Accounting exam 2

Under GAAP, companies can choose which inventory system?

LIFO yes FIFO yes

Intangible assets

Long-lived assets that do not have physical substance.

Harpo's Used Cars uses the specific identification method of costing inventory. During March, Harpo purchased three cars for $12,000, $14,400, and $19,200, respectively. During March, two cars are sold for a total of $36,400. Harpo determines that at March 31, the $14,400 car is still on hand. What is Harpo's gross profit for March?

$5,200

A company just starting in business purchased three merchandise inventory items at the following prices. First purchase $65; Second purchase $78; Third purchase $68. If the company sold two units for a total of $200 and used FIFO costing, the gross profit for the period would be

$57

. Financial information is presented below: Operating Expenses $ 65,000 Sales Revenue 220,000 Cost of Goods Sold 138,000 Gross profit would be

$82,000.

Standard classification Assets

- Current assets - long-term investments - property, plant, and equipment - Intangible assets

Standard classification liabilities

- Current liabilities - Long-term liabilities - Owners (stockholders) equity

Owners equity

- Proprietorship - one capital account. - Partnership - capital account for each partner. - Corporation - Common Stock and Retained Earnings.

What steps would be in the accounting cycle generally be performed daily?

1. Journalize transactions 2. Post to ledger accounts 3. Analyze business transactions

If a company has net sales of $600,000 and cost of goods sold of $372,000, the gross profit percentage

38%

Net income

= gross profit - operating expenses

Gross profit rate

= gross profit / net sales

Gross profit

= net sales - costs of goods sold

Principles of an efficient and effective accounting information system include all of the following except

All of these answer choices are principles : cost effectiveness. flexibility. useful output.

Current Assets

Assets that a company expects to convert to cash or use up within one year or the operating cycle, whichever is longer.

Accounts is closed to income summary

Expenses & revenue

Until we sell the inventory

it is part of current assets in the balance sheet.

Retailers

merchandising companies that purchase and sell directly to consumers

Wholesalers

merchandising companies that purchase and sell directly to retailers

Net income is gross profit less

operating expenses

Long-term Liabilities

Obligations a company expects to pay after one year

Which of the following is a true statement about inventory systems?

Perpetual inventory systems require more detailed inventory records

system that shows inventory continuously ex. is amazon

Perpetual system

Under GAAP, companies can choose which inventory system?

Perpetual yes -- Periodic no

The step that would not be preformed daily ?

Prepare adjusting entries

The accounts payable subsidiary ledger provides detailed information about amounts owed to creditors

true

The cost of goods available for sale consists of the beginning inventory plus the cost of goods purchased.

true

The major difference between the balance sheets of a service company and a merchandising company

true

The revenue recognition principle applies to merchandisers by recognizing sales revenues when the performance obligation is satisfied.

true

Transactions that affect inventories on hand have an effect on both the balance sheet and the income statement.

true

Which of the following is a true statement about manual and electronic accounting systems?

The design and structure of manual and electronic systems are essentially the same

Cash and supplies are both classified as current assets.

True

We use all asset and liability account balances as well as owners capital and drawing account create balance sheet

True

We use all revenue and expense account balances to create income statement.

True

Which of the following statements is incorrect?

When an accounting system is designed, no consideration needs to be given to the needs and knowledge of the various users.

On November 2, 2016, Yakima Company has cash sales of $7,000 from merchandise having a cost of $3,900. The entries to record the day's cash sales will include:

a $3,900 credit to Inventory.

The one characteristic that all entries recorded in a cash payments journal have in common is

a credit to the cash account

On a classified balance sheet, inventory is classified as

a current asset

The one characteristic that all entries recorded in a cash receipts journal have in common is

a debit to the cash account

A subsidiary ledger is

a group of accounts with a common characteristic that provides detailed information about a control account in the general ledger

Cost of goods sold is determined only at the end of the accounting period in

a periodic inventory system.

Closing entries produce

a zero balance in each temporary account.

Liquidity

ability to pay obligations expected to be due within the next year.

Common examples of current liabilities are

accounts payable, salaries and wages payable, notes payable, interest payable, income taxes payable current maturities of long-term obligations.

A current asset is

an asset that a company expects to convert to cash or use up within over a year.

In developing an accounting system, cost effectiveness does not imply that

an electronic system must be cheaper than the system it is replacing

Current liabilities

are obligations that the company is to pay within the forthcoming year

Balance sheet and owner's equity statement are prepared from

balance sheet columns, includes assets, liabilities, owner's capital, and owner's drawings for personal use.

Companies can prepare financial statements

before they journalize and post adjusting entries.

Cost of goods sold is computed from the following equation:

beginning inventory + cost of goods purchased - ending inventory.

Costs of goods sold =

beginning inventory + purchase of inventory - ending inventory

inventories effect

both the balance sheet and the income statement

In which journal would a cash purchase of inventory be recorded?

cash payment journal

In which journal would a customer's partial payment on account be recorded?

cash receipts journal

Perpetual system

companies record the cost of goods sold each time a sale occurs and then record remaining inventory.

