Accounting chapter 5/6

Bijoux Company has sales of $40,000, beginning inventory of $5,000, purchases of $25,000, and ending inventory of $7,000. The goods available for sale for the period equals ______.

$30,000 (beginning inventory of $5000 + $25000 in purchases)

The income statement for ABC Company shows Gross profit of $144,000; Operating expenses of $130,000; and Cost of goods sold of $216,000. What is net sales revenue?

$360,000 Reason: Net sales revenue - Cost of goods sold = Gross profit. To solve for sales, rearrange the equation as Gross profit + Cost of goods sold = Net sales revenue (= $144,000 + 216,000 = $360,000).

Which of the following are the steps involved in a petty cash system?

Putting money into petty cash to establish a fund Paying money out to reimburse others Replenishing the petty cash fund

Which of the following are the steps involved in a petty cash system? (Select all that apply.)

Putting money into petty cash to establish a fund Paying money out to reimburse others Replenishing the petty cash fund

The entry to record to replenishment of the petty cash fund involves debiting ______ and crediting ______.

expense accounts; Cash

After approval of a purchase has been obtained, the purchasing agent completes a prenumbered _____ that identifies the supplier, the delivery location, and the approved quantity and cost.

purchase order

The purchasing system begins with an authorized employee completing a manual or electronic ______ which is then reviewed and approved by a supervisor before an order is placed with a supplier.

purchase requisition

The entry that debits various expenses and credits Cash is recording the ______.

replenishing of petty cash

Surfshack Corp. buys surfboards, wetsuits, and surf wax from Rip to Shreds, Inc. for sale to consumers. What type of company is Surfshack Corp?

Retail merchandiser

Service charges are ______.

subtracted from the cash book's balance of a bank reconciliation bank charges for processing your transactions

An advantage of direct deposits is they ______.

are convenient and efficient

In a perpetual inventory system, the entry to record the sale includes a debit to __________ of ______________ ________________and a credit to _________.

cost goods sold inventory

The Inventory balance on the balance sheet reports the ______.

cost of goods available for sale

A purchaser is offered a 2% discount if the bill is paid within 7 days, otherwise the full amount is due in 30. This purchase discount is expressed on the invoice as follows:

2/7,n/30

Which of the following costs should be added to the buyer's Inventory account?

Freight-in with terms FOB shipping point

Which line items are found on a multi-step but not on a single-step income statement. (Check all that apply.)

Income from Operations Gross Profit

Cashiers at a supermarket have to talk to a manager before approving price changes at the register. Which internal control principle is being followed?

Segregate duties

In a perpetual inventory system, the buyer of merchandise with the shipping terms FOB shipping point will ______.

add the transportation costs to its Inventory account

In a perpetual system, the entry to record the sale of merchandise to a customer on account would include a ______. (Check all that apply.)

credit to Inventory debit to Cost of Goods Sold

An electronic ______________ (EFT) is a deposit made typically without your knowing and is discovered when a bank statement is reviewed. (Enter one word per blank.)

funds transfer

Beginning Inventory + Purchases = _____.

goods available for sale

What does the gross profit percentage tell you?

higher ratio means that more is available to cover operating expenses.

Incentives for committing fraud in order to satisfy personal greed include _______.

increasing personal wealth getting a bigger paycheck

Some managers commit fraud because they are under great pressure to report a high net income to meet ______. (Select all that apply.)

loan covenant requirements shareholders' expectations financial analysts' earnings forecasts

Bottom, Inc. paid an invoice for $1,000, with discount terms of 1/7, n/30, within the discount period. The net amount paid was ______.

$990(subtract discount-don't add to it)

Match the steps in a voucher system with the appropriate control principle.

Establish responsibility -> Ensure that purchase requisition are made by employees approved to make purchases. Document procedures -> Prepare a receiving report. Segregate duties -> Accounting department prepares the journal entry.

T/F Sales discounts are discounts that consumers get from buying clearance items at a reduced price.

False

T/F The entry recorded when the petty cash fund is replenished includes a debit to Petty Cash and a credit to Cash.

