ACCT 200 Exam 2 (ch 5-7)

Board of Directors

Elected by the shareholders to represent their interests; its audit committee is responsible for maintaining the integrity of the company's financial reports

Financial Accounting Standards Board (FASB)

The private sector body given the primary responsibility to work out the detailed rules that become generally accepted accounting principles

Corporate Governance

The procedures designed to ensure that the company is managed in the interests of the shareholders

Form 10-Q

The quarterly report that publicly traded companies must file with the SEC

Form 8-K

The report used by publicly traded companies to disclose any material event not previously reported that is important to investors

Goods Available for Sale

The sum of beginning inventory and purchases (or transfers to finished goods) for the period

Net Sales

The top line reported on the income statement. Net Sales= Sales Revenue -(Credit card discounts + Sales discounts + Sales returns and allowances)

Average Cost Method

Uses the weighted average unit cost of the goods available for sale for both cose of goods sold and ending inventory

Lower of Cost or Net Realizable Value

Valuation method departing from the cost principle; it serves to recognize a loss when net realizable value drops below cost

Notes Receivable

Written promises that require another party to pay the business under specified conditions (amount, time, interest)

Public Company Accounting Oversight Board (PCAOB)

The private sector body given the primary responsibility to work out detailed auditing standards

Cost of Goods sold equation

Beg Inv + Purchases - Ending Inventory =COGS

Finished Goods Inventory

Manufactured goods that are complete and ready for sale

Factory Overhead

Manufacturing costs that are not raw material or direct labor costs

LIFO Reserve

A contra-asset for the excess of FIFO over LIFO inventory

Sarbanes-Oxley Act

A law that strengthens US financial reporting and corporate governance regulations

Bank Statement

A monthly report from a bank that shows deposits recorded, checks cleared, other debits and credits, and a running bank balance. This same info is available on a daily basis from the bank's online banking site.

Purchase Returns and Allowances

A reduction in the cost of purchases associated with unsatisfactory goods

Sales Returns and Allowances

A reduction of sales revenue for return of or allowances for unsatisfactory goods

LIFO liquidation

A sale of a lower-cost inventory item from beginning LIFO inventory

Press Release

A written public news announcement normally distributed to major news services

Material Amounts

Amounts that are large enough to influence a user's decision

First in, First out (FIFO) Method

An inventory costing method that assumes that the first goods purchased (the first in) are the first goods sold.

Last-In, First-out (LIFO) Method

An inventory costing method that assumes that the most recently purchased units (last in) are sold first

Specific Identification Method

An inventory costing method that identifies the cost of the specific item that was sold

Perpetual Inventory System

An inventory system in which a detailed inventory record is maintained, recording each purchase and sale during the accounting period

Periodic Inventory System

An inventory system in which ending inventory and cost of goods sold are determined at the end of the acct period based on a physical count of inventory

Unqualified (Clean) Audit Opinion

Auditor's statement with the financial statements are fair presentation in all material respects in conformity with GAAP

Allowance Method

Bases bad debt expense on an estimate of uncollectible accounts

Percentage of Credit Sales Method

Bases bad debt expense on the historical percentage of credit sales that result in bad debts

Sales (or cash) discount

Cash discount offered to encourage prompt payment of an account receivable

Purchase Discount

Cash discount received for prompt payment of an account

Allowance for Doubtful Accounts (Allowance for Bad Debts, Allowance for Uncollectible Accounts)

Contra-asset account containing the estimated uncollectible accounts receivable

Aging of Accounts Receivable Method

Estimates uncollectible accounts based on the age of each account receivable

Bad Debt Expense (Doubtful Accounts Expense, Uncollectible Accounts Expense, Provision for Uncollectible Accounts)

Expense associated with estimated uncollectible accounts receivable

Credit Card Discount

Fee charged by the credit company for its services

Merchandise Inventory

Goods held for resale in the ordinary course of business

Work in Process Inventory

Goods in the process of being manufactured

Private Investors

Individuals who purchase shares in companies

Raw Materials Inventory

Items acquired for the purpose of processing into finished goods

Institutional Investors

Managers of pension, mutual, endowment, and other funds that invest on the behalf of others

Operating Income (Income from Operations)

Net sales (operating revenues) - operating expenses (including cost of goods sold)

Gross Profit (Gross Margin)

Net sales- Cost of Goods sold

Accounts Receivable (Trade Receivables or Receivables)

Open accounts owed to the business by trade customers

Earnings Forecasts

Predictions of earnings for future accounting periods, prepared by financial analysts

bank reconciliation

Process of verifying the accuracy of both the bank statement and the cash accounts of a business

Internal Controls

Processes by which a company provides reasonable assurance regarding the reliability of the company's financial reporting, the effectiveness and efficiency of its operations, and its compliance with applicable laws and regulations

Cost Effectiveness

Requires that the benefits of accounting for and reporting information should outweigh the costs

Income before Income Taxes (pretax earnings)

Revenues minus all expenses except income tax expense

Lenders (Creditors)

Suppliers and financial institutions that lend money to companies

Inventory

Tangible property held for sale in the normal course of business or used in producing goods or services for sale

Securities and Exchange Commission (SEC)

The US gov agency that determines the financial statements that public companies must provide to stockholders and the measurement rules that they must use in producing those statements

Form 10-K

The annual report that publicly traded companies must file with the SEC

Direct Labor

The earnings of employees who work directly on the products being manufactured

Net Realizable Value (NVR)

The expected sales price less selling costs (Ex: repair and disposal costs)

Cash

money or any instrument that banks will accept for deposit and immediate credit to a company's account, such as a check, money order, or bank draft

cash equivalents

short-term investments with original maturities of 3 months or less that are readily convertible to cash and whose value is unlikely to change