales allowance

service

- service revenue - operating expenses

Perpetual inventory system vs. Periodic inventory system

- the perpetual system provides better control over inventory - both allowed under IFRS

purchase discounts

- when companies allow customers to purchase merchandise on an open account, the customer promises to pay the company in the future for the purchase - when customers purchase on an open account, they may be offered a sales discount to encourage early payment

cost flow assumptions

1. First-In, First-Out (FIFO) 2. Weighted Average Cost - The cost of goods available for sale is split between the cost of goods sold and the cost of ending inventory - When possible, specific identification should be applied, otherwise, make one of the following assumptions: First-In, First-Out (FIFO) or Weighted Average Cost

Periodic inventory system: Adjusting Entries

1. Physical count of ending inventory 2. Calculate cost of goods purchased [COGP = net purchase + freight in = (gross purchase - purchase discount - purchase allowance - purchase returns) + freight in] 3. Calculate cost of goods available for sale [COGAS = beginning inventory + COGP] 4. Calculate cost of goods sold [COGS = COGAS - ending inventory] 5. Prepare the entry

inventory principles

1. the Comparability principle 2. the Disclosure principle

Who has final responsibility for internal controls?

Management

Use the information below to calculate net revenues. Service Revenue $ 100,000 Sales Discounts $ 2,000 Accounts Receivable $ 15,000 Sales Allowances $ 7,000 Cash $ 18,000 Multiple Choice $91,000. $85,000. $68,000. $98,000.

91,000

if purchases are understated...

=> COGS - Overstated => net income - Overstated => revenue expenditure - Understated => accounts payable - Overstated

if at the end of the year, ending inventory was understated...

=> COGS - Overstated => net income - Understated => assets - Understated => equity - Understated

if purchases are overstated...

=> COGS - Understated => net income - Understated => revenue expenditure - Overstated => accounts payable - Understated

The effect of writing off a specific account receivable is: Multiple Choice A reduction in the Allowance for Uncollectible Accounts. An increase in the amount of Accounts Receivable. An increase in the amount of Bad Debt Expense. An increase in the Allowance for Uncollectible Accounts.

A reduction in the Allowance for Uncollectible Accounts

A company pays for a purchase with a credit card. What is the effect of this purchase on the accounts?

Accounts payable will increase

Which of the following steps are necessary to reconcile the bank balance and the cash account balance.

Adjust bank's cash balance Adjust the company's cash balance Record items that reconcile the company's cash balance

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

While preparing the bank reconciliation for March, the accountant for ABC Company discovered that a $694 check in payment of an account payable had been entered incorrectly in the journal as $649. Which of the following is true?

An entry must be made to debit Accounts Payable and credit Cash for $45.

inventory turnover

COGS / average inventory = COGS / (1/2)(beginning inventory + ending inventory) - the ratio of the cost of goods sold to average inventory - shows how many times the company sold (turned over) its average level of inventory during the year - varies from industry to industry - companies strive to sell inventory as quickly as possible because the goods generate no profit until they're sold (faster sales => higher income) - ideally a business could operate with zero inventory but most businesses must keep some goods on hand

A sales discount is recorded by the seller as a(n): Multiple Choice Expense. Contra asset. Contra revenue. Liability.

Contra revenue.

Periodic inventory system: The Adjusting Entry

DEBIT Cost of goods sold Inventory (ending balance) Purchase returns and allowances Purchase discounts CREDIT Inventory (beginning balance) Purchases Freight in

accounting for Sales of Inventory: Perpetual

Debit - Cash of Accounts Receivable Credit - Sales Revenue Debit - Cost of Goods Sold Credit - Inventory (two entries if you sell inventory under the perpetual system)

accounting for Returns of Inventory: Perpetual

Debit - Cash or Accounts Payable Credit - Inventory

accounting for Returns of Inventory: Periodic

Debit - Cash or Accounts Payable Credit - Purchase Returns and Allowances

accounting for Payment for Shipping: Perpetual - by SELLER

Debit - Freight Out Credit - Cash

accounting for Payment for Shipping: Perpetual - by BUYER

Debit - Inventory Credit - Cash

Melon Corp. noticed that a check written by the company for $2,100 for advertising expense was incorrectly recorded in the accounting records as $1,200. What needs to be recorded to correct this error?

