ACCT 2

inventory turnover

Measures the number of times the inventory sold during the period.

true

Merchandisers apply the revenue recognition principle by recognizing sales revenues when the performance obligation is satisfied.

true

Ordinary repairs should be recognized when incurred as revenue expenditures.

amortization

Process of allocating the cost of an intangible asset to expense over its useful life.

false

Receivables are valued and reported in the balance sheet at their gross amount less any sales returns and allowances and less any cash discounts.

false

Sales resulting from the use of Visa and MasterCard are considered credit sales by the retailer.

true

Sales returns and allowances and sales discounts are subtracted from sales in reporting net sales in the income statement.

revenue expenditure

Small expenditures which primarily benefit the current period.

false

The Accumulated Depreciation account represents a cash fund available to replace plant assets.

false

The Sales Returns and Allowances account and the Sales Discount account are both classified as expense accounts.

depletion

The allocation of the cost of a natural resource to expense over its useful life.

current replacement cost

The amount that would be paid at the present time to acquire an identical item.

false

The asset turnover is calculated as total sales divided by ending total assets.

true

The lower-of-cost-or-market basis is an example of the accounting concept of conservatism.

average cost method

The same unit cost is used to value ending inventory and cost of goods sold.

true

The specific identification method of costing inventories tracks the actual physical flow of the goods available for sale.

FOB destination

Title to goods transfers when the goods are delivered to the buyer.

FOB shipping point

Title to the goods transfers when the public carrier accepts the goods from the seller.

specific identification method

Tracks the actual physical flow for each inventory item available for sale.

true

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

collusion

Two or more employees circumventing prescribed procedures.

true

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

true

Under the direct write-off method, no attempt is made to match bad debts expense to sales revenues in the same accounting period.

true

A change in the estimated useful life of a plant asset may cause a change in the amount of depreciation recognized in the current and future periods, but not to prior periods.

false

Additions and improvements to a plant asset that increase the asset's operating efficiency, productive capacity, or expected useful life are generally expensed in the period incurred.

true

All reconciling items in determining the adjusted cash balance per books require the depositor to make adjusting journal entries to the Cash account.

double declining method

An accelerated depreciation method used for financial statement purposes.

true

An error that overstates the ending inventory will also cause net income for the period to be overstated.

voucher system

An extensive network of approvals by authorized individuals.

aging of recievables

Analysis of customer account balances by length of time they have been unpaid.

true

Cash equivalents are highly liquid investments that can be converted into a specific amount of cash.

false

Cash realizable value is determined by subtracting Allowance for Doubtful Accounts from Net Sales.

book value

Cost less accumulated depreciation.

LIFO

Cost of goods sold consists of the most recent inventory purchases.

percentage of receivable basis

Emphasizes expected cash realizable value of accounts receivable.

percentage of sales basis

Emphasizes the matching of costs and revenues in the same period.

FIFO

Ending inventory valuation consists of the most recent inventory purchases.

merchandise inventory

Goods ready for sale to customers by retailers and wholesalers.

work in process

Goods that are only partially completed in a manufacturing company.

true

Goodwill is not recognized in accounting unless it is acquired from purchasing another business enterprise.

true

If a company uses the allowance method to account for uncollectible accounts, the entry to write off an uncollectible account only involves balance sheet accounts.

bonding employees

Insurance protection against misappropriation of assets.

true

Internal control consists of the plan of organization and all of the related methods and measures adopted within a business to (a) safeguard its assets, and (b) enhance the accuracy and reliability of its accounting records.

true

Inventories are reported in the current assets section of the balance sheet immediately below receivables.

true

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