The consistent application of an inventory costing method is essential for

comparability

Accounts Receivable and Accounts Payable are examples of

controlling accounts

The operating expense section of an income statement for a wholesaler would not include

cost of goods sold

Two categories of expense for merchandising companies

cost of goods sold & operating expense

Two categories of expenses for merchandising companies are

cost of goods sold and operating expense

Posting a sales journal to the accounts in the general ledger requires a

debit to Accounts Receivable and a credit to Sales Revenue.

service companies

do not need inventory

The principles of developing an accounting information system do not include

elimination of human involvement.

Operating expense

expenses for goods/materials not for sale ex. office computers, supplies, etc. (are not for sale but for office use)

In a perpetual inventory system, the cost of goo

false

Inventory is reported as a long-term asset on the balance sheet.

false

Sales minus operating expenses equals gross profit.

false

Sales revenues are earned during the period cash is collected from the buyer.

false

In a manufacturing business, inventory that is ready for sale is called

finished goods inventory

The principle of an efficient accounting system that states that an accounting system should accommodate a variety of users is

flexibility

Which of the following is not a special journal?

general journal

Sales revenue less cost of goods sold is called

gross profit

Income from operations will always result if

gross profit exceeds operating expenses.

Merchandising companies need

inventory

Operating cycle

is the average time that it takes to purchase inventory, sell it on account, and then collect cash from customers.

Inventory

is the physical storage of goods

once we sell inventory

it becomes our expenses or the costs of goods sold.

At the end of the accounting period, the company

makes the account ready for the next period

sales revenue

may be recorded before cash is collected

After gross profit is calculated, operating expenses are deducted to determine

net income

Closing entries formally recognize in the ledger the transfer of

net income (or net loss) and owner's drawings to owner's capital.

Companies generally journalize and post closing entries

only at the end of the annual accounting period.

Records cost of goods sold and remaining inventory only at the end of each month

periodic system; example is walmart

Two systems of recording inventory

perpetual system & periodic system

Equipment is classified in the balance sheet as

property, plant and equipment

Items waiting to be used in production are considered to be

raw materials

inventory is

reported as a current asset on the balance sheet.

A merchandising company that sells directly to consumers is a

retailer

Companies group

similar assets and similar liabilities together

Which one of the following inventory methods is often impractical to use?

specific identification

The LIFO inventory method assumes that the cost of the latest units purchased are

the first to be allocated to cost of goods sold.

Income statement is prepared from

the income statement columns, includes revenue and expenses.

Inventory is reported in the financial statements at

the lower-of-cost-or-market.

Cost of goods sold

the total cost of goods/merchandise sold during the period --- "sold inventory"

For companies that use a perpetual inventory system, all of the following are purposes for taking a physical inventory except

to determine ownership of the goods.

. Inventory is classified as a current asset in a classified balance sheet.

true

A cash receipts journal can be used to record all transactions involving cash coming into the business, regardless of the source.

true

An accounting information system involves data collection, data processing, and information dissemination.

true

An accounting information system should be cost effective; that is, the benefits of the information must outweigh the cost of providing it.

true

If net sales are $800,000 and cost of goods sold is $600,000, the gross profit rate is 25%.

true

Under a perpetual inventory system, the cost of goods sold is determined each time a sale occurs.

true

Under the FIFO method, the costs of the earliest units purchased are the first charged to cost of goods sold.

true

If a company determines cost of goods sold each time a sale occurs, it

uses a perpetual inventory system

In a perpetual inventory system, cost of goods sold is recorded

with each sale

Property, plant and equipment

- Long useful lives. - Currently used in operations. - Depreciation - allocating the cost of assets to a number of years. - Accumulated depreciation - total amount of depreciation expensed thus far in the asset's life. - Sometimes called as fixed assets or plant assets

Current liabilities

- Obligations the company is to pay within the coming year or its operating cycle, whichever is longer. - Usually list notes payable first, followed by accounts payable. Other items follow in order of magnitude.

Long-term investments

- investments in stock and bonds of other companies - Investments in long-term assets such as land or buildings that is not currently being used in operating activities - Long-term notes receivable

accounting cycle

1. Analyze business transactions 2. Journalize the transactions 3. Post to ledger accounts 4. Prepare a trial balance 5. Journalize and post adjusting entries 6. Prepare an adjusted trial balance 7. Prepare financial statements 8. Journalize and post closing entries 9. Prepare a post-closing trial balance

What kind of accounting information system?

3 principles 1. Cost effectiveness - cost<benefits; benefits is higher than cost 2. Useful output - helpful for decision making process 3. Flexibility

Which of the following economic events would not be recorded in the cash receipts journal?

Cash purchases of merchandise

Periodic system

Companies record costs of goods sold only at the end of the accounting period and then record inventory at hand.