False

The purchase of merchandise on account is recorded with a debit to ______ and a credit to ______.

Inventory; Accounts Payable

Which inventory system requires that the inventory account be updated at the time merchandise is sold?

Perpetual system

Which of the following poses a high risk of theft because of its high volume and ease of portability?

cash

After approval of a purchase has been obtained, the purchasing agent completes a prenumbered ___________ ______________that identifies the supplier, the delivery location, and the approved quantity and cost. (Enter one word per blank.)

purchase order

A(n) ______ system involves the processing of purchases and payments made on account.

voucher

If the company's accountant mistakenly recorded a $58 deposit as $85, the error would be shown on the bank reconciliation as a(n) ______.

$27 deduction from the book balance

Which of the following reconciling items on a bank reconciliation need to be recorded in the company's record to adjust its cash balance so that it up to date? (Select all that apply.)

EFT received from customers discovered on the bank statement Customer's check rejected by the bank as NSF Interest Revenue

T/F Cash that is legally or contractually required to be set aside for a specific purpose cannot be reported with Cash and Cash Equivalents on the balance sheet.

True

T/F Generally, a physical count of inventory is performed annually in both a perpetual inventory system and a periodic inventory system.

True

T/F On a bank statement, deposits are listed as credits and cleared checks are listed as debits.

True

The company needs to record the reconciling items that are on the ______ side of the bank reconciliation.

book

Corporations with high sales volume, such as WalMart, usually have ______.

low gross profit percentages

T/F A company either performs a service, sells inventory that it purchases from others, or manufacturers a product; it cannot serve more than one of these functions.

False

T/F A highly effective internal control should be implemented even if the cost is greater than the benefit.

False

T/F The gross profit percentage is computed by dividing operating income by net sales.

False

True or false: Strong internal control surrounding cash receipts requires the cashier to perform the following procedures: count the cash receipts, take the cash to the bank, and record the amount collected in the accounting records.

False

True or false: The person who has custody of an asset should also account for the asset. A person who performs both duties will best know what the balance should be in the accounting records.

False

True or false: In a perpetual inventory system, the entry to record the cost of a sale is a debit to Cost of Goods Sold and a credit to Inventory (beginning) and a credit to Purchases.

False Reason: This is the entry for a periodic, not perpetual, inventory system. The correct entry is debit to Cost of Goods Sold and credit to Inventory.

Which of the following are typical reconciling items on the book side of a reconciliation because the company did not know about these items until it got the bank statement? (Select all that apply.)

Interest income Services charges Electronic funds transfers

In which of the following ways does a periodic system differ from a perpetual system? (Check all that apply.)

Inventory is not updated until the end of the accounting period in a periodic system. Cost of Goods Sold is not updated until the end of the accounting period in a periodic system.

Which of the following responsibilities should not be given to the accounting department?

Preparing the purchase order Preparing the receiving report Preparing the purchase requisition

Which of these will require a credit to the inventory account in a perpetual inventory system? (Check all that apply.)

Selling inventory for cash Selling inventory on account

T/F FOB shipping point means that ownership of goods passes to the buyer when the goods leave the seller's place of business.

True

T/F When duties are properly segregated, the accounting department should compare the cash in the register with the cash count sheet

True

The entry to record the purchase of inventory on account causes ______.

an increase in assets and liabilities

A weak system of internal ______ provides the ______ to commit fraud.

controls; opportunity

___________companies sell goods that they have produced. (Enter one word per blank.)

manufactoring

Internal control for cash is important because ______.

of the large volume of cash transactions of the high risk of theft cash is portable and is "owned" by whomever possesses it the risk of cash-handling errors is significant

A __________ cash system involves putting money into a fund, paying money out to reimburse others and putting money back into to replenish the fund. (Enter one word per blank.)

petty

The benefits of internal control procedures are that they ______. (Check all that apply.)

protect against theft of assets enhance the reliability of accounting information improve the efficiency and effectiveness of operations

Which of the following duties should not be the responsibility of an employee who has access to cash?

