Financial Accounting I Parto 1

Supplies had a beginning balance of $4,000. A physical count at the end of the accounting period revealed $2,500 supplies on hand. What adjustment amount will appear for Supplies in the Adjustments section of the work sheet?

$1,500.00

During the current year, merchandise is sold for $137,500 cash and $425,600 on account. The cost of the merchandise sold is $322,325. What is the amount of the gross profit?

$137,500 + $425,600 - $322,325 = $240,775

During the accounting period, cash was debited for $4,000, $3,000, and $1,000. Cash was also credited for $3,000, $500, and $100. The beginning balance of Cash was a $10,000 debit. What would be the ending balance for Cash in the general ledger?

$14,400 Credit

Adjusting Entries are done at the end of an accounting period in order to...

-Assure the statement reflects Revenues earned and the Expense incurred in the appropriate period -Update liability and asset accounts to proper balance

True statements about fifo and lifo

-Companies do not have to use the same inventory method for all items of inventory. -Use of the LIFO inventory method during a period of increasing prices may create a conflict of interest between the owners and managers. -A company choosing to maximize stockholders' equity during a period of increasing prices should use the FIFO inventory method.

Inventory Shrinkage

-Comparing a physical count of inventory with recorded inventory counts -refers to the loss of inventory -can be caused by theft or deterioration -is recognized by debiting Cost of Goods Sold

Determine which of the following statements are correct regarding damaged or obsolete goods.

-If damaged goods can be sold at a reduced price, they are included in inventory. -Damaged goods are not included in inventory if they cannot be sold. -A loss in value is reported in the period when goods are damaged or become obsolete. -Damaged goods are included in inventory at their net realizable value.

Under inflation these statements are true with FIFO

-Income tax expense will be higher than under LIFO -Gross margin will be higher than under LIFO -COGS will be lower than under LIFO

Determine which of the following statements are correct regarding the difference between physical flow and the cost flow of inventory.

-Physical flow is focused on the actual movement of goods. -A business may adopt any cost flow assumption when accounting for perishable items. -Cost flow is an assumption about which goods/items are sold. -Perishable items must have an actual physical flow of FIFO.

these following statements do accurately describe the lower of cost or market (LCM) valuation method

-The journal entry to write-down inventory decreases gross profit. - The journal entry to write-down inventory decreases current assets. -The journal entry to write-down inventory increases cost of goods sold

Which statement(s) below is(are) correct regarding the purpose of taking a physical inventory count?

-The physical count is used to determine if there has been any theft, loss, damage or errors in inventory. -The physical count is used to adjust the Inventory account balance to the actual inventory available.

Internal Controls for Physical Count

-pre-numbered inventory tickets -counters of inventory should not be those who are responsible for the inventory -counters must confirm the validity of inventory existence, amounts and quality -second counts by a different counter

. Which of the following costs is not included as inventory on the balance sheet? A. Raw materials currently being used in the manufacturing process. B. Work in process. C. Finished goods. D. Storage costs for finished goods.

. Storage costs for finished goods. Finished goods storage costs are not reported as inventory. They are a component of operating expenses.

When a buyer returns merchandise purchased for cash, the buyer will record the transaction as a

. debit to Cash and a credit to Merchandise Inventory

Identify the ways in which lower of cost or market can be applied to merchandise inventory.

It can be applied to each item individually. It can be applied to the inventory as a whole. It can be applied to major categories of items.

Accrued revenues would affect _______ on the balance sheet.

Assets

Which of the statements below explain why LCM is used?

Assets are not shown at an inflated value on the balance sheet, but rather at lower of cost or replacement cost. Accounting principles require conservatism when reporting financial information. LCM allows companies to recognize a loss in value of an asset in the period the loss occurs. Companies never want to report inventory on a balance sheet that is higher than replacement cost.

Accounts Receivable

Assets created by selling goods/services on credit

Permanent(Real Account)

Assets, Liabilities and Equity

Classified Balance Sheet order...

Assets- Current(used within a year or ops cycle) Long-term investments(year+) Plant assets(tangible long lived revenue producing) Intangible(long term resources ie. patent,TM) Liabilities-Current(due within a year or ops cycle) Long-Term(Due outside a year or ops cycle) Equity- Owners claim on the assets

The Accounting Equation is...

Assets=Liabilities + Owner's Equity $100 = $10 + $90

True or False The Other Accounts column in the cash receipts journal is used for recording debits to any account for which there is no special debit column.

False

True or False The format and number of specialized journals that a business uses depend upon the legal organization of the business.

False

True or False Transactions must first be recorded in the general journal before they can be entered in specialized journals.

False

Trade Discount

Is a reduction in price below the list price

Debit Memo

Is the document a buyer issues to inform the seller of a debit made to the seller's account in the buyer's records.

Cost of Goods Sold(expense)

Is the term used for the cost of buying and preparing merchandise for sale

Adjusted Trial Balance

Is the trial balance prepared once adjustments have been recorded and contains totals of all general ledger accounts

The statement of owner's equity shows

beginning and ending capital, all the changes in the owner's capital as a result of net income (loss), and withdrawal

The listing of expenses on the income statement is ordered

by size, beginning with the largest item and putting miscellaneous expense as the last item.

The following units of an inventory item were available for sale during the year: Beginning inventory 10 units at $55 First purchase 25 units at $60 Second purchase 30 units at $65 Third purchase 15 units at $70 The firm uses the periodic inventory system. During the year, 60 units of the item were sold. The value of ending inventory using FIFO is a. $1,150 b. $1,350 c. $1,375 d. $1,250

c. $1,375

Use the end-of-period spreadsheet for Finley Company. The first closing entry would include a

credit to C. Finley, Capital for $50,000

The adjusting entry to decrease merchandise inventory due to LCM computations, includes Multiple choice question.

credit to Merchandise Inventory

Addison, Inc. uses a perpetual inventory system. The following is information about one inventory item for the month of September: Sept. 1 Inventory 20 units at $20 Sept. 4 Sale 10 units Sept. 10 Purchase 30 units at $25 Sept. 17 Sale 20 units Sept. 30 Purchase 10 units at $30 If Addison uses FIFO, the cost of the ending merchandise inventory on September 30 is a. $700 b. $750 c. $650 d. $800

d. $800

When posting column totals in the purchases journal, a credit should be posted to a. Cash b. Merchandise Inventory c. Sales Returns and Allowances d. Accounts Payable

d. Accounts Payable

Who is responsible for the freight cost when the terms are FOB destination?

the seller

The revenue recognition principle

determines when revenue is credited to a revenue account.

The _____ principle states that inventory costs are expensed as cost of goods sold when inventory is sold.

expense recognition

Cost flow is in the order in which costs were incurred when using

first-in, first-out

When merchandise sold is assumed to be in the order in which the purchases were made, the company is using

first-in, first-out

What is the term applied to the excess of revenue from sales over the Cost of Merchandise Sold?

gross profit

Merchandise inventory

includes all goods owned by a company and held for sale

On September 1, the company pays rent for 12 months in advance and debits an asset account. At year-end, the adjusting entry on the work sheet would

increase an expense account

Information Processors

interpret,transform, and summarize info for use in analysis and reporting

Accounts Receivable Ledger

is a subsidiary ledger that contains an account for each credit customer

When a company extends credit directly to customers...

it (1) maintains a separate account receivable for each customer and (2) accounts for bad debts from credit sales

If a period-end inventory amount is reported in error...

it can cause a misstatement in Cost of Goods Sold, Net Income, Gross Profit, and Current Assets

The LIFO cost flow assumption assumes that the cost of items purchased ______ are the costs that will be transferred first to cost of goods sold on the ______ ______. Multiple choice question.

latest/income statement

The days' sales in inventory measures the

length of time it takes to acquire, sell, and replace the inventory

Accounts Payable

liabilities created by purchasing goods/services on credit

Deposit Ticket

lists items such as currency, coins, and checks deposited along with their corresponding dollar amount

Excess inventory results in all of the following except

lost sales

When goods are shipped FOB destination and the seller pays the freight charges, the buyer

makes no journal entry for the freight

Allowance Method of accounting for bad debts...

