Accounting Test 2 (Chapters 6-8)

ABC company borrowed $11,000, two year note, at an annual interest of 7%. What amount is debited to Notes Payable on the date of maturity

$11,000

The cash account in the ledger of Clear Windows shows a balance of $12,596 at September 30. The bank statement, however, shows a balance of $16, 253 at the same date. The only reconciling items consist of a bank service charge of $16, a large number of outstanding checks totaling $6,740, and a deposit in transit. The cash balance is

$12,580

Net sales of $325,000, gross profit of $175,000, and net income of $15,000. What is the cost of goods sold?

$150,000

The Allowance for Bad Debts has a credit balance of $2,500 before the adjusting entry. Company estimates that 5% of $325,000 in credit sales will be uncollectible. What amount is reported on the income statement for Bad Debts Expense?

$16,250

A $30,000 three-month note at 7% is issued on Dec. 1st. What is the amount of accrued interest on Dec. 31st?

$175

Accounts receivable, debit balance of $100,280; Allowance for Doubtful Accounts, credit balance of $1,025. What amount should be debited to Bad Debts Expense assuming 5% of accounts are estimated to be uncollectible?

$3,989

Sales $2,850, inventory $1,500, and cost of goods sold $2,400. What's gross profit?

$450

Total interest expense for a 6-month note for $17,000 at 8%

$680

The maturity value of a 60 day note for $750,000 at 7% interest.

$758,630

During the current year, Carl Equipment Stores had net sales of $600 million, a cost of goods sold of $500 million, average accounts receivable of $75 million, and average inventory of $50 million. The inventory turnover is

10

During the current year, Carl Equipment Stores had net sales of $600 million, a cost of goods sold of $500 million, average accounts receivable of $75 million, and average inventory of $50 million. The accounts receivable turnover is

8

Amounts due from customers for credit sales

Accounts receivable

Provides details about the individual items comprising the balance in accounts receivable

Accounts receivable subsidiary ledger

This ledger lists customers in alphabetical order along the amounts with they owe

Accounts receivable subsidiary ledger

A process of classifying accounts receivable by how long it is past its due date for the purpose of estimating the amount of uncollectible accounts

Aging of accounts receivable

The two methods of estimating uncollectible receivables are

Aging of accounts, percentage of sales, and percentage of receivables

A method of estimating uncollectible receivables by determining the balance of the Allowance for Bad Debts account based on the age of individual accounts

Aging of receivables method

A contra asset account with a balance approximating the amount of accounts receivable expected to be uncollectible

Allowance for doubtful accounts

A contra asset account with a balance approximating the amount of accounts receivables expected to be uncollectible.

Allowance for doubtful accounts

The difference between the face value of accounts receivable and the net realizable value of accounts receivable

Allowance for doubtful accounts

principle x interest rate x time

Amount of interest

A company manager keeps pre-signed checks in his desk drawer for employees to hand write when the accountant is out of the office

Apply technological controls

A restaurant allows servers to keep cash collected in their aprons and ring in all the sales at the end of the night

Apply technological controls

This internal control procedure creates job accountability, states which tasks belong to which job, and ensures all important tasks are completed.

Assignment of responsibilities

An examination of the company's financial statements and accounting system

Audit

The uncollectible accounts of credit customers who do not pay what they have promised

Bad debts

A document explaining the reasons for the difference between the cash balance in the ledger and the cash balance in the bank account

Bank reconciliation

Currency, coins, and amounts on deposit in bank accounts.

Cash

Short-term, highly liquid investments that are readily convertible to a known cash amount and are sufficiently close to their maturity date so that the market value is not sensitive to interest rate changes.

Cash equivalent

Short-term, highly liquid investments

Cash equivalents

An income statement account that is used to record cash overages and cash shortages arising from petty cash transactions or from error in making change

Cash over short

A device that perforates the amount of a check into its face, making it difficult to alter

Check protector

Two or more people working together to circumvent internal controls and defraud a company

Collusion

This principle states that a company needs to use the same inventory costing method and if they change it, they must disclose the reason why

Consistency principle

Sales discounts and allowances is this type of account

Contra revenue account

An expense used under the net method of accounting for purchases resulting from failure to take advantage of cash discounts offered

Discount lost

A company has a single department that handles purchasing, receiving, and inventory management

Divide responsibility for related transactions

Only sales clerks use the cash registered, but they all share the same cash drawer

Divide responsibility for related transactions

The days in accounts receivables rate is calculated by

Dividing the days in the year by the account receivables turnover

The accounting principle that requires expenses to be reported in the same period as the sales they helps to produce

Expense recognition (matching) principle

This inventory costing method most closely resembles the actual physical flow of inventory

FIFO

The difference between net sales and the cost of goods sold

Gross profit

A company does not bond its key cash-handling employees

Insure assets and bond employees

The charge a borrower pays for using money borrowed

Interest

The set of policies and procedures managers use to monitor and control business activities

Internal control system

A bill sent from the supplier to the buyer

Invoice

Receiving deliveries of materials from suppliers just before the materials are used in production

Just-in-time concept of inventory

When prices are increasing, this inventory method will produce the highest cost of goods sold

LIFO

An asset such as cash that can be readily used to settle near-term obligations

Liquid assets

A company uses a voucher system, but the cash disbursement clerk pays directly from invoices received

Maintain adequate records

The party who signs a note and promises to pay it at maturity

Maker of a note

The accounting principle that requires the use of the allowance method of accounting for bad debts

Matching principle

Principal amount plus interest due

Maturity amount

Two ways of recording purchases when we have credit terms available

Net method and gross method

accounts receivable turnover is calculated by

Net sales divided by average accounts receivable

A check for which the bank account has inadequate funds to pay the check

Non-sufficient funds (NSF) check

Type of receivable supported by a promissory note

Notes reveivable

Starts with using cash to purchase merchandise and ends with collecting cash from customers

Operating cycle

The party to whom the promissory note is payable

Payee of the note

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

Percent of sales method

A company fails to hire a CPA to perform an annual audit

Perform regular and independent reviews

A large company has no internal auditor on staff

Perform regular and independent reviews

A written promise to pay a specified amount of money at a future date

Promissory note

A written promise to pay a specified amount of money, usually with interest, either on demand, or at a definite future date.

Promissory note

An internal document listing the goods and services needed by a department and requesting that the goods by purchased

Purchase requisition

The expected proceeds from converting an asset into cash

Realizable value

An outside auditor must evaluate the client's internal controls and report on them as part of the audit report is requirement of which law?

Sarbanes-Oxley Act

Law about internal control procedures

Sarbanes-Oxley Act

Regulation requiring public companies to document and certify their system of internal controls

Sarbanes-Oxley Act

Inventory turnover rate provides an indication of how quickly the inventory on hand

Sells

Cashiers have access to the cash register recorded tape or file

Separate recordkeeping from custody of assets

The bookkeeper prepares and signs checks and completes the bank reconciliation

Separate recordkeeping from custody of assets

Dividing responsibilities between two or more people to limit fraud and promote accuracy of accounting records

Separation of records

The documents which provide the evidence and data for accounting transactions

Source documents

This inventory method should be used if you have unique items

Specific identification

The supplier (seller) of goods and services

Vendor

Internal document used to accumulate information needed to control cash disbursements and to ensure that transactions are properly recorded

Voucher

Inventory turnover is calculated by

dividing cost of goods sold by average inventory

You calculate gross profit ratio by

dividing gross profit by net sales