AC Test 2 Review

If the adjusting entry to accrue interest of $1000 on a note receivable is omitted, then

assets, net income, and stockholders' equity are understated by $1000

Goods Available for Sale Equation

beginning inventory + purchases

NSF checks from customers should be subtracted from the ______ balance on the bank reconciliation.

book

When a check is presented to a bank for payment and the amount is deducted from the payer's account, the check is said to have ________ the bank.

cleared

________ inventory refers to goods a company is holding on behalf of the actual owner of the goods. The company is willing to try to sell the goods for the owner for a fee.

consignment

Purchase returns and allowances are accounted for with a ______ to inventory and a _______ to cash or Accounts payable

credit; debit

Inventory is reported as a(n) ______ on the:

current asset on the balance sheet only

In a perpetual system, the entry to record the sale of merchandise to a customer on account would include:

debit to accounts receivable credit to inventory debit to cost of goods sold credit to sales revenue

Allowance for Doubtful Accounts, a contra-asset account is ________ when specific uncollectible accounts are written-off.

debited

The recording of a company's purchase returns and purchase allowances are similar in that both may result in a

decrease to inventory

In a bank reconciliation, an outstanding out is

deducted from the bank balance

The seller of inventory pays for shipping if the shipping terms are FOB _________.

destination

The _____ write-off method is not allowed under GAAP.

direct

The allowance for doubtful accounts T-account will have the _____________ on the credit side.

estimated bad debts from the adjusting entry

An adjusting entry that debits Sales Revenue and credits Refund liability as well as Inventory-Estimated for returns and credits Cost of Goods Sold is recording the _______.

estimated returns

The ______ method accounts for purchase discounts later when the payment is made and the ______ method accounts for purchase discounts at the time the goods are received.

gross; net

When costs to purchase inventory are falling over time, using LIFO leads to reporting ___________________ than FIFO.

higher inventory on the balance sheet

When costs to purchase inventory are rising, using LIFO leads to reporting ____ cost of goods sold and ____ net income than FIFO

higher; lower

The 3 components of the fraud triangle are

incentive opportunity rationalization

Current asset on the balance sheet available for sale

inventory

In a perpetual system, the ________ account is debited when a company purchases merchandise on account.

inventory

Under a periodic inventory system

inventory records are updated only at the end of the accounting period

A _______ ________ _________ shows how much profit is earned from product sales without being clouded by other operating expenses and separates other items that are not core to the operations of the company

multistep income statement

Gross profit equals

net sales minus cost of goods sold

The receivables turnover ratio is computed as:

net sales revenue divided by average net accounts receivable

To find a description of the inventory accounting method used by a company, you need to look at the :

notes to the financial statements

FIFO uses the ____ cost for cost of goods sold on income statement and ____ cost for inventory on the balance sheet

oldest; newest

The ________ cycle is a series of activities that the company undertakes to generate sales and ultimately cash.

operating

Bank reconciliations are needed to reconcile for

outstanding checks deposits in transit

A benefit of the ______ inventory system is that inventory shrinkage from theft, fraud, and error is able to be estimated.

perpetual

Collection of a previously written-off account is called a ____

recovery

The services provided by a bank help businesses control cash by

restricting access and providing documentation and independent verification

Selling price times the quantity sold

sales revenue

Sales Revenue reports

selling price times the quantity of goods sold

An objective of the expense recognition (matching) principle is to have bad debt expense debited in ...

the same period the related credit sales are recorded

ABC Company had a 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% (Net Sales - COGS) / Net sales

What does the gross profit percentage tell you?

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

When using the allowance method, the adjusting entry to record estimated bad debt expense includes a debit to

Bad Debt Expense Credit to Allowance for Doubtful Accounts

Cost times the quantity sold

Cost of Goods Sold

A sales return that results in issuing store credit rather than a cash refund is recorded with a credit to a liability called ________

Deferred Revenue

T/F Inventory and supplies are interchangeable account titles and have the same meaning

False

A subtotal on the income statement and is the amount earned from adding value to the inventory sold

Gross Profit

The supervisor reconciles the cashier's count sheet to the cash collected.

Independent verification

purchase returns and allowances are accounted for with a credit to ______ and a debit to ______ ________ or _______

Inventory; Accounts payable or cash

Why would a company debit Interest Receivable?

It generated interest on its notes receivable which will be collected later in the period

If a company assumes that its inventory costs flow out in the opposite order from which of the goods were purchased, it uses _____ to value its inventory.

LIFO

A company uses the perpetual inventory system. It's bookkeeper properly recorded a $5000 sale on account, but forgot to record the related cost of the sale of $3000. As a result of this error,

Net Income will be too high Total assets will be too high

How is the lower-of-cost-or-market rule applied when there are more than 2 types of inventory?

Only the items that have market values lower than the costs will be written

The supervisor is responsible for keeping the cash safe and getting the cash to the bank.

Restrict Access

Gross Profit Equation

Sales - COGS

Sales Returns and Allowances

Transactions in which the seller either accepts goods back from the purchaser (a return) or grants a reduction in the purchase price (an allowance) so that the buyer will keep the goods.

T/F: FIFO perpetual and FIFO periodic inventory methods result in the amount of Cost of Goods Sold

True

T/F: Specific identification is an inventory method typically used when accounting for expensive and unique inventory items.

True

What inventory accounts would one expect to see in the accounting records of a company that makes furniture?

Work in process inventory Finish goods inventory Raw materials inventory

An EFT cash receipt from a customer is

added to the cash balance

The journal entry to record the payment of cash to FedEx for shipping cost for inventory purchased FOB shipping point includes a :

Debit to Inventory Credit to Cash

ABC Corp. sells a product for $1000 cash that cost $600. The journal entry(ies) for this transaction using a perpetual inventory system include:

Debit to cash of $1000 Credit to Sales Revenue for $1000; Debit to COGS for $600 Credit to Inventory for $600

The supervisor prepares a deposit slip.

Document procedures

A gross profit percentage measures the percentage of profit earned on each dollar of sales before deducting all expenses other than cost of goods sold. The ratio is used to:

Make comparisons over time Compare one company with another

The supervisor forwards the verified deposit slip to the accounting record to record the cash receipts.

Segregation of duties

Ace Electronics, which uses a perpetual inventory system, recorded a debit to Sales Returns & Allowances and a credit to Accounts Receivable, along with a debit to Inventory and a credit to Cost of Goods Sold. What business event must have taken place?

The customer received a damaged product and returned it.

For billing and collection purpose, companies keep a separate accounts receivable account for each customer called a _______ account.

subsidiary

Since accounting numbers, such as the allowance for doubtful accounts balance, are based on estimates, financial statements are :

susceptible to management manipulation