matches the estimated loss from uncollectible accounts receivable against the sales they helped produce. Advantages (1) it records estimated bad debts expense in the period when the related sales are recorded and (2) it reports accounts receivable on the balance sheet at the estimated amount of cash to be collected

The formula to compute cost of goods sold is

merchandise available for sale minus ending inventory

Physical counts of inventory...

necessary to measure and adjust for inventory shrinkage

Damaged goods which can be sold are reported in inventory at

net realizable value

Damaged merchandise that can be sold only at prices below cost should be valued at

net realizable value

Under the _____ inventory method, accounting records maintain a continuously updated inventory value.

perpetual

All of the following are documents used for inventory control except a

petty cash voucher

Depreciation

process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use. Factors include; cost, salvage value and useful life

Gross Profit is

profit before deducting operating expenses

To encourage a buyer to pay before the end of the credit period, the seller may offer a

purchase discount

Which document authorizes the purchase of inventory from an approved vendor?

purchase order

If goods are shipped FOB shipping point, then the Blank 1Blank 1 purchaser , Correct Unavailable (purchaser/seller) is responsible for paying freight charges and the Blank 2Blank 2 seller , Correct Unavailable (purchaser/seller) will not include the merchandise in their inventory.

purchaser, seller

To encourage a buyer to pay before the end of the credit period, the seller may offer a

purchases discount

Which document establishes an initial record of the receipt of inventory?

receiving report

Direct Write-Off Method of accounting for bad debts...

records the loss from an uncollectible account receivable when it is determined to be uncollectible. No attempt is attempted to predict bad debts expense

When the three sections of a balance sheet are presented on a page in a downward sequence, it is called the

report form

Relevance Principle

requires and accounting info system to report Useful, understandable, timely, and pertinent info for effective decision making

Control Principle

requires that internal controls aid managers in controlling and monitoring business activities

Which of the following is not an example of safeguarding inventory?

returning inventory that is defective or broken

The primary objectives of control over inventory are

safeguarding inventory from damage and reporting inventory in the financial statements

The formula used to measure the ratio of sales to assets is _____.

sales divided by average total assets

Bank Statement

sent once a month to each depositor showing the activity in the account

Cash Equivalents

short term, highly liquid investment assets meeting 2 criteria; (1) readily convertible to a known cash amount and (2) sufficiently close to their due date so that their market value is not sensitive to interest rate changes

Taking a physical count of inventory

should be done near year-end

An advantage of the weighted average method under a periodic inventory system is that it: Multiple choice question.

smooths out erratic changes in costs

The ability of a business to pay its debts is called

solvency

Accounts Payable Ledger

subsidiary ledger that contains a separate account for each supplier (creditor) to the company

Plant Assets

tangible assets used in a company's operations that have a useful life of more than one accounting period.

Who is responsible for the freight costs when the terms are FOB shipping point?

the buyer

Working capital is

the excess of the current assets of a business over its current liabilities.

The account used to close the temporary accounts (revenues and expenses) before the finish of the accounting cycle is

the owner's capital account.

Monitoring the internal control system can be best described as

the process by which a company locates weaknesses and improves controls

The first step of the accounting cycle is to _____.

Analyze and record the transactions in the journal

Which account will be included in closing entries of both service and merchandising companies?

Sales

Which of the following accounts has a normal credit balance?

Sales

On January 31, the cash account balance was $96,750. During January, cash receipts totaled $305,000 and cash payments totaled $375,880. Determine the cash balance on January 1.

$167,630

A company has the following current assets: Cash, $10,000 Commercial paper, $5,000 Treasury bills, $4,000 Accounts receivable, $10,000 Inventory, $20,000

$19000.00 Cash $10,000 + Commercial paper $5,000.00 and Treasury bills $4,000.00

Gracie Company made a prepaid rent payment of $2,800 on January 1. The company's monthly rent is $700. The amount of prepaid rent that would appear on the January 31 balance sheet after adjustment is

$2,100

A retailer purchases merchandise with a catalog list price of $30,000. The retailer receives a 15% trade discount and has credit terms of 2/10, n/30. How much cash will be needed to pay this invoice within the discount period?

$24,990 Price after Trade Discount = Catalog Price - Trade Discount = $30,000 - (15% × $30,000) = $30,000 - $4,500 = $25,500; Cash Required to Pay Invoice = Price after Trade Discount - Purchase Discount = $25,500 - (2% × $25,500) = $25,500 - $510 = $24,990

Assume the following data concerning a purchase of merchandise by Icon Co. on April 2: April 2. Purchased $4,000 of merchandise on account from Gamma Co., terms 2/10, n/30. 4. Returned $2,000 of the merchandise purchased on April 2. 12. Paid for the purchase of April 2 less the return and discount. The purchase amount that Icon would record on April 2 would be _____.

$3,920.00

The following amounts were taken from a company's balance sheet: Total assets, $100,000 Total liabilities, $20,000 Total owner's equity, $80,000 Current assets, $10,000 Current liabilities, $5,000 The company's net working capital would be _____.

$5,000

The journal entry required to close the Drawing account is _____.

A debit to Capital account and a credit to Drawing account

The unearned rent account has a balance of $69,505. If $16,919 of the $69,505 is unearned at the end of the accounting period, the amount of the adjusting entry is

$52,586

The net income reported on the income statement is $58,000. However, adjusting entries have not been made at the end of the period for supplies expense of $2,200 and accrued salaries of $1,300. Net income, as corrected, is

$54500.00

The inventory data for an item for November are: Nov. 01 Inventory 20 units at $20 04 Sale 8 units 10 Purchase 34 units at $21 17 Sale 19 units 30 Purchase 21 units at $23 Using a perpetual system, what is the cost of merchandise sold for November if the company uses LIFO?

$559-Cost of merchandise sold

The balance in the office supplies account on January 1 was $7,000, supplies purchased during January were $3,000, and the supplies on hand on January 31 were $2,000. The amount to be used for the appropriate adjusting entry is

$8,000

The balance in the office supplies account on January 1 was $7,040, the supplies purchased during January were $3,823, and the supplies on hand on January 31 were $2,085. The amount to be used for the appropriate adjusting entry is

$8,778

Double Declining Depreciation

(1) compute the asset's straight line depreciation rate (2) double the straight line rate (3)compute depreciation expense by multiplying this rate by the asset's beginning of period book value

Worksheet

(Optional tool)10 Column spreadsheet used to draft unadjusted trial balance, adjusting entries, adjusted trial balance, and financial statements

Sales allowances(contra-revenue)

A credit to the buyer for defective merchandise or goodwill

Review the steps below that apply LCM to individual items of inventory. Place them in the correct order of occurrence

1. List the number of unit of each product.2. List the cost of each item.3. List the market price of each item.4. Compute total cost and total value market of each item.5. Compare recorded cost of each inventory item with its replacement cost. List lower cost or market.6. Adjust inventory downward when market is less than cost.

A sales invoice included the following information: merchandise price, $12,000; terms 1/10, n/eom, FOB shipping point with prepaid freight of $900 added to the invoice. Assuming that a credit for merchandise returned of $500 is granted prior to payment and the invoice is paid within the discount period, what is the amount of cash that should be received by the seller?

12,280 (answer on site is 12,285)

Credit terms (2/10, n/30) is interpreted as...

2% cash discount if the amount is paid within 10 days(from date of invoice), If not then the balance is due within 30 days

The following amounts were taken from a company's balance sheet: Total assets, $100,000 Total liabilities, $20,000 Total owner's equity, $80,000 Current assets, $10,000 Current liabilities, $5,000 The company's current ratio would be _____.

2.00

Bradford Company had sales of $700,000 for the year. The total assets at the beginning of the year were $240,000, and the total assets at the end of the year were $280,000. The ratio of sales to total assets is (round answer to two decimal places)

2.69

HOW TO: Purchased merchandise on account from Moonlight Co., list price $93,000, trade discount 25%, terms FOB destination, 2/10, n/30. First minus 2% discount Second minus 25% trade in $1860.00 2% discount = 93000-1860=91,140.00 $22785 25% trade of 91,140.00 91,140.00 - 22,785 = 68,355

63,355

The kind of business that would use the specific identification method of inventory costing includes:

A car dealership

Deductions for Uncollectible items/services(aka non-sufficient funds NSF)

A company sometimes deposits another party's check that is uncollectible(usually meaning the balance in that party's account is not large enough to cover the check)

Which of the following is considered to be an accrued expense?

