Accy 201 Test 2

additions/deductions to/from the cash balance according to the companies needs

journal entries passed on the bank reconciliation are required for...

perpetual

most merchandise companies use computerized ______ inventory systems.

estimated selling price

net realizable value = _______ - direct costs of disposal

average daily cost of goods sold

number of days' sales in inventory = average inventory divided by _______.

gross profit

one multiple-step income statement, the excess of net sales over the cost of goods sold is called ______.

6,650 (4,500+2,150)

A company had a gross profit of $4,500. If the cost of goods sold was $2,150, what were the company's total sales?

perpetual (bc the information is updated as transactions occur)

A company records the sales and purchases of goods as the transactions occur. The accountant also reviews the totals regularly to check the totals among journals. Does the company use a perpetual or periodic inventory system?

perpetual (bc information is up to date)

A company's manager would like to know how many of a certain product is on hand in order to fulfill a large upcoming order. If the manager can pull up a report to show the inventory on hand at any time, what kind of inventory system does the business use?

periodic (bc company must calculate the cost of goods sold)

Before preparing the balance sheet at year-end, a company must count all inventory on hand. To find the cost of goods sold, the accountants compare the inventory at the beginning of the year to the amount of inventory counted at the end of the year and purchases during the year. Does the company operate using a perpetual or periodic inventory system?

independent auditor

In Poletti Co.'s financial statements, the management makes an assessment of the company's internal controls. The company produces the assessment every year in its annual financial statements. Who else must make a report on the effectiveness of internal controls?

4,000 ((3,900+1,200)-1,100)

Jeff's Bikes had sales on account of $3,900 and cash sales of $1,200. If the company's cost of goods sold was $1,100, what is the company's gross profit?

cost-benefit considerations; the cost to supervise all lower-level employees at all times would exceed the benefit

Stop-a-Second is preparing its assessment of internal controls for the annual financial statements. The managers verify the employees have sufficient segregation of duties and supervision. However, because the company is quite large, all lower-level employees cannot be supervised at all times to ensure that theft and fraud does not occur. To which limitation of internal controls does this relate?

the human element of controls, collusion among employees

Stop-a-Second's cash receipt processing has adequate separation of duties among employees. However, the employee who collects the cash, the employee who records the cash receipts, and the employee preparing the deposit ticket for the day may work together to steal cash from the company. Which limitation of internal control is this an example of?

4,240

Super Suds purchases 300 units of Product ABC for $8.90 per unit and 250 units of Product XYZ for $6.75 per unit. At year-end, the market value for Product ABC is $8.55 and Product XYZ is $6.70. Apply the lower of cost or market to each inventory item to determine the value of the total inventory.

the human element of controls, human error

The purchasing director of a manufacturer works to find materials at the best prices. Although the director's responsibilities are adequately separated to avoid theft and fraud, he mistakenly writes down the wrong discount taken by a supplier. To which limitation of internal controls does this relate?

5,370 ((2,760+8,200)-5590)

Torti Co. had cash sales of $2,760 and sales on account of $8,200. The company's gross profit at the end of the year totaled $5,590. What was the cost of goods sold for Torti Co.?

daily cash operating expenses

_______= (operating expenses - depreciation expense) divided by 365 days

inventory turnover

_______= cost of goods sold divided by average inventory

liability

a company's checking account balance is a(n) _______ in the bank records.

increase; debit

a credit memo entry on the bank statement shows a(n) ______ to the company's account, while a(n) _______ memo entry on the bank statement shows a decrease in the company's account.

lower of cost or market (LCM) method

a method of valuing inventory that reports the inventory at the lower of its cost or current market value (replacement cost)

bank reconciliation

an analysis of the items and amounts creating the difference between the cash balance reported in the bank statement and the balance of the cash account in the ledger

voucher

any document that serves as proof of authority to pay cash or issue an electronic funds transfer

cash and short-term investments

days' cash on hand = _______ divided by daily cash operating expenses

perpetual inventory system

each purchase and sale of merchandise is recorded in the inventory account and related subsidiary ledger. in this way, the amount of merchandise available for sale and the amount sold are continuously updated in the inventory records.

debit cash, debit cash short and over, credit sales

how are cash sales/cash receipts recorded when a cash register is used?

total dollars divided by number of units (the purchase costs are weighted by the quantities purchased at each cost)

how do you calculate weighted average?

it is credited

how is petty cash decreased?

it is debited

how is petty cash increased?

at periodic intervals, when it is depleted, or when it reaches a minimum amount

how is petty cash replenished?

a check is written and cashed for the estimated amount of payments needed from the fund during a period, such as a week or a month

how is petty cash set up?

n/30

if a payment is due within a stated number of days after the invoice date, such as 30 days, the terms are net 30 days and these terms may be written as ______.

