ACG2021 USF EXAM 2
Cash Ratio=
(Cash + Cash equivalents)/ Total current liabilities
3/15 in n/45?
3% discount if paid in 15 days, due in 45 days
days' sales in receivables=
365 days/ accounts receivable turnover
Days' Sales in inventory
365 days/ inventory turnover
when is a cash ratio good?
< 1.0 ((not large amount go idle cash generating v little return))
% net credit sales X % estimated uncollectible=
Bad Debts Expense
ending merch OVERSTATED period 2
COGS Over Gross Profit under
ending merch UNDERSTATED period 1
COGS Over Gross Profit under
ending merch OVERSTATED period 1
Cogs under Gross profit Over
ending merch UNDERSTATED period 2
Cogs under Gross profit Over
when writing off an account on allowance method, what effect on financial statement?
Debit- acct receivable Credit- Allowance for bad debts reduces asset account receivable
which to report: LIFO
Highest COGS, lowest gross profit & net income
a company must perform strictly proper accounting only for items that are significant to the business' financial situation
Materiality Concept
what account does periodic inventory and perpetual inventory system
Merchandise inventory account
Maturity value of note=
Principal x (1+ Rate x Time)
#of units on hand=
X Unit cost / ending merch inventory
# units sold=
X Unit cost/ COGS
Conservatism?
a business should report the least favorable figures in the financial statements when two or more possible options are presented
Allowance for Bad Debts
a contra asset acct, related to accts receivable that hold the ammts of uncollectible ammts
Bank Reconciliation
a document explaining the reasons for the difference between a depositor's cash records & the depositors cash balance in its bank account
EFT?
a system that transfers cash by electronic communication rather than by paper documents, cash payments are recorded by bank before the company knows
Book Balance ADD
add bank collections, interest revenue & eft reciepts
GAAP req for companies with material amount of bad debt expense?
allowance method is used to accomplish the matching of bde to the sales of the period and to report receivables at net realizable value
why are there no journal entries on the book side of the bank reconciltiation
already recorded in the business' cash account
First-In, First out
an inventory costing method in which the first costs into inventory are the first costs out to cogs. Ending inventory is based on the cost of most recent purchases.
Specific ID Method
based on specific cost of particular units f inventory; only companies w unique items (carefully ID inventory sold, requires detained COGS)
who is responsible for shipping in FOB shipping point?
buyer
weighted average costs per unit=
cost of goods available for sale/ # units available
Journal entry for recording payment of an invoice
debit Merch inventory, credit cash
best way to discourage theft in retail store
deposit cash frequently in the bank
change in merchandise inventory
diff b/w sales return & allowance in perpetual inventory system?
separation of duties
dividing responsibilities b/w 2 or more to ensure accuracy
direct write off method not compliant with GAAP?
does not use an allowance account
advantages to taking credit card
don't need to check the customer's credit rating, no need to maintain accts receivable records, don't need to worry about collecting cash from customer
disadvantages to taking credit card
fee for processing debit & credit card transactions
Order of income statement?
gross profit, operating income, total other revenue and expenses, Net income
What does a merchandiser report but a service company does NOT?
gross proft
ptherrevenues and expenses
interest expense, gain (/ loss) sale of plant asset
Last-In, First-Out
last costs into inventory are the first costs out toCOGS. The method leaves the oldest costs (those of beginning inventory & the earliest purchases of the period) in neding inventory
which to report: FIFO
lowest COGS, highest gross profit & net income
cash receipts by mail (checks)
mailroom, checks, treasurer, deposit, bank
Periodic inventory-diff b/w perp & periodic
merchandise inventory is updated in the closing process in periodic, theres separate accounts for purchases in periodic
lowest cost of market rule
merchandise inventory should be reported in the financial statements @ whichever is lower: historical cost & market value
Allowance method?
method of accounting for uncollectible receivables in which the company estimates bad debts expense instead of waiting to see which customers the company will not collect from
appropriate documents in a good external control system that would be needed b4 a company would pay a supplier
purchase order, invoice, receiving report
what account does ONLY periodic inventory systems use
purchases, purchase discounts, purchase returns and allowances, and freight in cost
Internal controls
safeguard assets, encourage employees to follow company policies, promote operational efficiency, & ensure accurate reliable accounting record
who is responsible for shipping in FOB Destination?
seller
Book Balance SUBTRACT
service charges, NSF checks, & eft payments (+/-) corrections of book errors
what to measure days' sales in receivable
tells how many days it takes to collet the avg level of accoutns receivable
What does gross profit percentage measure?
the profitability of each sales dollar above the cost of goods sold (GPP= Gross profit/ net sales revenue)
lower, company can sell its inventory quickly
what days' sales is preferable