A computer technician has installed the latest software updates, buy you have not received an invoice or made payment

The accounting process begins with...

Analysis of transactions and source documents

Moore Company purchased an item for inventory that cost $20 per unit and was priced to sell at $30. It was determined that the replacement cost is $18 per unit. Using the lower-of-cost-or- market rule, what amount should be reported on the balance sheet for inventory? A. $18 B. $20 C. $12 D. $30

A. 18; -Inventory is reported on the balance sheet at replacement cost when it is less than cost.

Tinker's 2011 cost of goods sold was $750,000 and 2010 cost of goods sold was $770,000. The inventory at the end of 2011 was $188,000 and $208,000 at the end of 2010. What is Tinker's average number of days to sell their inventory during 2011? A. 96.3 B. 91.5 C. 95.1 D. 93.8

A. 96.3 -Inventory turnover (3.79) = Cost of goods sold ($750,000) / (Average inventory ($188,000 + $208,000) / 2) Average days to sell inventory (96.3) = 365 days / Inventory turnover (3.79)

Under the LIFO cost flow assumption during a period of inflation, which of the following is false? A. Cost of goods sold will be lower than under FIFO. B. Gross margin will be lower than under FIFO. C. Income tax expense will be lower than under FIFO. D. Ending inventory will be lower than under FIFO

A. Cost of goods sold will be lower than under FIFO. -Cost of goods sold comes from recent inventory purchases and is therefore higher.

Cost Principle

Accounting info based on actual cost

Jones Co. returned merchandise purchased from Smith Co. The journal entry to record the return of the merchandise by Jones under a perpetual inventory system is a debit to _____ and a credit to _____.

Accounts Payable - Smith Co.; Merchandise Inventory

Generally accepted accounting principles require that companies use the ____ of accounting.

Accrual basis

Use the adjusted trial balance for Stockton Company. Determine the current assets. **REVIEW CENGAGE**

Add cash, accounts receivable , and prepaid expenses together. $9,330

Credit Memo

Advises the buyer that a return or allowance has been credited to the Account Receivable

Which of the following is an advantage of using bank accounts? Bank accounts reduce the amount of cash on hand. The use of bank accounts facilitates the transfer of funds using EFT systems. Bank accounts provide an independent recording of cash transactions that can be compared to the company's recording of cash transactions. All of these choices are correct.

All of the above

Which of the following is true regarding the income statement? a. It must be prepared before the statement of owner's equity. b. Miscellaneous Expense is listed as the last expense item, regardless of its amount. c. It is prepared using the account balances shown in the Adjusted Trial Balance columns of the end-of-period spreadsheet. d. All of these statements are true.

All of these statements are true.

Which of the following is not true about closing entries?

All real accounts are closed at the end of the period.

Depreciation

Allocating costs of plant assets over expected their useful lives

Which of the following is true regarding the end-of-period spreadsheet?

Amounts are read across a row and added or subtracted to determine the amounts to insert in the Adjusted Trial Balance columns.

Prepaid advertising, representing payment for the next quarter, would be reported on the balance sheet as

An asset

Which of the following steps is optional during the closing process?

An end of period spreadsheet is prepared.

Of the following, which step is not a requirement during the accounting cycle?

An end-of-period spreadsheet is prepared.

The income statement should be prepared

before the statement of owner's equity and balance sheet

. Which of the following statements is false? A. Companies do not have to use the same inventory method for all items of inventory. B. Companies do not have to consistently use the same inventory costing methods. C. Use of the LIFO inventory method during a period of increasing prices may create a conflict of interest between the owners and managers. D. A company choosing to maximize stockholders' equity during a period of increasing prices should use the FIFO inventory method.

B. Companies do not have to consistently use the same inventory costing methods -GAAP requires companies to consistently apply their inventory costing methods.

Which of the following statements is correct when inventory prices are decreasing? A. LIFO will result in lower net income and a higher inventory valuation than will FIFO. B. LIFO will result in higher net income and a higher inventory valuation than will FIFO. C. FIFO will result in higher net income and a higher inventory valuation than will LIFO. D. FIFO will result in higher net income and a lower inventory valuation than will LIFO.

B. LIFO will result in higher net income and a higher inventory valuation than will FIFO; -LIFO reports a lower cost of goods sold and a higher net income when prices are decreasing.

The following data were taken from the annual reports of Big Bang Inc., a manufacturer of fireworks, and Orange Inc., a manufacturer of computers. Big Bang Inc. Orange Inc. Cost of merchandise sold $830,000 $11,540,000 Inventory, end of year 190,000 320,000 Inventory, beginning of year 240,000 290,000 Determine the (1) inventory turnover and (2) days' sales in inventory for Big Bang and Orange. Round your answers to two decimal places. Use a 365-day year.

Big Bang Inc. Orange Inc. 1. Inventory turnover 3.86 37.84 2. Days Sales in Inventory94.55 9.65

The journal entry to record cash received from clients on account would include a

credit to Accounts Receivable

The FIFO cost flow assumption assumes that the cost of items purchased Blank 1Blank 1 earliest , Correct Unavailable (earliest/latest) are the costs that will be transferred first to cost of goods sold on the Blank 2Blank 2 income statement , Correct Unavailable (balance sheet/income statement).

Blank 1: earliest Blank 2: income statement

The following accounts are closed at the end of the accounting period except _____.

Capital

Which account would normally not require an adjusting entry?

Cash

Merchandise inventory is a...

Current asset

A $25,000 overstatement of the 2010 ending inventory was discovered after the financial statements for 2010 were prepared. Which of the following describes the effect of the inventory error on the 2010 financial statements? A. Current assets were overstated and net income was understated. B. Current assets were understated and net income was understated. C. Current assets were overstated and net income was overstated. D. Current assets were understated and net income was overstated.

C. Current assets were overstated and net income was overstated. -An overstatement of ending inventory overstates current assets and understates cost of goods sold and therefore overstates net income.

Under the FIFO cost flow assumption during a period of inflation, which of the following is false? A. Income tax expense will be higher than under LIFO. B. Gross margin will be higher than under LIFO. C. Ending inventory will be lower than under LIFO. D. Cost of goods sold will be lower than under LIFO.

C. Ending inventory will be lower than under LIFO; -Ending inventory comes from recent inventory purchases and is therefore higher.

Which of the following costs will not affect cost of goods sold? A. Inventory inspection costs. B. Inventory preparation costs. C. Inventory related selling costs. D. Freight charges incurred to acquire inventory.

C. Inventory related selling costs -Selling costs are operating costs and don't affect cost of goods sold.

Which of the following statements is correct? A. FIFO reports lower income amounts than LIFO when prices are increasing. B. LIFO reports a higher income amount than FIFO when prices are increasing. C. LIFO reports a higher income amount than FIFO when prices are decreasing. D. LIFO reports the same amount of income as FIFO when prices are increasing.

C. LIFO reports a higher income amount than FIFO when prices are decreasing. -LIFO reports a lower cost of goods sold and a higher net income when prices are decreasing.

. Which of the following statements does not accurately describe the lower of cost or market (LCM) valuation method? A. The journal entry to write-down inventory decreases gross profit. B. The journal entry to write-down inventory decreases current assets. C. The journal entry to write-down inventory does not affect income from operations. D. The journal entry to write-down inventory increases cost of goods sold

C. The journal entry to write-down inventory does not affect income from operations. The journal entry increases cost of goods sold and therefore decreases income from operations. The journal entry also decreases inventory.

An Overstatement of ending inventory will...

