AC 210 exam 2
Average Inventory
(Beginning Inventory + Ending Inventory) / 2
Sarbanes-Oxley Act requires:
-management to issue a report on internal controls -external auditors to audit internal controls -board of directors must form a committee to serve as the party in between management and the external auditors
parts of preparing a bank reconciliation of a checking account
-tracing deposits listed on the bank statement to the books to identify deposits in transit -arranging canceled checks in numerical order and tracing them to the books to identify outstanding checks -identifying items added on the bank statement which have not been recorded as cash receipts by the company
Net Profit Margin
1 - (total expenses / total sales revenue)
lower of cost or market method
A method of valuing inventory that reports the inventory at the lower of its cost or current market value (replacement cost). Can adjust down not up
periodic inventory system
An inventory system in which a company does not maintain detailed records of goods on hand throughout the period and determines the cost of goods sold only at the end of an accounting period.
Ending Inventory
Beginning Inventory + Purchases - COGS
Cost of Goods Sold
Cost of the inventory that was sold during the period
aging the receivables
The process of analyzing the accounts receivable and classifying them according to various age groupings, with the due date being the base point for determining age.
Freight on Board (FOB)
When something is purchased and paid for with terms 'FOB origin' it means the responsibility of the seller stops when the 'goods' are delivered to the transporting company at the point of origin. It is the responsibility of the buyer to pay for transportation.
an adjusting entry would be necessary for
a bank service charge
qualified opinion
a report issued when the auditor believes that the overall financial statements are fairly stated but that either the scope of the audit was limited or the financial data indicated a failure to follow GAAP
a customer returned damaged inventory he had purchased for credit. which of the seller's accounts decreases?
accounts receivable
when reconciling a bank statement, the company does not have to prepare:
an adjusting entry for outstanding checks
Bad Debt Expense
an expense account to record losses from extending credit
what are the effects on the accounting equation when a company makes the adjusting journal entry to estimate bad debt expense using the allowance method?
assets and owner's equity decrease
inventory
balance sheet
cost of goods available for sale
beginning inventory + cost of goods purchased
Allowance for Doubtful Accounts
contra-asset account containing the estimated uncollectible accounts receivable -balance sheet
Inventory Turnover Ratio
cost of goods sold/average inventory
retailer returns defective merchandise; in his books he would record a...
debit to accounts payable
when preparing a monthly bank reconciliation, what would be added to the balance reported on the bank statement to arrive the correct cash balance?
deposits in transit
A clothing store would logically have a higher inventory turnover rate than would a doughnut shop T/F
false
In accounting for inventory, the assumed cost flow (FIFO, LIFO, average)must match the physical goods flow. T/F
false
Segregation of duties means that a company assigns responsibilities so that employees are restricted to jobs for which they are adequately trained T/F
false
bad debts expense is a contra account that is used to reduce accounts receivable to its net realizable value T/F
false bc it's on the income statement not the balance sheet
for a merchandiser, inventory turnover refers to:
how many times the company buys and sells its inventory of goods
Under GAAP, an entry should be made to debit Bad Debt Expense account...
in the period when the sale is made
cost of goods sold
income statement
expense
income statement
LIFO
inventory accounting in which the most recently acquired items are assumed to be the first sold; method is supposed to create the lowest ending inventory in a period of rising prices. Also create a lower taxable income, lower gross profit.
shrinkage
inventory that disappears
Ending inventory is equal to the cost of items on hand plus
merchandise in transit sold to customers FOB destination
Net Profit Margin Ratio
net income/net sales
when a specific customer's account is written off by a company using the allowance method, the effect on net income and the net realizable value(book value) of the accounts receivable is:
no effect on either
when using the allowance method, what are the effects on the accounting equation when a company writes off a bad debt?
no effect on overall assets or equity
in a periodic inventory system the ending inventory must be determined by:
physical count
COGS - Beginning Inventory + Ending Inventory
purchased inventory
allowance method of accounting for bad debts will:
report accounts receivable in the balance sheet at their net realizable value, less an estimate of uncollectible accounts
Gross Profit
sales - cost of goods sold
which internal control is violated when the cashier at the checkout stand also records the daily receipts in the journal?
segregation of duties
the matching principle requires that bad debts be treated as an expense in the year
the sale is made
An audit report expressing an unqualified opinion is generally desired by the company presenting its financial statements T/F
true
Goods in transit shipped FOB shipping point should not be included in the seller's ending inventory. T/F
true seller is done - it is now the buyer's
A net profit margin ratio of 0.2 means that $1 of net income is generated for every $5 of sales revenue T/F
true 5 x 0.2 = 1
when a specific accounts receivable is written off, net income is unchanged T/F
true because of allowance for doubtful accounts
written off
uncollectible so it is taken off books
ending inventory under the weight average cost method
unsold inventory x average cost per unit