Acct 5 6 7

Interest earned on bank reconciliation

added to book balance

In a perpetual inventory system, the return of merchandise XYZ recently purchased on account will have the following effects on XYZ's accounting equation.

Assets will decrease. Liabilities will decrease. Purchase returns decrease assets (Inventory) and liabilities (Accounts Payable). They do not affect stockholders' equity.

The entry to record the collection of sales within the discount period that was made on account and recorded using the net method, includes a debit to ______ and a credit to ______.

Cash; Accounts Receivable for the discounted price

What are reasons internal controls can never completely prevent and detect errors and fraud?

Costs exceed benefits Human error Collusion

Which line items are found on a multi-step but not on a single-step income statement?

Gross Profit Income from Operations

Which of the following income statement line items are affected by the inventory method chosen?

Income from Operations Net Income Gross Profit Income before Income Tax Expense Income Tax Expense

Which costing method better matches current COGS with revenues?

LIFO

Gross Profit

Selling price - Cost Sales revenue - COGS

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.

Inventory is reported as

a current asset on the balance sheet only

In a period of rising costs, a company that uses LIFO will have

a lower ending inventory value, higher COGS

Deposits in Transit on bank reconciliation

added to bank balance

Restricted cash

cash that is not available for general use but instead is restricted for a particular purpose

The entry that includes a debit to Cash and credit to Accounts Receivable at a discounted price is recording the ______.

collection of sales within the discount period and was originally recorded using the net method

Inventory account consists of all ______.

costs needed to get the inventory ready for sale

purchases of merchandise on account & freight-in if shipped FOB shipping point should be debited or credited to inventory

debited to inventory

Outstanding checks have already been ______.

deducted from your cash balance per your books but not the bank balance

A bank service charge should be a

deduction from the book balance

How do banks help businesses control cash?

documenting procedures independently verifying restricting access to cash

When faced with increasing costs per unit, a company that uses FIFO will have

greater ending inventory value, COGS lower & larger income tax expense

A multistep income statement 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

The assumption that a company makes about its inventory cost flow can affect cost of goods sold on its ______ and inventory on its ______.

income statement; balance sheet

FIFO will have ____ income tax expense

larger

Gross Profit recording

not an account itself but a subtotal on income statement

Inventory shrinkage as a result of theft, damage or obsolescence that is discovered during a physical inventory count at the end of the accounting period is recorded with a decrease to Inventory ______.

only in a perpetual system

Which inventory system can estimate shrinkage?

perpetual

Inventory consists of the purchase price ______.

plus freight-in

Outstanding Checks on bank reconciliation

reduction to the bank balance

Bank service charge on bank reconciliation

reduction to the company's books

Restricted cash is reported

separately as an asset on the balance sheet

Which of the following are typical reconciling items on the book side of a reconciliation because the company did not know about these items until it got the bank statement?

Interest income Electronic funds transfers Services charges

Which of these are cash equivalents? Investments within 3 months to maturity Money market funds Notes receivable that mature in 5 months US Treasury bonds that mature in 1 year

Investments within 3 months to maturity Money market funds

EFT received from customers on bank reconciliation

The bank has already included the EFT which is a direct deposit into the bank Added to the book balance

Books show an ending cash balance of $10,000 before preparing the bank reconciliation. Outstanding checks of $3,000; deposits in transit of $2,000; NSF check of $100; and interest earned on the bank account of $10. Up-to-date ending cash balance equals ______.

The correct cash balance is $9,910 (=$10,000 - 100 + 10) cash balance - NSF check + interest

What effect does the inventory costing method have on the income statement?

The inventory methods affects the amount of the Cost of Goods Sold, Gross Profit, Income from Operations, Income before Income Tax Expense, Income Tax Expense and Net Income

Cash ______ are short-term, highly ______ investments purchased within ______ of maturity.

equivalents; liquid; 3 months

Principles of Internal Control

establish responsibilities, segregate duties, restrict access, document procedures, independently verify

Sales returns and allowances ______.

reduce the amount the seller expects to receive from customers are typically recorded after the initial sale when the actual return or allowance occurs are adjusted for at the end of the accounting period for estimated returns and allowance expected to occur in the following months

A multistep income statement is useful to financial statement users because it ______.

separates income statement items into meaningful components separates cost of goods sold from other operating expenses, which allows the calculation of gross profit

What would cause a bank statement not to agree with the cash balance in the accounting records? The company made an error in recording a deposit. Deposits outstanding that have been recorded on the company's records, but not on the bank's. The bank made an error in recording a deposit made by the company. The company wrote checks that have cleared the bank. The bank paid interest that the company has not recorded.

The company made an error in recording a deposit. Deposits outstanding that have been recorded on the company's records, but not on the bank's. The bank made an error in recording a deposit made by the company. The bank paid interest that the company has not recorded.