Cause an overstatement of assets and equity on the balance sheet

Units of Production

Charges a varying amount to expense for each period of an asset's useful life depending on its usage (Cost - Salvage Value) / Units of production= Dep/Unit Dep/Unit X Units produced in period =Dep Expense

Straight Line Depreciation

Charges the same amount of expense period of the asset's useful life. (Cost - Salvage Value) / Useful life in periods

Accounting Information Systems

Collect and process data from transactions and events, organize data in useful forms, communicate crucial info to business decision makers

Ledger

Collection of all accounts and their balances

Assuming purchase costs are declining and a periodic inventory system is used, determine the statements below which correctly describe what is happening to cost of goods sold under FIFO, LIFO and weighted average cost flow methods

Companies using LIFO will report the smallest cost of goods sold. Companies using LIFO will pay higher taxes than companies using FIFO, assuming all else being equal. Weighted average cost of goods sold will be between FIFO and LIFO costs of goods sold. Companies using LIFO will report the highest ending inventory on their balance sheets, as compared to companies using FIFO or weighted average.

Determine which of the following statements is correct regarding consigned goods.

Consigned goods should be included in the consignor's inventory. They are owned by the consignor and included in the consignor's inventory, but they are located in the store of the consignee.

5 Fundamental Principles of Accounting info systems are...

Control, relevance, compatibility, flexibility and cost benefit

Which account is not classified as a selling expense?

Cost of Goods Sold

Which of the following accounts is not used in the closing process for a periodic inventory system?

Cost of Merchandise Sold

Which of the following accounts should be closed at the end of the fiscal year?

Cost of Merchandise Sold

The adjusting journal entry to record inventory shrinkage includes a debit to _____ and a credit to ______.

Cost of Merchandise Sold; Merchandise Inventory

Which account is not classified as a selling expense?

Cost of goods sold

When merchandise is sold, the revenue is reported as sales and its cost is recognized as an expense called _____.

Cost of merchandise sold

The journal entry to record cash received from clients on account would include a

Credit to Accounts Receivable

The following are income and expense items on the adjusted trial balance of NW Company: Fees Earned $18,944 Rent Expense 4,500 Wages Expense 5,678 Miscellaneous Expense 340 Which of the following will be included in the first closing entry?

Credit to Owner Capital for $18,944

The numerator in the current ratio calculation is

Current Assets

Closing Process

Ensures Net Income/Net Loss and owners withdraws are closed into the owner's capital account

Which of the following is the last step during the posting process?

Enter the ledger account number in the Post Ref. column of the journal.

. QV-TV, Inc. provided the following items in their footnotes for the year-end 2010: Cost of goods sold was $22 billion under FIFO costing and their inventory value under FIFO costing was $2.1 billion. The LIFO Reserve for year-end 2009 was a $0.6 billion credit balance and at year-end 2010 it had increased to a credit balance of $0.8 billion. How much is LIFO inventory value at year-end 2010? A. $1.9 billion B. $2.9 billion C. $2.3 billion D. $1.3 billion

D. $1.3 billion LIFO inventory ($1.3 billion) = FIFO inventory ($2.1 billion) - LIFO reserve ($0.8 billion)

52. On December 31, 2010, Cruise Company has 10,000 units of an inventory item which cost $40 per unit when purchased on June 15, 2010. The selling price was $70 per unit. On December 30, 2010, the replacement cost was $38 per unit. At what amount should the 10,000 units of inventory be reported at on the December 31, 2010 balance sheet? A. $100,000 B. $120,000 C. $350,000 D. $380,000

D. $380,000 Inventory is reported on the balance sheet at replacement cost ($38) when it is less than cost ($40). The inventory cost ($380,000) equals replacement cost ($38) multiplied by 10,000 units.

Which of the following statements is incorrect for a manufacturing entity? A. Inventory is transferred from work in process to finished goods. B. Raw materials used are transferred to work in process. C. Finished goods inventory eventually becomes cost of goods sold. D. Cost of goods sold is recognized when the manufacturing process is complete.

D. Cost of goods sold is recognized when the manufacturing process is complete. Cost of goods sold is recognized when the inventory is taken from finished goods and sold to the customer.

Which of the following statements is incorrect? A. Ending inventory exceeds beginning inventory when purchases are greater than cost of goods sold. B. Cost of goods sold exceeds purchases when ending inventory is less than beginning inventory. C. Cost of goods available for sale will always be equal to or greater than cost of goods sold. D. Ending inventory is greater than beginning inventory when purchases are less than cost of goods sold.

D. Ending inventory is greater than beginning inventory when purchases are less than cost of goods sold. Ending inventory decreases when purchases are less than cost of goods sold.

. Which of the following statements is correct when inventory prices are increasing? A. LIFO will result in lower net income and a higher inventory valuation than will FIFO. B. LIFO will result in higher net income and lower inventory valuation than will FIFO. C. FIFO will result in lower net income and a lower inventory valuation than will LIFO. D. FIFO will result in higher net income and a higher inventory valuation than will LIFO.

D. FIFO will result in higher net income and a higher inventory valuation than will LIFO. FIFO reports a lower cost of goods sold and a higher net income when prices are increasing

54. Which of the following statements does not accurately describe the effects of a write-down of inventory on December 31, 2010 using the lower of cost or market (LCM) valuation method? A. The 2010 gross profit decreases. B. The 2011 cost of goods sold is effectively decreased if the inventory was sold during 2011. C. The 2010 ending inventory is decreased. D. The 2011 gross profit is not affected when the inventory was sold during 2011.

D. The 2011 gross profit is not affected when the inventory was sold during 2011. The 2011 cost of goods sold is decreased because of the write-down of the inventory cost during 2010.

Which of the following statements is correct? A. The choice of an inventory costing method is dependent upon the actual physical flow of the inventory. B. LIFO should be used during a period of increasing prices when the objective is to maximize the ending inventory value on the balance sheet. C. FIFO should be used during a period of decreasing prices when the objective is to maximize the gross profit reported on the balance sheet. D. The average cost method will result in an ending inventory balance which is somewhere between LIFO and FIFO when inventory prices are changing.

D. The average cost method will result in an ending inventory balance which is somewhere between LIFO and FIFO when inventory prices are changing. Use of the average cost method results in cost of goods sold and ending inventory being reported at amounts between the LIFO and FIFO extremes.

A petty cash fund of $500 is established on October 1. The entry to record the transaction is

Debit Petty Cash, Credit Cash

The following are income and expense items on the adjusted trial balance of NW Company: Fees Earned $18,944 Rent Expense 4,500 Wages Expense 5,678 Miscellaneous Expense 340 Which of the following will be included in the first closing entry?

Debit to Owner Capital for $10,518

The following are income and expense items on the adjusted trial balance of Barker Company: Fees Earned $18,791 Rent Expense 4,600 Wages Expense 5,678 Miscellaneous Expense 440 Which of the following will be included in the second closing entry?

Debit to Owner Capital for $10718.

Liabilities

Debts created by purchasing goods/services on credit

The unexpired insurance at the end of the fiscal period represents a(n)

Deferred expense

All of the following accounts will appear on the post-closing trial balance except _____.

Depreciation Expense

Which of the following accounts will be closed with a credit?

Depreciation Expense

Determine the total value of the merchandise using Net Realizable Value. Item Quantity Selling Price Commission Doll 10 $7 $2 Horse 5 9 3

Doll 50 Horse 30 Total 80

In the closing process, Owner Capital was debited for $49,850 and credited for $78,200. The company has

Earned net income of $28,350.0

A Merchandise company

Earns Net Income by buying and selling merch. can buy from manufacturers and sell to retailers can buy from manufacturers and sell to customers can be a wholesaler or a retailer

Why would the physical count of inventory be different than what is shown in perpetual inventory records?

Events such as damage Events such as errors Events such as loss Events such as theft

Business Entity(assumption)

Every business accounted for separately from other entities, to include its owners

Assets

Everything a company owns

. An understatement of ending inventory results in an overstatement of net income.

FALSE An understatement of ending inventory results in an increase in cost of goods sold and therefore a decrease in net income.

The journal entry to write-down inventory under the lower-of-cost-or-market (LCM) rule results in a decrease in both ending inventory and cost of goods sold.

FALSE Cost of goods increases when inventory is written down.

In a period of rising costs, the LIFO Reserve account would be deducted from the ending inventory under LIFO costing to convert it to ending inventory under FIFO costing.

