ACC210 Test Two

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Weighted average COGS

# of units sold x cost/unit you calculated

Double declining balance deprecation

(Cost - Accumulated Deprecation) x (200%/service life)

Straight line depreciation

(Cost - residual value) / Service Life

Activity Based Depreciation method

(Cost-residual value)/ units expected to be produced

Weighted cost average

(cost of goods available for sale)/ # of units available for sale

Average collection period

365/ Receivables turnover ratio

Average days in inventory

365/ inventory turnover ratio

What factors play into a bank reconciliation/cash balance adjustment, and do you add or subtract them?

Add deposits in transit, subtract outstanding checks

What two things increase a company's cash balance?

Bank collections and interest earned

Loss on Impairment

Book Value - Fair value

Inventory turnover ratio

COGS/ average inventory

Which company asset is most commonly involved in fraudulent activity?

Cash

Book Value

Cost - accumulated depreciation

What items should be included under "Cash and Cash Equivalents"?

Currency and coins, checking account balances, savings account balances, short term investments with a purchase date less than three months, checks received but not yet deposited

Write off journal entry

Debit Allowance for UA, credit Accounts receivable

Journal entry for uncollectible accounts allowance

Debit Bad Debt expense, credit Allowance for UA

LIFO adjustment

Debit COGS (+E) , credit Inventory (-A)

Depreciation journal entry

Debit Depreciation Expense, credit Accumulated depreciation (contra asset)

Journal entry for collecting notes with interest

Debit cash, credit notes receivable and interest REVENUE

What is the most common means of detecting employee fraud?

Employee tips

The process of estimating bad debts and recording the estimate in the same period as sales associated is an application of which accounting principle?

Expense recognition principle

T or F: A company is regularly permitted to change its inventory costing method from year yo year

False

T or F: The direct write off method is an application of GAAP?

False

True or False: After a company specifically writes off a customer's account receivable as being uncollectible, it may not subsequently collect the cash from the customer.

False

Operating Income

Gross profit - operating expenses

Gross Margin

Net Sales - COGS

Receivables turnover ratio

Net credit sales/ Avg. accounts receivable

Return on asset ratio

Net income/ Average total assets

Profit margin

Net income/ net sales

Gross Profit

Net sales - COGS

Asset turnover

Net sales/ avg. total assers

As a customer's account receivable balance is written off due to being uncollectible, what is the effect on the company's net accounts receivable amount?

No effect

Income before taxes

Operating Income + nonoperating revenue - nonoperating expenses

Which element of the fraud triangle does a company have the greatest power to eliminate?

Opportunity

What are preventative control activities (as opposed to detective control)?

Proper authorization, separation of duties, employee management, physical controls, commerce controls

Goodwill

Purchase price - fair value of net assets (add liabilities to this)

Net Purchases

Purchases + Freight In - Purchase Discounts - Purchase Returns and Allowances

Companies should have internal control procedures in place to:

Safeguard the company's assets, improve the accuracy and reliability of accounting information

Gain or Loss on Sale/ Retirement of an asset

Sale/trade price - book value

If a customer returns an item, what account do you debit?

Sales Returns

What are examples of contra revenue accounts?

Sales discounts, sales returns and allowances, allowance for uncollectible accounts

Do you add or subtract NSF checks from a company's cash balance?

Subtract

COGS (EXPENNSE)

Total cost - ending inventory

True or False: One of the major provisions of the Sarbanes-Oxley Act (SOX) requires a company's audit committee to hire the outside auditors.

True

True or False: The Sarbanes Oxley Act applies to all companies required to file their financial statements within the SEC.

True

Ending Inventory

Units of ending inventory x cost (determined by LIFO, FIFO, WA)

A higher inventory turnover ratio means

a company is better at managing its inventory

Gross profit ratio

gross profit / net sales


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