ACC 131 Exam 2

FOB: Free on Board Shipping point

-Buyer pays cost -Ownership passes from seller to the buyer when the goods are shipped -"Freight In" -ASSET

FOB: Free on Board Destination Point

-Seller pays cost -Ownership passes from the seller to the buys when the goods are received -"Freight Out" -EXPENSE

The accounting cycle

1) analyze transactions 2) journalize transactions 3) post to the ledger 4) prepare a trail balance 5) adjust the accounts 6) prepare financial statement 7) close the accounts

closing entries

1) close revenues 2) close expenses 3) close income summary 4) close dividends

What are the 5 ways to control activity?

1. Clearly defined authority and responsibility 2.Segregation of Duties 3.Adequate documents and records 4. Safeguard Assets and Records 5. Checks on recorded amounts

What are the 5 components of Internal Control?

1. Control Environment 2. Risk Assessment 3. Control Activities 4. Information and Communication 5. Monitoring

What are the 5 ways to limit access?

1. Limit access to cashiers/managers 2. Compare and reconcile daily cash receipts to electronic tape 3. Set cash register limits(ONLY MANAGERS) 4. Make daily deposits 5. Use professional security to transport

What is collusion?

2 or more employees working together in a fraudulent scheme

Average Days to Sell Inventory=

365 days / Inventory Turnover

The following information is available for all care nursing supply fiscal year ending December 31, 2012 calculate Accounts Receivable Turnover Ratio: Net Sales: $450,000 A/R Dec,31 2011: $175,000 A/R Dec,31, 2012:$125,000

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Sales discount --recording sale under the gross method

A/R Sales Revenue

A customers check for $25 that has been deposited into the company's checking account the previous month was returned and stamped NSF by the bank. What is the journal entry?

A/R $25 Cash $25

Adjusting Journal entry to correct error

A/R (increase-original) Cash

What is a bank reconciliation?

Accounting records are consistent with the banks accounting records

Examples of Liabilities

Accounts payable, salaries payable, wages payable

What is on a Balance per Bank Statement?

Add:Deposit Less:Outstanding checks Add or Less:Bank error

What is on a balance per company records?

Add:Interest earned, notes receivable Less:Service Fees, NSF

Cost of Goods Available for Sale=

Beginning inventory+purchases

Examples of Equity

Capital Stock, Retained Earnings

Sales discount --paying after the ten days

Cash A/R

The account which records differences between amount of cash deposited and amounts from the register tapes is called_________

Cash over and short

Examples of Assets

Cash, Prepaid Rent, Accounts Receivable, Inventory, Land

Cash over and short

Cash- debit (cash in revenue) Cash over & short (difference of cash and revenue) Sales Revenue- Credit (cash sales)

Which of the following is incorrect for establishing and maintaining a petty cash fund?

Company must obtain the cash needed for the fund and record on entry for the establishment of the fund

Weighted Average Cost Per Unit=

Cost of Goods Available for Sale/ Units available for sale

Inventory Turnover Ratio=

Cost of Goods Sold/ Average Inventory

Cost of Goods Sold=

Cost of goods available for sale-ending inventory

Cost of Goods Sold

Cost of the inventory that becomes expense

Segregation of Duties

Different duties are done by different people so that not one person is responsible

What are the ways to record bad debt expense?

Direct write off method and allowance method

Cost of Ending Inventory=

Ending Inventory x Cost per Unit

Statement of Retained Earning

Financial statement that provides how much of a company's income was retained in the business and how much was distributed to owners for a period of time

Income Statement

Financial statement that reports the profitability of a business over a period of time (Revenues, expenses, income)

Balance Sheet

Financial statement that reports the resources (assets) owned by a company and the claims against those resources (liabilities, stockholders equity) at a specific point in time

Gross Profit Margin=

Gross profit/net sales

how to close expenses

Income summary (add up all the expenses) expense expense

Goods Available for Sale=

Inventory Available for Sale x Cost per unit

Who is in charge of internal control of an organization?

Management

Sales Return

Merchandise or gods returned by the customer to the seller

Accounts Receivable Turnover=

Net Sales/Average Net Accounts Receivable

What is an example of a debit memo?