FALSE LIFO's ending inventory is less than FIFO's ending inventory when prices are increasing. Therefore the LIFO Reserve would be added to the FIFO ending inventory.

A company can use the LIFO inventory method for income tax purposes and the FIFO inventory method for financial reporting purposes during a given year.

FALSE The LIFO conformity rule requires the use of LIFO for financial statement preparation if LIFO is used for tax purposes. ***KEY THING CONFORMITY RULE***

An overstatement of the 2011 ending inventory results in an overstatement of stockholders' equity as of the end of 2012.

FALSE The overstatement of the 2011 ending inventory causes the 2011 net income to be overstated, the 2012 beginning inventory to be overstated and the 2012 net income to be understated. Stockholders' equity as of the end of 2012 is correct because the 2011 net income overstatement is counter-balanced by the understatement of the 2012 net income

An overstatement of the 2011 ending inventory results in an understatement of net income during 2012.

FALSE The overstatement of the 2011 ending inventory causes the 2012 beginning inventory and cost of goods sold to be overstated and 2012 net income to be understated

T/F . A large retail department store probably would use the specific identification inventory costing method for most of the items in its inventory

FALSE The specific identification method is used when expensive unique items are sold.

t/f Inventory inspection costs incurred at the time of purchase are reported as operating expenses on the income statement

FALSE They are recorded as a component of the cost of the inventory

T/F The use of raw materials in the manufacturing process is reported as an operating expense on the income statement.

FALSE They become part of work in process inventory.

t/f A decrease in the merchandise inventory account occurs when inventory purchases are greater than cost of goods sold.

FALSE An increase in the merchandise inventory account occurs when inventory purchases are greater than cost of goods sold.

Cost flow is in the order in which costs were incurred when using

FIFO

Which of the following lists the four methods used to assign costs to inventory and to cost of goods sold?

FIFO, LIFO, weighted average and specific Identification

If the seller is to pay the freight costs of delivering merchandise, the delivery terms are stated as

FOB Destination

Prepaid expenses are an example of an expense. True False

False

T/F A physical inventory should be taken at the end of every month.

False

T/F A purchase order establishes an initial record of the receipt of the inventory.

False

T/F Under the LIFO inventory costing method, the most recent costs are assigned to ending inventory.

False

T/F When using the FIFO inventory costing method, the most recent costs are assigned to the cost of merchandise sold.

False

The financial statements are prepared from the unadjusted trial balance. True False

False

The revenue recognition principle states that revenue should be recorded in the same period as the cash is received. True False

False

True or False A purchase order establishes an initial record of the receipt of the inventory.

False

True or False Even when special journals are used, purchases of store equipment on account are recorded in the general journal.

False

True or False If the ownership of merchandise passes to the buyer when the seller delivers the merchandise to the carrier, the terms are stated as FOB destination.

False

Credit Card Sales

Gives customers the ability to make purchases without cash or checks. Customers using these cards can make single monthly payments instead of several payments to different creditors and can defer their payments

Which of the following statements is correct regarding goods in transit?

Goods shipped FOB shipping point will be included in the buyer's inventory.

Goods on Consignment

Goods shipped by the owner to the consignee who sells the goods for the owner

Which of the following companies would be more likely to use the specific identification inventory costing method?

Gordon's Jewelers

What is the term applied to the excess of revenue from sales over the cost of merchandise sold?

Gross Profit

True statements about LIFO and inflation

Gross margin will be lower than under FIFO Income tax expense will be lower than under FIFO Ending Inventory will be lower than under FIFO

In a service business, which of the following would not be a line item on the income statement?

Gross profit?

Accounting is an information measurement system that...

Identifies, records and communicates information about business activities by interpreting info and designing info systems to allow business to make better decisions

Accounting Cycle is the recurring steps performed each reporting period...

In order...Analyze, Journalize, Post, Trial Balance, Adjust, Adjusted Trial Balance, Financial Statements, Close, Post-Closing Trial Balance, Reverse entries(optional)

Damaged and Obsolete goods

Included in inventory at their net realizable value

Cash

Includes currency and coins along with the amounts on deposit in bank accounts, checking accounts, and many savings accounts, cashier's checks, certified checks and money orders

Revenue accounts appear on the _____.

Income Statement

Adjusting entries affect at least one

Income statement account and one balance sheet account.

Going-concern Principle

Info that reflects a presumption a business will continue operating

Which of the costs below would be included in the recorded cost of merchandise inventory?

Insurance costs Storage costs Invoice cost

Which of the following accounts would likely be included in an accrual adjusting entry?

Interest Expense

Which one of the accounts below would likely be included in an accrual adjusting entry? -insurance expense, prepaid rent, interest expense, unearned rent

Interest Expense

Which of the following is NOT a reason for which a bank issues debit memos?

Interest earned on the company's account

When the physical inventory on hand at the end of the accounting period is less than the balance of Merchandise Inventory, the difference is called_____.

Inventory

Demonstrate how inventory costs are treated both as assets and expenses by selecting the correct statement(s) below. (

Inventory items retained at the end of the period are considered part of Merchandise Inventory on the balance sheet. Inventory items sold are considered part of cost of goods sold on the income statement. Inventory costs are treated as an expense when they are sold.

Tinker's 2011 cost of goods sold was $750,000 and 2010 cost of goods sold was $770,000. The inventory at the end of 2011 was $188,000 and $208,000 at the end of 2010. What was Tinker's inventory turnover during 2011? A. 3.79 B. 3.99 C. 3.84 D. 3.89

Inventory turnover (3.79) = Cost of goods sold ($750,000) / (Average inventory ($188,000 + $208,000) / 2)

First In First Out(FIFO)

Inventory valuation method that assigns a value to the inventory on the balance sheet that approximates current cost. Ir also mimics the actual flow of goods for most businesses

Weighted Average

Inventory valuation method that tends to smooth out erratic changes in costs

Costs included in the Merchandise Inventory account can include...

Invoice price minus any discount, transportation-in, storage and insurance

A Vail, Colorado, snow ski supplier would most likely pick which of the following dates to end its fiscal year?

June 30th

. QV-TV, Inc. provided the following items in their footnotes for the year-end 2010: Cost of goods sold was $22 billion under FIFO costing and their inventory value under FIFO costing was $2.1 billion. The LIFO Reserve for year-end 2009 was a $0.6 billion credit balance and at year-end 2010 it had increased to a credit balance of $0.8 billion. How much is the 2010 LIFO cost of goods sold? A. $22.2 billion B. $19.8 billion C. $22.8 billion D. $19.2 billion

LIFO cost of goods sold ($22.2 billion) = FIFO cost of goods sold ($22 billion) + the increase in LIFO reserve ($0.2 billion) ***inc. in LIFO Reserve (.8-.6=.2)

Recount the methods used to assign costs to inventory and cost of goods sold under both a perpetual and a periodic system.

Last-in, first-out First-in, first-out Weighted average Specific identification

Unearned Revenue

Liabilities created when a customer pays before the revenue is earned

Time Period(assumption)

Life of a company divided into time periods with Useful reports for each ie. monthly, quarterly, fiscal/calendar years

The ability to convert assets into cash is called

Liquidity

The ability to convert assets into cash is known as

Liquidity

Chart of Accounts

List of all company accounts with corresponding identification #s

Balance Sheet

Lists types/amounts of Assets, Liabilities and Equity as of a specific date (AKA accounting equation)

Examples of cash equivalents include all of the following except U.S. Treasury bills. notes issued by major corporations (referred to as commercial paper). currency and coins. long-term notes receivable.

Long-term notes receivable

Which of the following accounts has a normal debit balance?

Merchandise Inventory

Which of the following accounts will only be found in the chart of accounts of a merchandising company?

Merchandise Inventory

Sales Returns (contra-revenue)

Merchandise that customers return to the seller after the sale

Land used in the operations of a business is classified under _____ on the balance sheet.

Property, plant, and equipment

Temporary(Nominal Account)

Revenues, Expenses, and withdrawl accounts that are closed at the end of each accounting period

When a corporation adopts a fiscal year that ends when business activities have reached the lowest point in its annual operating cycle, such a fiscal year is called the

Natural Business Year

Asset Book Value

Net balance sheet amount is computed as the asset's total cost less its accumulated depreciation

At the end of the fiscal year, the usual adjusting entry for depreciation on equipment was omitted. Which of the following is true?

