Financial Accounting Skender

Which investment is not liquid according to kevin burns of LLBH Private Wealth Management Group? pick one: commodities, gold, real estate, or stock

Real state

Financing Activities Cash Flow

arises from a liability (bank loan etc) or stockholder's equity (dividends, issuing new stock etc)

How do you find inventory turnover using the CGS/AVr. Inventory

how do you find avr. Inventory?- you find beginning inventory, plus ending inventory divided by two.

An investor purchases shares for 300, $12 of dividends were paid out and the stock finished at 276 what is the return

negative four percent

From one year to the next assets have increased what can you assume happened?

that liabilities and or equity increased by the same amount as assets. A=L+OE

Net accounts receivable

the amount of cash the company estimates will be collected from accounts receivables. Essentially after the amount for doubtful receivables are taken off.

Depletion deals with

usually natural resources

1/10 n/30 describe what this means

"one ten, n thirty" company can save one percent off sales if they pay within ten days. After ten days they have thirty days to pay. They can also decide to only pay partial within ten days and they would receive one percent off whatever they paid.

What is the DDB formula

(original value - accumulated depreciation) * 2/(expected life) the first accumulated depreciation is 0.

I DON'T GET THE FIRST QUESTION 10.5 section

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If sold for the same amount will there be a net income variance for straight line method and DDB?

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If your items are coded but company uses FIFO what should you do in order to value cost of goods sold for item? FIFO

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LOOK AT NUMBER 4

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What is the formula used in the periodic inventory system in order to figure out COGS?

...Beginning inventory plus purchases of inventory costs for the period minus ending inventory=COGS (Purchases of inventory costs is not from buying additional inventory but from the related costs such as transportation and any other added costs)

How to find periodic weighted average

1. Find the dollar sales incurred. subtract from The TOTAL cost of purchases and beginning inventory added together divided by the added number of units purchased or sold 2. Multiply this average by the number of sales Take the difference of 1 and two

A company paid 22k in dividends, borrowed 100k, bought a building for 288k, sold equipment for 23k sold inventory for 16k and issued capital stock to an investor for 35k what is the net amount of financing activities on the statement of cashflows?

113k. Dividends are part of financing activities and you would subtract those from the amount borrowed and issued capital stock.

Firm has revenue of 300k, cost of goods sold is 170k. Other expenses are 50k and a gain on the sale of a truck is 14k. What is gross profit?

130k. Remember that gross profit is the same as gross margin or markup.

revenues can be represented by

A decrease in liabilities or an increase in assets

If a jacket is stolen using perpetual system what is the appropriate journal entries?

Debit an expense for loss on inventory shortage and credit an inventory asset

what type of account is gain on the sale of a land? permanent or temporary?

temporary account

In a periodic system how would find inventory if you want to do a report without a physical count?

Add starting inventory and additional inventory. Using last years data find a percentage to calculate COGS. Multiply that percentage by sales. Subtract from the added inventory and additional inventory

When one account is affected what is always true?

Another account is also affected as well. After this initial account though it can vary afterward however both debits and credits will equal each other.

Net Assets

Assets minus liabilities

What are the real or permanent accounts

Assets, Liabilities, Owners Equity

The matching principle states that expenses should be recognized in the same period as the revenue they help create. True or False

True

True or False: If an investor feels current accounting information signals a stock price drop, selling is appropriate.

True

On what kind of statement would you find information about what the company holds in inventory at the end of the most recent year?

Balance sheet since it list how much you hold in inventory.

Stockholder's equity or shareholder's equity

Both of these are equal to book value. you can find by taking total assets minus total liabilities or contributed capital plus retained earnings minus treasury shares (the shares the company kept for itself.

A company has a debit to salary expense and a credit to salary payable for one month what must have happened?

Employee salaries for the past month are recognized but not paid.

The current body responsible for determining general accounting standards in the US

FASB

A firm starts the year with net assets of 300k and ends the year with net assets of 430k for the current year the firms net income less its dividends must have been 130k. True or False

False because this question pertains to the balance sheet (assets and liabilities) not the income statement.

In a periodic inventory system, an increase is made in the inventory T accounts if money is paid for the transportation to receive items

False this would have a separate t account.

In a perpetual system transportation costs are handled the same way wether getting a delivery or making one ?

False transportation would increase the inventory but delivery would be an expense

True of False Posting refers to the process of analyzing transactions and producing journal entries?

False.