Debit Advertising Expense $900; credit Cash $900.

On January 18, a company provides services to a customer for $500 and offers the customer terms 2/10, n/30. Which of the following would be recorded when the customer remits payment on January 25? Multiple Choice Debit Cash for $500. Credit Accounts Receivable for $490. Credit Service Revenue for $500. Debit Sales Discount for $10.

Debit Sales Discount for $10.

sales revenue in merchandising firms

Debit: credit card discounts, sales discounts, sales returns and allowances Credit: revenue

Which method of accounting requires recognizing bad debt expense when it is determined that the customer cannot pay? Percentage-of-credit sales method Direct write-off method Allowance method Return method

Direct write-off method

True or false: Internal controls prevent and detect all errors and fraud.

False

A company's plans to safeguard company assets and enhance the reliability and accuracy of accounting information are referred to as

Internal controls

Which of the following are cash inflows from financing activities?

Issuance of common stock to investors Borrowing from another company and signing a promissory note

A $250 bank deposit made on the last day of the month did not appear on this month's bank statement. How would this item be treated on the bank reconciliation?

It would be added to the bank balance.

This month's bank statement includes a check from a customer that was marked NSF. How would this item be treated on the bank reconciliation? Is it added or subtracted from the bank balance or the company's cash (book) balance?

It would be deducted from the company balance

Which of the following items will require a journal entry following a bank reconciliation?

NSF checks Notes collected by the bank

Using the allowance method, the effect on the current year's financial statements of writing off an account receivable generally is to 1. Decrease total assets. 2. Decrease net income. Multiple Choice I only II only I and II Neither I nor II

Neither I nor II

income statement for a merchandising firm

Net sales [credit] Cost of goods sold (-) [credit] Gross profit = net sales - COGS [credit] operating expenses: General and administrative expenses [debit] Selling expenses (+/-) [debit/credit] Income from operations [credit] other income and expenses: Dividends income [debit] Interest expense (-) [debit] Gains [debit] Losses (+/-) [debit/credit] Income from continuing operations [credit]

Sell goods to customers Sell stock to investors Purchase equipment

Operating Financing Investing

Which of the following transactions would result in an account receivable? Multiple Choice Providing services to customers on account. Paying for supplies previously purchased on account. Receiving a loan from the bank. Purchasing supplies on account.

Providing services to customers on account.

The acronym PCAOB stands for

Public Company Accounting Oversight Board.

Which of the following are errors in accounting for cash?

Recording a check for $168 for $186 in the cash account. The bank processing a check for $210 as $120. Recording a cash collection of $4,000 but depositing $3,000 into the bank.

Which of the following are provisions included in the Sarbanes-Oxley Act?

Require auditors to retain work papers for 7 years. Require that audit firms are hired by the audit committee of the board of directors.

The Public Company Accounting Reform and Investor Protection Act of 2002 is known as the

Sarbanes-Oxley Act

The ending balance in cash is reported in which financial statement(s)?

The balance sheet and statement of cash flows

Who is responsible for providing an opinion on management's assessment of internal control?

The company's auditors

Which of the following is an example of separation of duties in a good system of internal control?

The individual who receives the inventory does not have access to the accounting records.

Why is it often easy for top level management to commit fraud?

They can override the internal control system. Fewer internal controls may be in place at that level. Subordinates feel intimidated and may not report it.

A trade discount is a percentage reduction from list price. a percentage reduction of the amount due for early payment. an increase in the account receivable. a rebate from the manufacturer.

a percentage reduction from list price.

The estimated expense for accounts that may not be collected is referred to as accounts receivable. bad debt expense. amortization expense. interest expense. sales discounts.

bad debt expense.

The components of internal control are

based on the ethical tone set by management.