Net income will be overstated for the current year.

If a company mistakenly counts more items during a physical inventory than actually exist, how will the error affect its bottom line?

Net income will be overstated.

The five elements of internal control include all of the following except risk assessment. control procedures. information and communication. None of these choices are correct.

None of this choices are correct

Classified Balance Sheet

Organizes Assets and Liabilities into subgroups providing more info to decision makers

Owner's Equity

Owner's claims against assets

Which of the following will increase owner's equity on the statement of owner's equity?

Owner's investments, net income

In credit terms of 3/15, n/45, the "3" represents the

Percent of the cash discount

The last step of the accounting cycle is to _____.

Prepare a post-closing trial balance

Accrual basis of accounting

Preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues

Which of the following accounts will not be closed at the end of the accounting cycle?

Real Accounts

Determine cost of goods sold for X-mart, assuming that beginning inventory was $5,000. Net purchases were $20,000 and ending inventory was $9,000.

Reason: ($5,000 + $20,000) - $9,000 = $16,000

Account

Record of (+/-) in an asset, liability, equity, revenue or expense

Which of the following accounts will be closed with a debit?

Rent Revenue

Full Disclosure

Report all details of financial statements that could impact user's decisions;often in the footnotes

Matching Principle

Requires expenses to be reported in the same period as the revenues earned

Consistency Concept

Requires that the same valuation method stays constant unless another method becomes preferable

Which account will not appear on the post-closing trial balance?

Revenue

Revenue Recognition Principle

Revenue is recognized when Earned ie.selling products/providing service for cash/credit

Income Statement

Revenues - Expenses = Net Income Net Income=excess revenues over expenses(profit) Net loss=excess expenses over revenues

Capital calculation

Revenues - Expenses = Net Income - Withdraws = Ending Capital

A company provided the following data: sales, $500,000; beginning inventory, $40,000; ending inventory, $45,000; and gross margin, $150,000. What was the amount of inventory purchased during the year? A. $370,000 B. $355,000 C. $348,000 D. $341,000

Sales ($500,000) - Cost of goods sold ($350,000) = Gross margin ($150,000) Cost of goods sold ($350,000) = Beginning inventory ($40,000) + Purchases ($355,000) - Ending inventory ($45,000)

Gross profit formula

Sales - COGS = Gross Margin

Expenses that are incurred directly or entirely in connection with the sale of merchandise are classified as

Selling Expenses

Statement of Owners Equity

Shows beginning OE(capital), events that increase it(owner investments and Net Income), events that decrease it(withdraws and net loss)

The form of income statement that derives its name from the fact that the total of all expenses is deducted from the total of all revenues is called a

Single-Step Statement

Income Summary account

Special account to temp hold the amounts of revenues and expenses before net difference is added/subtracted from owner's capital account. Also used to close temp accounts ie.revenues, expenses, net income and withdraws

Objectivity Principle

Statement info must be supported by Unbiased evidence

Owner withdrawals would appear on the _____.

Statement of owner's equity

The posting of depreciation expense will be done during which step of the accounting cycle?

Step 6: Journalizing and posting adjusting entries

In which of the following steps of the accounting cycle will the owner capital account be used?

Step 9: Journalizing and posting closing entries

An increase in accounts payable is added to net income when determining operating activities cash flows.

TRUE An increase in accounts payable means that some inventory purchases haven't been paid for.

An increase in inventory is deducted from net income when determining operating activities cash flows.

TRUE An increase in inventory means that inventory purchases exceed cost of goods sold.

The average days to sell inventory decreases as inventory turnover increases.

TRUE Average days to sell inventory is calculated by dividing 365 by inventory turnover. So an increasing inventory turnover will result in a decreased average days to sell inventory.

T/F Costs of goods available for sale ends up being allocated to both ending inventory and cost of goods sold.

TRUE Cost of goods available for sale minus ending inventory equals cost of goods sold. COGS= Cost of goods available for sale - EI

Inventory turnover is calculated as cost of goods sold divided by average inventory

TRUE Cost of goods sold divided by average inventory equals inventory turnover

Inventory turnover under LIFO is greater than inventory turnover under FIFO when prices are increasing.

TRUE Cost of goods sold divided by average inventory equals inventory turnover. LIFO has the highest cost of goods sold and the lowest inventory and therefore the greater inventory turnover.

The journal entry to write-down inventory under the lower-of-cost-or-market (LCM) rule results in a debit to cost of goods sold and a credit to inventory

TRUE Cost of goods sold increases and inventory decreases when inventory is written down

During periods of decreasing prices, use of the FIFO inventory method results in lower gross profit than would use of the LIFO method.

TRUE FIFO cost of goods sold is the highest among the inventory choices when prices are decreasing. A higher cost of goods sold results in a lower gross profit.

T/F The FIFO inventory method allocates the most recent inventory purchase costs to ending inventory.

TRUE FIFO ending inventory consists of the most recent inventory acquisitions.

The lower-of-cost-or-market (LCM) rule is used because of the conservatism constraint, which allows a departure from the historical cost principle.

TRUE GAAP requires inventories to be valued at the lower-of-cost-or-market.

t/f . Manufactured goods transferred out of work in process are reported as finished goods on the balance sheet

TRUE Items transferred from work in process inventory become finished goods inventory

T/F The LIFO inventory method allocates the most recent inventory purchase costs to cost of goods sold.

TRUE LIFO cost of goods sold consists of the most recent inventory acquisitions.

Use the end-of-period spreadsheet for Finley Company. The first closing entry would include a

credit to C. Finley, Capital for $14,319

. During periods of increasing prices, the LIFO inventory method results in lower income taxes.

TRUE LIFO cost of goods sold reports a lower taxable income and therefore lower income taxes because of higher cost of goods sold

t/f 12. During periods of decreasing prices, use of the LIFO inventory method will result in a larger amount of inventory than will the use of the FIFO inventory method.

TRUE LIFO ending inventory consists of the older inventory acquisitions which were at higher prices.

. During periods of increasing prices, use of the LIFO inventory method will result in a lower inventory amount on the balance sheet and a lower net income than will use of the FIFO inventory method.

TRUE LIFO ending inventory consists of the older inventory acquisitions which were at lower prices. LIFO cost of goods sold reports a lower net income because of the higher cost of goods sold.

When a company using the LIFO inventory method reduces its inventory levels at the end of the year, it can lead to LIFO liquidation

TRUE LIFO liquidation will occur when inventory levels decrease and older inventory becomes a part of cost of goods sold.

T/F The LIFO inventory method will result in the highest gross margin when costs are increasing in comparison to the specific identification, FIFO and weighted average inventory methods.

TRUE LIFO reports the highest cost of goods sold and therefore the lowest gross margin during periods of increasing prices.

The LIFO Reserve is a contra-asset account which represents the excess of FIFO inventory costs over LIFO inventory costs.

TRUE The LIFO Reserve is reported in the notes to the financial statements and is the adjustment to the LIFO inventory reported on the balance sheet.

Cash flow from operations increases by $1,000,000 when there is a $3,000,000 decrease in inventory and a $2,000,000 decrease in accounts payable.

TRUE The decrease in inventory ($3,000,000) is added to net income and the decrease in accounts payable ($2,000,000) is subtracted from net income when calculating cash flow from operations.

t/f Factory overhead manufacturing costs are a component of the cost of the work-in process inventory.

TRUE Work in process inventory includes direct materials, direct labor, and factory overhead.

The Cash balance on the adjusted trial balance will be carried over to

The Debit column of the balance sheet on the work sheet.

One identical unit is purchased on each of the following three dates and at the respective costs: June 1 at $10 June 2 at $15 July 4 at $20 The company sells two units during the period. Conclude which inventory items are sold first and which unit remains in ending inventory if the company is using the FIFO cost flow assumption.

The June 1 at $10 and the June 2 at $15 are both sold; the July 4 unit remains in ending inventory.

The balance of the accumulated depreciation account on the adjusted trial balance of the end-of-period spreadsheet would be reported on which of the following financial statements?