FIFO

First in first out the oldest inventory is set to leave first, the newest inventory stays. It is not necessarily the oldest item that is sold but the oldest cost is applied first.

describe how you handle a problem where you are asked to find the cash paid for X or the revenues received for X

If asked for cash received find all the inflows. Make a T account. Figure out on which side the T account the appropriate cash inflows go. For example " if unearned rent goes up" it is a natural credit so if goes down you would debit (left side). Total Revenues is a natural credit so if it increased it would go on the right side.

What are the entries to state a "Lower Cost of Market" and what explain how this situation would happen.

If the book value of inventory is higher than the actual market cost due to decreased demand or if you are now able to purchase products for less and book value is higher than market value. You debit a loss and credit inventory.

During Inflationary times how does FIFO help increase net income?

If you sell something (inventory) and use the most current cost for that inventory LIFO you would have higher cost of goods sold than if you used FIFO.

If you earn revenue is that a debit or credit on T account?

It is a credit.

If you are purchasing equipment how will this affect your net assets

It won't because you gain assets (the equipment) but lose cash (the equipment. If you rented a truck it would be an expense because you can't reuse it.

In order to maximize shareholder wealth, in a period of rising prices, companies would be advised to use?

LIFO to maximize net income. FIFO is better used when prices are stable or else if prices rapidly rise you are making money off simply holding assets which doesn't give anyone a clear picture of the company

The father of accounting is

Luca Pacioli

What strategies can a company use to reduce the number of days it takes to receive cash?

Management can work to shorten the number of days it takes to receive cash by altering credit, billing, and collection policies or possibly by offering discounts or other incentives for quick payment.

Working Capital

Measures Liquidity current assets minus current liabilities.

When finding net income do you take off for dividends?

NOOOOOO. they get taken off from retained earnings or financing activities under cash flow

Is a dividend reported on an income statement? how/where is it reported

No not on an income statement. It appears in cash flows under financing activities. This ultimately affects retained earnings account part of OE in the balance sheet.

Would "Purchases on inventory" account show up on a perpetual system?

No. anything with the word purchases deals with periodic.

When a company pays an additional $700 to have inventory shipped how is this recorded both on perpetual and periodic?

On perpetual "inventory" is debited for $700. On periodic, "purchases of inventory" is debited for $700.

Is land assigned an expense and accumulated depreciation balance?

no because land does not depreciate.

Straight line depreciation and how to find it per year

Original value-perceived salvage value=ending value/years. This equals how much it goes down per period

What is posting and after what is it used?

Posting is used after a transaction has been analyzed and a journal entry has been created. Posting means taking each debit and credit in the journal entries and adding them to a specific T-Account.

What is the order of an Income Statement?-

Revenues, Expenses = operating income. Gains/Losses. Income tax expense. Net income.

S Corporation

S corporation has limited number of owners 100. It is a separate entity from its owners does not die after death or departure of an owner. Unlike C corporation and S corporation pays no income taxes instead the owners pay taxes on their share of profits/losses on their personal returns. More limited funding since they can only sell stock to 100 individuals. Essentially a corporation with 100 stock.

How do you find Gross Profit?

Sales minus Cost of Goods sold only. Don't fool around with other expenses or gains such as advertising expense.

How will a potential investor use financial information?

Same as above but he will compare with other companies.

How will a potential employee view financial accounting?

Same as above but primarily to compare against other job offers.

Adjusting Entries

T accounts that must be updated because the entry does not its own separate journal account because the expense or gain is through time such as salary.

Balance Sheet

The listing of Assets, liabilities, and owners equity in one point in time.

What is shown on an income statement?

The non long term cash flows such as revenue, expenses, gains and losses. So if a company has 9000 worth of cash it would not be shown on the income statement that would be shown on the balance sheet.

A credit analyst of a company wanting to sell inventory to a company?

They will want to see the company's ability to pay for inventory it purchases on credit. It will want to see the company's ability to pay off short term debts. They will check into the cash flow but not too far ahead into the future since supply payments are usually made within a month or two after purchase.

How will a current investor use financial information?

To see if stock will prove a profit or the company will give out dividends and how much.

Companies have some discretion in how and when they record accruals such as rent expense or interest expense?

True

When finding COGS for period system do you include transportation costs and how.

Yes. Remember, in the periodic system costs as such are added to "purchases of inventory costs" The are ultimately added to the following formula: beg+purchases-ending=COGS

If a physical count comes up shorter than what you were supposed to have what do you do as far journal entries?