record cash collected in the journal perform bank reconciliations

The purchasing system begins with an authorized employee completing a manual or electronic purchase __________ form which is then reviewed and approved by a supervisor before an order is placed with a supplier. (Enter one word per blank.)

requisition

The services provided by a bank help business control cash by ______.

restricting access and providing documentation and independent verification

purchase ____________ and allowances are accounted for with a credit to Inventory and a debit to Cash or Accounts Payable. (Enter only one word per blank.)

returns

Sales Revenue reports the ______.

sales price times the quantity of goods sold

A multistep income statement is useful to financial statement users because it ______. (Select all that apply.)

separates cost of goods sold from other operating expenses, which allows the calculation of gross profit separates income statement items into meaningful components

_________________of duties is essential for safeguarding assets. The person who has custody of an asset should not also account for the asset. A person who performs both duties can steal the asset and hide the theft by making a bogus entry in the accounting records. (Enter one word per blank.)

separation

Service charges are ______ of a bank reconciliation.

subtracted from the book's balance

The journal entry to record the payment within the discount period for goods previously purchased on account causes _____.

total liabilities to decrease total assets to decrease

A(n) _____________system is a process for approving and documenting all purchases and payments made on account. (Enter only one word per blank.)

voucher

Electronic funds transfers (EFT) discovered on the bank statement _______.

will need to be adjusted on your records because your cash balance is affected

The procedure of bank reconciliation is an example of which principle of internal control?

independent verification

ABC Company had beginning inventory of $20,000, purchases of $81,000, and ending inventory of $24,000. Sales revenue was $160,000. What is ABC's gross profit percentage?

52% Reason: Cost of goods sold equals $77,000 (= $20,000 + 81,000 - 24,000). Gross profit percentage equals 52% (=$160,000 - $77,000)/$160,000.

Banks provide important controls surrounding a company's cash. These include which of the following? (Select all that apply.)

Banks provide documentation. Banks restrict access. Banks provide statements that are used for independent verification.

Why might a bank statement and the company's records differ?

Not all checks written cleared the bank. Customer checks that bounced (NSF). Deposits were made at the end of the bank statement date in an ATM.

An internal control system consists of actions taken to achieve objectives. Match the appropriate description with each objective of an internal control system.

Operations: Objective is to ensure the efficient and effective completion of work and the protection of assets Objective is to ensure the efficient and effective completion of work and the protection of assets -reporting: objective is to produce reliable and timely accounting information-compliance: objective is to ficus on adhering to laws and regulation-risk abatement: this is not an objective

__________is one of the 3 components of the fraud triangle that relates to taking advantage of weak internal controls. (Enter only one word per blank.)

Opportunity

In a perpetual system, the entry to record the sale of merchandise includes a ______.

debit to Cost of Goods Sold

In a perpetual system, the entry to record a purchase of merchandise on account includes a ______. (Check all that apply.)

debit to Inventory credit to Accounts Payable

Using a perpetual system, purchasing merchandise on account includes a ______. (Check all that apply.)

debit to Inventory credit to Accounts Payable

The recording of a company's purchase returns and purchase allowances are similar in that both may result in a(n) ______.

decrease in Inventory

Using the gross method, the journal entry to record taking a discount when paying for goods previously purchased on account includes a(n) ______.

decrease in assets and liabilities

The bank credited your account for a deposit that should have been deposited into another customer's bank account, not yours. This bank error should be a(n) ______ on a bank reconciliation.

deduction from the bank balance

Bank reconciliations are needed to reconcile for ______. (Select all that apply.)

deposits in transit outstanding checks

A ______________deposit is initiated by an EFT instructing a bank to transfer pay due employees into the employees' bank accounts. (Enter only one word per blank.)

direct

An electronic __________(EFT) is a deposit made typically without your knowing and is discovered when a bank statement is reviewed. (Enter one word per blank.)

funds transfer

If a company hires an auditor to check that the work done by others within the company is supported by documentation, this is part of the internal control procedure of ______.

independent verification