FIFO

if inventory is being valued at cost and the price level is steadily rising, the method of costing that will yield the highest net income is _____.

$10

if merchandise is sold on account to a customer for $1000, terms FOB shipping point, 1/10, n/30, and the seller prepays $50 in freight, the amount of the discount for early payment would be _____.

debit memo

if merchandise purchased on account is returned, the buyer may inform the seller of the details by issuing a _____.

n/eom

if payment is due by the end of the month in which the sale was made, the terms are written as _____.

understatement of net income for the year by $7,500

if the inventory at the end of the year is understated by $7,500, the error will cause an ______.

deducted from the cash balance according to the bank statement

in preparing a bank reconciliation, the amount of checks outstanding would be...

inventory shrinkage

inventory account balance - physical inventory on hand = _______

specific identification inventory cost flow method

inventory method in which the unit sold is identified with a specific purchase

cost of goods sold

sales - ______ = gross profit

asset turnover ratio

sales divided by average total assets = ______

cash

sales made to customers using credit cars, such as mastercard or visa, are recorded as ______ sales.

seller

the _____ bears the freight costs if the shipping terms are FOB destination.

buyer

the ______ bears the freight costs if the shipping terms are FOB shipping point.

deduct $90 from the cash balance according to the bank statement

the bank erroneously charged Tropical Services' account for $450.50 for a check that was correctly written and recorded by Tropical Services' as $540.50. to reconcile the bank account of Tropical Services at the end of the month, you would...

gross profit

the cost of goods sold subtracted from sales; the profit before deducting operating expenses

single step form

the income statement in which the total of all expenses is deducted from the total of all revenues is termed the ______.

FIFO

the inventory costing method that is based on the assumption that costs should be charged against revenue in the order in which they were incurred is ______.

periodic inventory system

the inventory does not show the amount of merchandise available for sale and the amount sold. instead, a listing of inventory on hand, called a physical inventory, is prepared at the end of the accounting period.

FOB destination

the ownership of merchandise may pass to the buyer when the buyer receives the merchandise. in this case, the terms are said to be _____. this term means that the seller pays the freight costs from the shipping point to the buyer's final destination.

FOB shipping point

the ownership of the merchandise may pass to the buyer when the seller delivers the merchandise to the freight carrier. in this case, the terms are said to be _____. this term means that the buyer pays the freight costs from the shipping point to the final destination.

internal control

the standard by which companies design, analyze, and evaluate internal control

credit terms

the terms for when payments for merchandise are to be made are called the _____.

units available for sale

weighted average unit cost (under periodic inventory system) = total costs of units available for sale divided by ______.

coins, currency (paper money) checks, money orders; anything that a bank would accept for deposit in your account

what all would constitute the balance of cash on the balance sheet?

if an accounting issue arises when identical units of merchandise are acquired at different unit costs during a period, it is necessary to determine its cost using a cost flow assumption and related inventory costing method when an item is sold

what are cost flow assumptions for?

storing inventory in areas that are restricted to only authorized employees; locking high-priced inventory into cabinets; using two-way mirrors, cameras, security tags, and guards

what are some examples of security measures for safeguarding inventory?

control environment; risk assessment; control procedures; monitoring; information and communication

what are the five elements of internal control?

assets are safeguarded and used for business purposes; business information is accurate; employees and managers comply with laws and regulations

what are the three internal control objectives?

purchase order; receiving report; vendor's invoice

what documents are often used for inventory control?

when each inventory unit can be separately identified

when is it practical to use the specific identification inventory cost flow method?

interest expense

which of the following expenses would normally be classified as other expense on a multiple-step income statement?

safeguarding the inventory from damage or theft; reporting inventory in the financial statements

why do we need internal controls over inventory?

the adjusted cash balance determined in the bank reconciliation is reported on the balance sheet

why is a bank reconciliation prepared?