You debit COGS (expense) and credit Inventory

If you decide to sell a property or equipment before it is fully depreciated and you make a loss explain the consequent journal entries

You debit the cash received from sale. You credit the original cost of property/equipment. You debit a Loss. You debit the accumulated expense thus far. Yeah this is a little weird but it's the way you do it apparently it makes it easier to analyze

Forensic accounting

a branch that specializes in investigations when information is limited or not available.

Accumulated depreciation

a contra asset account used to classify the cost of a depreciable asset

Is owners equity a credit or debit account

a credit account

revenues can be represented by

a decrease in liabilities or an increase in assets

Losses

a decrease in net assets that is outside or an organizations primary operations.

Cash Discount

a discount some sellers are willing to give to encourage fast payment.

Is a gain credit or debit

a gains is a credit

Statement of cash flows

a list of all cash inflows and outflows at a given time.

Describe when a particular cost qualifies as normal or necessary?

a normal or necessary occurs when a cost is a added to an asset in cases where the cost we foreseen. Such as buying a car and knowing you are going to have to buy new tires in order to resell it. If you bought the car and someone slashed the tires it would be an expense.

Depletion

allocating the asset "wasted assets" as the contra asset removing value from the depreciation of property

Accelerated depreciation

alternative to straight line depreciation and has a larger expense in the initial period. The theory is that newer equipment makes more initially.

Contra account

an account entry that reduces the value of a previously recorded balance.

Allowance for doubtful accounts or Allowance for uncollectible accounts

an account that estimates the amount that will eventually be written off as uncollectible.

What classifies an asset into the property and equipment category?

an asset must have tangible physical substance and be expected to help generate revenues for longer than a single year.

Gain

an increase in net assets that is outside of an organizations primary operations.

Inventory

an item bought or manufactured in order to generate revenue.

Perpetual inventory system

an ongoing system that tracks the increase and decreases in inventory as well as their appropriate cost of goods sold.

A company has a current ratio of 3:1 the company collects a $20,000 accounts receivable. The current ratio will rise as a result of this collection. True or False

answer is true because accounts receivable is a current asset.

Investing Activities Cash Flow. And what are some examples

arises from operations other than the primary operations. Essentially buying items like land or selling land and receiving that flow of cash

Operating Activities Cash flow

arises from the primary operations of the firm.

one of the provision of gap is in how cost are treated. When are costs recorded?

as soon as the revenue associated with them is recorded.

A company issues new capital stock in exchange for 34k cash. An accountant marks this as a sale and increases cash and increases revenue? Which of the following is not true?

assets are overstated, net income is overstated, capital stock is understated, expenses are correctly stated.

Accounting Equation

assets=liabilities + stockholder's equity. Meaning assets will always balance (equal) liabilities plus stockholder's equity. This is true because all assets must have a source.

What is the most common way a company reports their assets? Intrinsic value, cost value, market value, replacement value, wholesale value

at cost value

Partnership

at least two owners. Partners are liable for debts. Taxes go on their tax returns. Funding sources from family, friends, collateralized loans.

Why is fair market value not that commonly used when looking at a company's value?

because the managers plan on keeping asset's for a long time until they no longer work, they don't expect on selling them at any point. Thus keeping track of the original fair value minus the accumulated depreciation is more helpful.

The company owes $1,000 for some purchases made last month and pays that amount now. How will net assets be affected

because the purchases are not assets (it doesn't say if they were equipment or if the purchases were going to generate revenue) then last month you added a liability. Today the liability goes down but now your assets go down (since you used cash to pay).

How will a loan officer use financial accounting?

before he borrows to a party his number one priority to check is their cash flows to make sure they had positive past cash flows and if they will be adequate to meet all obligations. They don't really focus if the stock went up or down.

Describe a Periodic FIFO, give the Periodic formula and how FIFO affects it?

beginning inventory, plus purchases, minus ending inventory= COGS. FIFO affects the value of ending inventory and with FIFO your ending inventory is the first to be sold find the value of those inventory items based on the older prices. This makes sense in FIFO you sell your "oldest" inventory so you are only left with the new. The trick to these types of problems is that you will be left with the units in ending inventory which you will then have to appropriate with the newest costs so you get a dollar value to subtract from total inventory (beginning inventory plus additions).

The cash flow of a firm must be equal to

cash flows to stockholders combined with cash flow to debt holders

Closing Entries

closing the temporary accounts means reverting them back to 0. The net amounts are transferred over to retained earnings.