The balance sheet

Source Documents provide...

The basic info processed by and accounting system

Why is it favorable to select a fiscal year that ends when the operating cycle is at its lowest point?

The business has more time to analyze the results of operations and to prepare financial statements.

Which of the following statements is true?

The current ratio is more useful than working capital in making comparisons across companies.

Working capital is

The excess of the current assets of a business over its current liabilities.

In which journal would an adjustment for an overcharge by a creditor be recorded? a. cash payments journal b. general journal c. purchases journal d. cash receipts journal

b. general journal

Accumulated Depreciation

Total amount of depreciation recorded throughout the life of an asset

General Journal records...

Transaction date,Account names, Amount of each debit/credit, and explanation

Monetary unit Principle

Transactions to be expressed in monetary(money) units

Post-Closing Trial Balance

Trial balance prepared after closing entries have been journalized and posted. Reports all ledger accounts except temporary accounts

Gains resulting from the sale of fixed assets are reported as "other income" on the multiple-step income statement.

True

T/F A perpetual inventory system is an effective means of control over inventory.

True

T/F The three inventory costing methods will normally each yield different amounts of net income.

True

T/F When merchandise inventory is shown on the balance sheet, both the method of determining the cost of the inventory and the method of valuing the inventory should be shown.

True

True or False FIFO is the inventory costing method that follows the physical flow of the goods.

True

Last In First Out(LIFO)

Used during a period of steadily rising costs, this valuation method yields the lowest reported net income

Check

Used to withdraw money from an account, a document signed by the depositor instructing the bank to pay a specified amount of money to a designated recipient

Percent of Receivables Method(aka balance sheet method)

Uses balance sheet relations to estimate bad debts- mainly the relation between accounts receivable and the allowance amount. Assumes that a given percent of a company's receivables is uncollectible.

Aging of Receivables Method

Uses both past and current receivables info to estimate the allowance amount. Assumes that the longer an account is past due, the more likely it is to be uncollectible

The account type and normal balance of Unearned Revenue would be a. revenue, credit b. liability, credit c. asset, debit d. expense, debit

b. liability, credit

Trial Balance

Vertically lists accounts and balances Total Dr should = Total Cr

Which of the following summarizes the weighted average cost flow assumption?

Weighted average assumes that costs flow at an average of the costs available.

There are advantages to using each of the four inventory costing methods. Identify the statements below that are correct regarding these advantages. (Check all that apply

Weighted average tends to smooth out erratic changes in costs. FIFO assigns an amount to inventory on the balance sheet that approximates its current cost.

Additions for Collections and Interest

When a bank collects an item, it is added to the depositor's account, less any service fee. The bank then sends a credit memo to notify the depositor of the transaction

A company's net income or net loss for a period is determined during which of the following steps of the accounting cycle?

When financial statements are prepared.

The following information was taken from the financial statements of Lea Corporation for December 31, Year 2 and Year 1: Year 2 total sales: $5,000,000 Year 2 total assets: $450,000—beginning balance, $600,000—ending balance Year 1 total sales: $3,500,000 Year 1 total assets: $565,000—beginning balance, $450,000—ending balance The ratio of sales to assets for Year 2 and Year 1 is _____.

Year 2, 9.52; Year 1, 6.90

T-Account

___________________ (left side) I (right side) Debit I Credit

Liquidity

a company's ability to pay for its near term obligations

Replenishing the petty cash fund requires

a credit to Cash

Under a periodic inventory system

a physical inventory is taken at the end of the period

Bank Account

a record set up by a bank for a customer

Bank Reconcilliation

a report explaining(reconciling) any differences between the checking account balance according to the depositors records and the balance reported on the bank statement

Promissory Note

a written promise to pay a specified amount of money, usually with interest, either on demand or at a definite future date. Sellers sometimes ask for a note to replace an account receivable when a customer requests additional time to pay a past due account. (calculate note at maturity)

A sales invoice included the following information: merchandise price, $12,000; terms 1/10, n/eom, FOB shipping point with prepaid freight of $900 added to the invoice. Assuming that a credit for merchandise returned of $500 is granted prior to payment and the invoice is paid within the discount period, what is the amount of cash that should be received by the seller? a. $12,285 b. $11,500 c. $11,385 d. $10,480

a. $12,285

Merchandise subject to terms 2/10, n/30, FOB shipping point, is sold on account to a customer for $25,000. What is the amount of the sales discount allowable? a. $500 b. $460 c. $150 d. $260

a. $500

Percent of Sales Method(aka income statement method)

based on the idea that a given percent of a company's credit sales for the period is uncollectible.

Which of the following types of accounts have a normal credit balance? a. Revenues and capital b. Assets and liabilities c. Liabilities and expenses d. Capital and drawing

a. Revenues and capital

What is the major difference between a periodic and a perpetual inventory system?

a. Under the periodic inventory system, the purchase of inventory will be debited to the purchases account. b. Under the periodic inventory system, no journal entry is recorded at the time of the sale of inventory for the cost of the inventory. c. Under the periodic inventory system, all adjustments such as purchases returns and allowances and discounts are reconciled at the end of the month. Correctd. All of these choices are correct.

The cash receipts journal will be used for a. all cash received for any purpose b. cash received from customers on account and cash sales c. only cash received from cash sales d. only cash received from customers on account

a. all cash received for any purpose

Prior to the adjusting process, accrued expenses have a. been incurred but not paid and not recorded b. not yet been incurred, paid, or recorded c. been paid but have not yet been incurred d. been incurred, have not been paid, but have been recorded

a. been incurred but not paid and not recorded

E-commerce a. can improve the speed and efficiency of transactions b. increases paperwork c. accounts for less than 1% of all retail sales d. only relates to transactions between a company and a consumer

a. can improve the speed and efficiency of transactions

If merchandise sold on account is returned to the seller, the seller may inform the customer of the details by issuing a a. debit memo b. credit memo c. purchase invoice d. sales invoice

a. credit memo

The arrangements between buyer and seller as to when payments for merchandise are to be made are called a. credit terms b. gross cash c. cash on demand d. net cash

a. credit terms

Use the end-of-period spreadsheet for Finley Company. The first closing entry would include a a. credit to C. Finley, Capital for $50,000 b. credit to C. Finley, Capital for $155,000 c. debit to C. Finley, Capital for $155,000 d. debit to C. Finley, Capital for $50,000 **REVIEW CENGAGE**

a. credit to C. Finley, Capital for $50,000

Using a perpetual inventory system, the entry to record the return of merchandise purchased on account includes a a. credit to Merchandise Inventory b. debit to Cost of Merchandise Sold c. credit to Accounts Payable d. credit to Sales

a. credit to Merchandise Inventory

Smokey Company purchases a one-year insurance policy on July 1 for $3,600. The adjusting entry on December 31 is a. debit Insurance Expense, $1,800; credit Prepaid Insurance, $1,800 b. debit Prepaid Insurance, $1,800; credit Cash, $1,800 c. debit Insurance Expense, $1,500; credit Prepaid Insurance, $1,500 d. debit Insurance Expense, $2,100; credit Prepaid Insurance, $2,100

a. debit Insurance Expense, $1,800; credit Prepaid Insurance, $1,800

When purchases of merchandise are made on account with a perpetual inventory system, the transaction is recorded with which entry? a. debit Merchandise Inventory; credit Accounts Payable b. debit Accounts Payable; credit Merchandise Inventory c. debit Merchandise Inventory; credit Purchases d. debit Merchandise Inventory; credit Cash Discounts

a. debit Merchandise Inventory; credit Accounts Payable

The general term used to indicate delaying the recognition of an expense already paid or of a revenue already received is a. deferral b. depreciation c. accrual d. inventory

a. deferral

The means by which the accounting system collects, summarizes, and reports accounting information is called information a. processing methods b. accounting methods c. reporting methods d. control methods

a. processing methods

Too much inventory on hand

a. ties up funds that could be used to improve operations b. increases the cost to safeguard the assets c. increases the losses due to price declines All of these choices

Net income on the Income Statement section of the work sheet will

be carried over to the Credit column of the balance sheet on the work sheet.