A check that is NSF (nonsufficient funds) is a check that

cannot be paid because the account does not contain enough funds.

A trade discount is a reduction from the list price, which is used to: (Select all that apply.) change prices without publishing a new catalog encourage customers to pay quickly give quantity discounts to customers reduce the sale price for interest received disguise real prices from competitors

change prices without publishing a new catalog give quantity discounts to customers disguise real prices from competitors

Paying by check helps a business to control cash when the ______.

checks are prenumbered and written sequentially check is signed by an authorized manager

Cash disbursements that have been recorded in the company's accounting records but are not yet recorded by the bank are called

checks outstanding

Which of the following items are classified as cash inflows from operating activities on the statement of cash flows?

collection from customers receipt of interest

Which of the following items are classified as cash inflows from operating activities on the statement of cash flows?

collection of an accounts receivable interest received on notes receivable

Lindell sells $100 of goods to a customer. The customer pays with a personal check. Recording this transaction will include a

debit to cash

The bank will show a customer's withdrawal as a _____.

debit, because a withdrawal decreases its liability from the bank's point of view

When a company finds out that an NSF check was written to the company, the company must ______ the balance in the cash account.

decrease

In a bank reconciliation, an outstanding check is ______.

deducted form the bank balance

Which of the following effectively mitigate the natural risks of running any business without being capable of completely eliminating the risk?

effective internal control; ethical employees

The amount of cash in the balance sheet reflects the

ending cash on the balance sheet date

the inventory equation

ending inventory = beginning inventory + purchases - COGS COGS = beginning inventory + purchases - ending inventory

A(n) _____ is a mistake in accounting, which can be intentional or unintentional.

error

An intentional error by an employee that results in theft is referred to as a ______.

fraud

gross profit percentage (gross margin percentage)

gross profit / net sales revenue = (sales - COGS) / net sales revenue - merchandisers strive to increase gross profit percentage - markup stated at a percentage of sales - watched carefully by managers and investors

Separations of duties requires that

individuals who have physical responsibility for assets should not have access to accounting records.

A petty cash fund is used for

small amounts of cash needed for low-cost items.

interest rate

interest rate = amount saved / amount paid annual interest rate = (365 days / # of days) x (amount saved / amount paid) e.g. 2/10 n/30 interest rate = $2 / ($100 - $2) = 2.04% annual interest rate = (365 days / 20 days) x 2.04% = 37.23% therefore, the interest rate for 20 days is 37.23% => the buyers should take the discount unless either - the interest rate on their borrowed money is greater than 37.23% - the return on their investment opportunities is greater than 37.23%

A periodic performance review is an example of a(n) _____ control.

internal

inventory under the gross profit method

inventory = beginning inventory + purchases - estimated COGS

The statement of cash flows is useful because

it provides information on the company's ability to maintain long-term success.

The most common source of occupational fraud is:

misuse of company resources

The two most common sources of occupational fraud are:

misuse of company resources financial statement manipulation

Which of the following are components of internal control?

monitoring; control activities; risk assessment; control environment

The sum of net cash flows from operating, investing, and financing activities reported in the statement of cash flows represents the:

net increase or decrease in cash during the year

A formal, signed credit agreement between a lender and a borrower is called a(n) _____ by the lender. account payable. note receivable. note payable. account receivable.

note receivable.

The statement of cash flows classifies items as

operating, investing, and financing.

A small amount of cash on hand to pay for minor purchases is commonly referred to as a(n) _____ _____ fund.

petty cash

Cash that is not available for current operations is referred to as _____ cash.

restricted

Which of the following cash transactions are classified as cash inflows from investing activities?

sale of equipment sale of investments sale of building

Weighted Average Cost

the cost per unit is the same for all units in inventory

costs included in inventory

the cost principe requires that inventory be recorded at the price paid plus all costs incurred to bring the inventory to saleable conditions - invoice price - freight and insurance - inspection costs - preparation costs

gross profit or gross margin

the excess of the sales revenue / the cost of goods sold