Averaging

computing cost of goods sold by the average of te goods bought on inventory and their prices.

Accrued Expenses

costs that gradually increase over times. A company can choose to recognize this expense as it is incurred (growing the a liability in balance and growing an expense in income until the amount is paid which clears the liability) or just wait until it is actually paid and just mark it as an expense.

Is any prepaid anything a debit or credit?

credit it is a liability

DELETE

debit inventory credit account payable, debit account payable, credit cash, and credit inventory for 5 dollars.

Describe the Journal Entry to describe buying a plot of land, having a salvage value, and the land contains 10k tons of gold. The land digs up 3000 tons of gold and sells them the second period. make the entries for depreciation

debit land asset credit cash. Now find the cost per ton. Original land value minus salvage all divided by 10k. When you find gold you debit inventory gold and immediately credit accumulated expense. After it has been sold create a cost of goods sold and also credit the gold inventory.

When adjusting a trial balance what type of entry will end up with a lower balance?

deferral

Unearned Advertising revenue and prepaid wages expense are examples of?

deferrals. Remember deferrals deal with prepaids. such as prepaid wages or revenue that has been collected in advance thus prepaid.

What are the two types of adjusting entries?

defferals, accruals

Double declining balance method (DDB) (a form of accelerated depreciation)

depreciation is taking book value cost minus accumulated depreciation divided by the life expectancy. The first depreciation period you don't have any accumulated so you don't have to subtract. This usually creates a gain if sold early on because the book value drops very quickly compared to the actual market value.

Units of Production Method (UOP)

depreciation not based on time but on how many times something can be used. To calculate take original cost divided by the number of units it can last (for example 90k divided by 300,000 miles= $.30miles. although logical it is barely used by professionals.

Current Ratio

dividing current assets current by liabilities another way to measure liquidity thus how easily a company can pay off debts.

Periodic inventory system

does not constantly monitor the items on hand. Inventory is figured out by a periodic counts. Therefore any costs are are not added to the value of the inventory until the end of the year. Separate subsidiary ledgers are not kept so you don't really know the size, cost, and composition of the merchandise on hand.

Do deferrals make assets go up or down?

down

Accrued Expenses

essentially expenses that grow with time but are automatically reflected by programs to that adjusting entries do not have to be made when financial statements are due.

A company has just borrowed 25k on a three year loan from a banks, how are the company's net assets affected

no change took place in the company's net assets. They just received 25k but also owe 25k.

What is LIFO Liquidation?

essentially one of the problems with LIFO is that if companies keep buying inventory at new prices and the COGS are based of these prices some old inventory will be left behind each year at the original price. If a company finally sells this inventory it will be so far off from the current price due to inflation that the COGS expenses barely match the revenues they help to make.

Debits (left) show an increase in what

expenses (don't forget about COGS) and losses, assets, dividends paid.

Matching Principle

expenses are recognized in the same period as the revenue they help to create if they cannot be tied directly then it is noted as the expenses are incurred. For example cost of goods sold are included even if account payable is due in the future. Expenses are matched with revenues not the other way around.

Difference between liability and expenses

expenses have already been paid off such as the salary already paid for work done last week. The salary you will have to pay for work done is a liability. A bank loan is liability. Amount owed to suppliers is a liability. Once it's paid and if there was interest that extra money would be an expense.

If employees salary is recognized automatically at the end of the day but no salary is paid for the last nine days of the year, an adjusting entry is required before financial statements can be prepared? True or False

false because even if they have not been paid they have been recorded as liabilities.

Regulation of US GAAP is primarily done by the U.S Government

false the government isn't the one that regulates it. The financial accounting standards board does.

If you have a long list of payments and expenses such as cash received for rent, cash paid for rent, prepaid rent decrese, rent recivable increase, rent payable, unearned rent, how would you find rent revenue?

find the the associated accounts now make one t account and think about what would happen to each specific entry don't worry about its balancing action so for example prepaid rent decrease would be a debit cash paid for rent would be a debit. There are examples of this on the ICPQ on Chapter 5 you should redo.

How do find the initial amount after an interest increase or decrease? for ex a 20 percent increase/decrease

for an initial percentage increase 1X+(.20X)=ending value for an initial percentage decrease 1X-(.20X)=ending value

A company's Cash Flow

gives an deep look into how company managed to generate cash and what use was made of it.

How will a potential employee of the Nguyen Company use financial accounting?

in order to asses the health of his future employee and whether it will be a stable job with upward mobility. Also to see if they are profitable enough to were he might be able to earn a bonus.

