Ac test 2

The assumption a company makes about its inventory cost flow has

An effect on company's balance sheet and income statement

If a company wrote down its inventory to the lower replacement value than the affect would be an decrease in

Assets and stockholders equity

To record the estimated amount of bad credit sales is a debit to

Bad debt expense and a credit to allowance for doubtful accounts

If cost of acquiring inventory is rising, LIFO will result in which of the following compared to FIFO?

CGS would be higher, gross profit would be lower, income tax expense would be lower

What would be found on merchandisers income sheet and not on a service firms

Cost of good sold and sales revenue

Inventory balance on the balance sheet reports the

Cost of goods availabke for sale

To record a write down of inventory from cost to its lower market value includes a debit to

Cost of goods sold and credit to inventory

Using perpetual system, purchasing merchandise on account includes

Credit to accounts payable and debit to inventory

Purchase returns and allowances are accounted for with a

Credit to inventory and debit to cash/ accounts payable

Inventory is reported as

Current asset on balance sheet

What is recorded at the end of an accounting period when accounting for receivables using the allowance method

Estimate is recorded by debiting bad debt expense and crediting allowance for doubtful account in the same period as the related sale

Disadvantage of extending credit to customers is that the cost may _____ the additional sales revenue received through credit transactions

Exceed

Failing to record bad debt expense in the same period as the related revenue violates which principle

Expense recognition principle

An increase in a company's inventory balance from a prior year is

Good if the inventory turnover ratio is higher

If costs of goods sold increases than

Gross profit decreases

What is found on income statement of a merchandiser

Gross profit, cost of goods sold and sales revenue

Sales returns and allowances are reported on the

Income statement

Supplies is a current asset intended to be used

Internally, not sold

In a perpetual system what account is denoted when a company purchases merchandise on account

Inventory

Journal entry to record payment of cash to fedex for shopping costs for inventory purchased FOB shipping point includes a debit to

Inventory and credit to cash

Purchase returns and allowances are accounted for with a credit to

Inventory and debit to cash/ accounts payable

Why is inventory reported as current asset

Inventory is reported as a current asset because it will be converted into cash within a year of the balance sheet date.

The adjustment to record inventory shrinkage will decrease

Inventory on balance sheet

Walmart has highest

Inventory turnover ratio

What is occurring if a company is debiting cash and crediting notes receivable

It is collecting the principal on amounts lent earlier

the IFRS does not allow

LIFO

What companies sell goods that have been obtained from other companies

Merchandising

Net Sales on an income statement equals Sales Revenue ________.

Minus sales return, allowances and discounts

When accounting for accounts receivable, a primary objective is to

Not overstate assets and stockholders equity by the estimated amount of bad debt

Series of activities that the company undertakes to generate sales and cash

Operating cycle

Inventory records updated at end of accounting period

Periodic inventory

Allowance for doubtful accounts is a

Permanent account

Inventory account is updated every time inventory is bought

Perpetual

In perpetual inventory system what is true

Purchaser should record freight-in as an asset, inventory and the seller should record freight-out as a selling expense

Cost of goods sold equal beginning inventory plus _____ minus ending inventory

Purchases

What effect does the adjusting entry for interest earned but not yet received have on the accounting equation

Results in an increase in assets and stockholders equity

Issuing a gift card is recorded with debit to

Sales revenue/ inventory and a credit to deferred revenue and cost of goods sold

How should the seller of a bundle sale be recorded when the sale involves the delivery of a copier machine and a one year service agreement

Seller must split the money between product and service contract and recognize the revenue when delivered and the service is performed

Perpetual inventory system is able to estimate what

Shrinkage

Inventory is a current asset intended to be

Sold

Purchase transactions affect the

balance sheet and not the income statement

NSF Checks from customers should be subtracted from the ____ balance on a bank reconciliation

book

What is not allowed under GAAP

direct write off

Gross profit equals

net sales minus cost of goods sold

Discount period

10

discount percentage

2

Comparative format allows for comparisons of income statement line items over time by providing

3 consecutive years

When full amount is due

30

sales on account increases

Accounts receivable, assets and stockholders equity on balance sheet and sales revenue on income statement

Why is the bad debt expense on the income statement less than the allowance for doubtful accounts on the balance sheet

Allowance for doubtful accounts had an unadjusted credit balance

When a company records a sale of merchandise it must also record

Decrease in inventory and cost of goods sold which will appear on income statement

What accounts are temporary accounts closed at the end of the accounting period into retained earnings

Depreciation expense, bad debt expense, and sales revenue

What should be debited on inventory

Freight in and purchases of merchandise on account

Entry to record the purchase of inventory on account causes

Increase in assets and liabilities

If a company were to ignore the fact that the market value of its inventory is lower than its cost then

It's assets and stockholders equity would be overstated

Companies with high sales volume such as Walmart usually have

Low gross profit percentages

Companies generally report their accounting method for inventory in the

Notes to the financial statements

What inventory method is used for expensive and unique inventory items

Specific identification

Gross profit is

Subtotal on the income statement

Entry that includes a debit to allowance for doubtful accounts and a credit to accounts receivable is a

Write-off of a specific customers account