Generally Accepted Accounting Principles(GAAP) require that the inventory of a company...

be reported at lower of cost or market

Under a perpetual inventory system,

accounting records continuously disclose the amount of inventory

Where are selling and administrative expenses found on the multiple-step income statement?

after gross profit

The amount recorded for merchandis inventory includes..

any purchase discounts, returns and allowances, necessary freight cost, and any trade discounts

Which of the following is the authoritative body in the United States that has the primary responsibility for developing accounting principles? a. IRS b. FASB c. AICPA d. SEC

b. FASB (financial accounting standard board)

After an accounting system has been set up, what is the next step? a. Implement analysis and design. b. Obtain input from users to analyze and improve the system. c. Create the chart of accounts. d. Set up internal controls.

b. Obtain input from users to analyze and improve the system.

The following lots of a particular commodity were available for sale during the year: Beginning inventory 10 units at $60 First purchase 25 units at $65 Second purchase 30 units at $68 Third purchase 15 units at $75 The firm uses the periodic system, and there are 25 units of the commodity on hand at the end of the year. What is the amount of inventory at the end of the year using the LIFO method? a. $3,815 b. $1,685 c. $1,575 d. $1,805

c. $1,575

Calculate income from operations for Jonas Company based on the following data: Sales $764,000 Operating expenses 52,500 Cost of merchandise sold 538,000 a. $485,500 b. $711,500 c. $173,500 d. $226,000

c. $173,500

Calculate the gross profit for Jefferson Company based on the following: Sales $764,000 Selling expenses 42,500 Cost of merchandise sold 538,000 a. $183,500 b. $721,500 c. $226,000 d. $495,500

c. $226,000

Which of the following accounts has a normal credit balance? a. Accounts Receivable b. Merchandise Inventory c. Sales d. Delivery Expense

c. Sales

When purchases of merchandise are made on account with a perpetual inventory system, the transaction is recorded with which entry? a. debit Merchandise Inventory; credit Cash Discounts b. debit Merchandise Inventory; credit Purchases c. debit Merchandise Inventory; credit Accounts Payable d. debit Accounts Payable; credit Merchandise Inventory

c. debit Merchandise Inventory; credit Accounts Payable

Buster Industries pays weekly salaries of $30,000 on Friday for a five-day week ending on that day. The adjusting entry necessary at the end of the fiscal period ending on Tuesday is a. debit Dividends, $12,000; credit Cash, $12,000 b. debit Salary Expense, $12,000; credit Dividends, $12,000 c. debit Salary Expense, $12,000; credit Salaries Payable, $12,000 d. debit Salaries Payable, $12,000; credit Cash, $12,000

c. debit Salary Expense, $12,000; credit Salaries Payable, $12,000

The entry to record the return of merchandise from a customer would include a a. debit to Sales b. debit to Estimated Returns Inventory c. debit to Customer Refunds Payable d. credit to Sales

c. debit to Customer Refunds Payable

The primary difference between a periodic and perpetual inventory system is that a a. periodic system keeps a record showing the inventory on hand at all times b. periodic system provides an easy means to determine inventory shrinkage c. periodic system determines the inventory on hand only at the end of the accounting period d. periodic system records the cost of the sale on the date the sale is made

c. periodic system determines the inventory on hand only at the end of the accounting period

Which of the following is an internal report that will determine if debit balances equal credit balances in the ledger? a. chart of accounts b. income statement c. trial balance d. account reconciliation

c. trial balance

An Understatement of ending inventory will...

cause an understatement of assets and equity on the balance sheet

Outstanding Checks

checks written (or drawn) by the depositor, deducted on the depositor's records, and sent to the payees but not yet received by the bank for payment at the bank statement date

Multiple Step income statements...

contain more detail of revenues and expenses listing than a single-step

A net loss appears on the end-of-period spreadsheet in the a. Debit column of the Income Statement columns b. Credit column of the Balance Sheet columns c. Credit column of the Adjustments columns d. Debit column of the Balance Sheet columns

d. Debit column of the Balance Sheet columns

Which of the following companies would be more likely to use the specific identification inventory costing method? a. Lowe's b. Walmart c. Best Buy d. Gordon's Jewelers

d. Gordon's Jewelers

Which of the following accounts has a normal debit balance? a. Accounts Payable b. Sales c. Interest Revenue d. Merchandise Inventory

d. Merchandise Inventory

Merchandise inventory is classified on the balance sheet as a a. current liability b. long-term asset c. long-term liability d. current asset

d. current asset

The adjusting entry to record the depreciation of a building for the fiscal period is a. debit Accumulated Depreciation; credit Depreciation Expense b. debit Building; credit Depreciation Expense c. debit Depreciation Expense; credit Building d. debit Depreciation Expense; credit Accumulated Depreciation

d. debit Depreciation Expense; credit Accumulated Depreciation

The entry to close the appropriate insurance account at the end of the accounting period is a. debit Insurance Expense; credit Owner's Capital b. debit Owner's Capital; credit Prepaid Insurance c. debit Prepaid Insurance; credit Owner's Capital d. debit Owner's Capital; credit Insurance Expense

d. debit Owner's Capital; credit Insurance Expense

Prepaid expenses have a. been incurred and paid b. been recorded as expenses and paid c. been incurred, but not recorded d. not yet been recorded as expenses but have been paid

d. not yet been recorded as expenses but have been paid

Which of the following measures the length of time it takes to acquire, sell, and replace inventory?

days' sales in inventory

Buster Industries pays weekly salaries of $26,000 on Friday for a five-day week ending on that day. The adjusting entry necessary at the end of the fiscal period ending on Tuesday is

debit Salary Expense, $10,400; credit Salaries Payable, $10,400

In recording the cost of merchandise sold for cash, based on data available from perpetual inventory records, the journal entry is a

debit to Cost of Merchandise Sold and a credit to Merchandise Inventory

Data for an adjusting entry described as "accrued wages, $2,020" requires a

debit to Wages Expense and a credit to Wages Payable

The journal entry to record an owner withdrawal of funds for personal use includes a

debit to the owner's drawing account.

If there is a cash shortage, the cash short and over account is

debited

When purchase costs are (rising/declining) Blank 1Blank 1 declining , Correct Unavailable, LIFO will report the lowest cost of goods sold yielding the highest gross profit and net income.

declining

When purchase costs are _______________ , Correct Unavailable, LIFO will report the lowest cost of goods sold yielding the highest gross profit and net income.

declining

What effect will the following adjusting journal entry have on the accounting records? debit 2150 depreciation expense credit 2150 accumulated depreciation.

decreased net book value

When preparing a bank reconciliation, outstanding checks are _____

deducted from the bank balance

When preparing a bank reconciliation, a not sufficient funds (NSF) check is ______?

deducted from the company's bank balance

Deposits in Transit

deposits made and recorded by the depositor but not yet recorded on the bank statement

The balance of the owner's drawing account on the adjusted trial balance of the end-of-period spreadsheet is reported on which of the following financial statements?

the statement of owner's equity Owner's investments, net incomeby size, beginning with the largest item and putting miscellaneous expense as the last item..

Which of the following is considered to be unearned revenue?

theater tickets sold for next month's performance

Inventory shrinkage is recorded when

there is a difference between a physical count of inventory and inventory records

The following are reasons to close the accounts at the end of the year except

to close all real accounts.

Internal Control Procedures

to ensure reliable financial reports, safeguards to protect assets, policies to direct operations toward common goals and methods to achieve compliance with laws and regulations

The purpose of the post-closing trial balance is

to verify that the ledger is in balance at the beginning of the next period.

An example of deferred revenue is Unearned Rent. True False

true

Supplies are recorded as assets when purchased. Therefore, the credit to Supplies in the adjusting entry is for the amount of supplies

used

A chart of accounts for a merchandising business

usually requires more accounts than does the chart of accounts for a service business

A __________ is any document that serves as proof of authority to pay cash or issue an electronic funds transfer.

voucher

A company's net income or net loss for a period is determined during which of the following steps of the accounting cycle?

when financial statements are prepared.

What type of company would normally offer trade discounts to its customers?

wholesaler