Describe Perpetual FIFO and how it compares to Periodic FIFO?

in the end they are both the same so companies will use Periodic FIFO mostly to understand their quantities on hand but not so much the COGS. They usually find it easier in the end to do Periodic FIFO so they don't go through the pain in the ass of matching revenues with expenses.

how do you close out income account (net income bottom line) and how does this affect the retained earnings

income account is a credit account. So to close out a positive income account would debit the income account. And then credit the retained earnings account.. income and retained earnings are both credit accounts but since you really only close the income amount be wary of the opposite action you have to take in order to this.

Which financial statements should be prepared initially?

income statement and statement of retained earnings.

is interest receivable a inflow or outflow and would it be calculated in cash paid for interest for the year

inflow. no. cash paid is an outflow

How do you calculate retained earnings after a year

initial retained earnings plus net income minus dividends.

Amortization deals with

intangible objects tht have a finite life.

Specific identification

inventory cost flow that identifies remaining inventory and inventory sold. In this method the different prices in which inventory was bought is not an issue. For example using this method each individual shirts are coded and run through a system during checkout. This meticulous record keeping usually outweighs the advantages, is it worth it for the same shirt in 3 colors to be coded three different times.

Run though how cost of goods sold is calculated in a periodic system

inventory plus purchases for the period minus the cost of the ending inventory.

How do you determine between Asset or Expense? If you paid rent for the month before what would it be? If you paid rent ahead of time

it all matters on the timing an asset will help generate revenue in the future so only when you pay ahead is it an asset. Even for example there is pre-paid insurance that is an asset since it will provide benefit in the future.

A transaction is only a transaction when it has an ___ on the organization

it has an impact on the organization. A worker that has been hired and will be paid next month does not qualify.

Allowance for Doubtful Accounts is a credit or debit? And what statement is it recorded? In that statement where specifically?

it is a credit account. Because doubtful accounts is a contra account it will be posted on the balance sheet under current assets.

Is unearned anything a debit or credit

it is a credit liability.

What is a subsidiary ledger and what is it used for?

it is separate t accounts to maintain data about various individual components that make up the account total such as individual customers that owe money.

What is one downside of using LIFO?

it makes the company look weaker in the eyes of investors since the benefit is coming from tax advantages not actual operation health.

Perpetual inventory system

keeps track of inventory on an ongoing basis as well as COGS this provides the ability to know COGS to date. When a normal and necessary cost occurs it is immediately added to the value of the inventory unlike periodic which waits until the end of the year.

Instead of charging 10k to land costs they are charged to building costs. What is this implication?

land will be overstated until sold. Since buildings depreciates it will originally have a 10k account which will be depreciated including this extra 10k amount so expenses will be overstated. And net income will be understated. This does not happen with land since it does not depreciate so no expenses are associated with it.

Credits (right) show an increase in what

liabilities, capital stock, revenues and gains, retained earnings.

Income statement

lists all revenues, expenses, gains and losses.

Current Ratio what is it and how

measures liquidity current assets divided by current liabilities.

Limited Liability Corporation

mix between corporation and partnership. LLC must have at least one owner and can exist even after his death or departure. Some owners will be involved in day to day operations but not all have to be. They have freedom to choose how they are taxed. They can be taxed like partnership or S corporation or C corporation.

Which of the following is NOT an example of an asset? Buildings, leasehold improvements, merchandise inventory, monies owed to employees, prepaid rent

monies owed to employees

Why use MACRS (modified accelerated cost recovered system Uses DDB with a half year convention and zero salvage value.)

more depreciation up front less taxes.

C Corporation

named based of the tax code section. Many owners once they buy stock. It is a separate entity from its owners. Company does not die after death or departure of owner unlike partnerships, sole proprietorships, etc. You can only lose what you put in. Owners (stockholders) are typically not involved in day to day operations instead the board of directors and management are. A corporation files its own tax return. Easiest time raising money since it can issue stock and obtain loans and lines of credit easier.

Which will have a lower value, receivables or net accounts receivable?

net accounts receivable since it takes off for doubtful accounts.

When choosing between perpetual and periodic is tracking transportation charges a reason to choose either one?

no because costs are shown on both the only difference is that in periodic it doesn't add value to the inventory immediately

When finding net book value does the original cost and value of an asset change directly?

no it stays the same but a contra asset accumulated depreciation entry is made. This way people can see how much was the original price and how much it has depreciated.