Notice of a bank service charge

Petty Cash Account

Petty Cash Cash _____________________________________ All expenses (Debit) Cash

Interest=

Principal x Annual Interest Rate x Fraction of 1 year

Revenue Recognition Principle

Principle that requires revenue to be recognized or recorded in the period in which it is earned and the collection of cash is reasonably assured

Historical Cost Principle

Principle that requires the activities of a company to be initially measured at their cost-the exchange price at the time the activity occurs

Notes Receivable

Receivables that generally specify an interest rate and a maturing date at which any interest and principal must be repaid

Debit and Credit Memo

Recorded by bank

Periodic Inventory System

Records the cost of purchases as they occur, takes a physical count of inventory at the end of the period and applies the cost of goods sold model to determine the balances of ending inventory and cost of goods sold

Gross Margin=

Sales Revenue-Cost of Goods Sold

Bad Debt Expense=

Total Credit Sales x Percentage of Credit Sales Estimated

accrued expense adjusting entries

_____ expenses _______ payable

accrued revenues adjusting entries

_____ receivable _____ revenue

deferred expense adjusting entries

_________ expense prepaid "______"

Cash Over and Short

a miscellaneous expense account used to record the difference between the amount of cash needed to replenish a petty cash fund and the amount of petty cash receipts at the time the petty cash is replenished

accounts receivable

add : A/R + Sales on account / totaled subtract: cash collected

cash basis accounting recognized

add all the numbers

bank reconciliation * cash balance from bank*

add deposit in transit subtract outstanding checks and adjusted cash balance = adjusted cash balance

bank reconciliation * cash balance from company records*

add interest earned & notes and interest collected subtract recording error, service charge, NSF check = adjusted cash balance

Petty Cash Fund

add number to bring it up to amount needed --- miscellaneous expense cash

What are cash equivalents?

all highly liquid investments with an original maturity of 3 months or less at date of inception

Writing off noncollectable accounts defaulted balance

allowance for doubtful accounts accounts receivable

Deposit in Transit

amount received and recorded by the business, by which has not been recorded by the bank(NOT KNOWN BY BANK)

Petty Cash

an accessible store of money kept by an organization for expenditure on small items

credit sales

bad debt expense

bad debt expenses

bad debt expense allowance for doubtful accounts *credit sales x percentage of credit sales default)

Aging Method

bad debt expense is estimated by determining the collectability of the accounts receivable rather than by taking a percentage of total credit sales

Allowance method

bad debt expense is recorded in the period of sale, which allows it to be properly matched with revenues

Perpetual Inventory System

balances for inventory and cost of goods sold are continually updates with each sale or purchase of inventory *Transaction by transaction basis

bank reconciliation

bank service charge expense -debit A/R -debit Cash (add service charge and A/R)

Record collection of note plus interest

cash - debit Interest - credit N/R- credit

Sales discount paying in the days

cash-debit sales discount-debit A/R- credit

Outstanding Check

check issued and recorded by the business that has not been "cashed"

NSF

check that has been returned to the depositor because funds in the issuers account are not sufficient to pay check 'Bounced Check" (RECORDED BY BANK)

Average Cost

cost of goods available for sale between ending inventory and cost of goods sold based on a weighted average cost per unit

Purchases

cost of merchandise acquired for resale during the accounting period

deposits in transit

deposits made by a company but not yet reflected in a bank statement

adjustment for depreciation

depreciation expense accumulated depreciation (use annual number)

outstanding checks

do not appear on a bank statement

Operating Cycle

elapsed time between the purchase of goods for resale and the collection of cash from customers

Service Charge

fees charged by the bank for checking account service(NOT KNOWN BY COMPANY)

accural- basis accounting

how much profit they sold

finding deferred revenue numbers

if the service is provided use that number -if the service is not provided subtract cash received by number unearned

how to close income summary

income summary retained earnings *subtract service revenues by income summary given by expenses*

What are irregularities?

intentional misstatements, theft, frauds

Record sale with note

notes receivable (project cost) sales revenue

Conservation Principle

principle in which states that when more than one equally acceptable accounting method exists, the method that result in the lower assets and revenues or higher liabilities and expenses should be selected

Matching Principle

principle that requires on expense to be recorded and reported in the same period as the revenue that it helped generate

Internal control

procedures put in place by management to control employees activities

Finding interest

project cost x % note x month/12

Checks on Recorded Amounts

recorded amounts need to be checked by an individual person to determine that everything is correct(third party)

Sales Discount

reduction of the normal selling price and is attractive to both the seller and buyer( 2/10, n/30)

Inventory

represents products held for resale and is classified as a current asset

how to close dividends

retained earnings dividends (number given)

how to close revenues

service revenue (number given) income summary

deferred revenue adjusting entries

unearned service revenue _________ service revenue ____________

finding deferred expense numbers

use number of prepaid expire - if not expired than subtract prepaid number subtracted by prepaid unused