Are property and equipment bought for resale?

no that is investments.

When using Double Declining Balance depreciation DDB do you take into account salvage value?

no the formula is cost minus acc depreciation times 2/life. However you don't depreciate past the salvage value. Also rememver that when you subtract the accumulated depreciation you have to keep adding them together as the year goes on.

are current liabilities included in current assets?

no they are two separate things. You have current capital minus current liabilities equals current working capita.

Would land acquired as future plant site and a building held for speculative purposes be classifieds as property and equipment?

no they would be investments since revenues are not coming off of them at the current time

When calculating COGS do you include advertising expense in your calculations?

no this is a different expense.

do you include dividends paid in net income?

no. Dividends appear when calculating retained earnings. Beginning retained earnings plus net income minus dividends= retained earnings

Are dividends part of operating activities?

no. they are taken off from retained earnings or financial activities in cash flows

is accumulated depreciation account permanent or temporary

permanent

what type of account is accounts receivable

real/permanent account

what type of account is interest payable

real/permanent account

what type of account is prepaid insurance expense

real/permanent account

what type of account is unearned service revenue? permanent or temporary?

real/permanent account

How do you deal with unearned revenue when finding how much revenue was received? How about when finding costs?

regardless of difference you subtract it from you other inflows. With costs don't worry about it.

Statement of retained earnings

reports changes in retained earnings from the beginning of a period to the end. Increased by an increase in net income and decreased by a reported net loss and or given dividends.

Revenue realization principle

revenue is recognized at the point that the earning process is substantially complete and the amount can be estimated.

What are two main nominal or temporary accounts

revenues, expenses

Gross Profit, Markup, Profit Margin

sale of an item minus the COGS

Receivable turnover

sales/average receivables.

Limited Partnership

some partners have limited liability they can only lose what they invested. Almost as if they had just bough stock.

Why do many companies use LIFO

sometimes the tax benefits outweigh the benefits of FIFO however if we ever switch to IFRS this will not be possible.

What comes first the making of a t account, specific entry, or ledger?

specific entry, t account and then ledger.

If a company has already expected bad debts and ultimately has to write a few thousand off what is the impact of this decision on receivables as a whole?

stays the same. Think about what happens only to the balance sheet. You have a certain amount of receivables then a contra account allowance that lowers this, once it has been realized this contra account allowance decreases but receivables decreases so ultimately it stays the same.

how do you find the annual rate of 1/10 and n/30?

subtract denominators. divide from 360. multiply by percent savings. 360/20=18*1

in a bank reconciliation the difference between a check erroneously recorded for more should be

subtracted from the book balance.

Age of receivables or day's receivables

take 365 divided by average receivables.

When trying to figure out the gain or loss of a UOP method at one of the final steps once you have found out the depreciation value what is next?

take the original book value minus this depreciation. Subtract this from what you were able to sell it for.

How do you figure out periodic weighted average?

take your beginning plus your additions to get a total cost. Divide this cost by the units that made up those costs, that is your average price. Multiply that by the number of units left. Subtract like you normally would.

LIFO conformity rule

tax rule that in order to take advantage of you need to use LIFO. Essentially you must LIFO in both the books that you show to investors and those you use for taxes so that companies don't make themselves to look bad just in the eyes of the government to save tax dolars.

is unearned rent revenue an inflow or outflow and when you should be careful

technically i believe it is an inflow but you have to subtract it from your revenues since it hasn't actually been earned no matter how it changed over the year. Meaning you still subtract whether it increased or decreased in a year.

Bad Debt Expense or Doubtful Accounts Expense

the amount that is expensed for receivables that are estimated to not be collected. This has to be done in the same period as the revenue that it helped produce so essentially in the same year.

Cost of goods sold and when are they recorded

the amount that the certain firm paid for the goods that were sold. The timing of this expense is recorded after the item has left inventory. For example firm buys fridge to sell, the expense is not recorded then but after it has left the store.

Explain, Gross Profit, Gross Margin, Markup

the difference between revenue and cost of goods sold. Essentially how much the company makes for every dollar of goods it sells all other things aside.

Net book value

the difference between the original cost of the asset and what is stated on the accumulated depreciation contra asset. The cost that has not yet been expensed is because the asset still has future value

At the time of a receivable expense what exchange rate is used

the exchange rate at that time.

What is book value based off?

the historical cost of items

What is a journal entry?

the physical form of recording financial entries using the T account method.

Capitalization

the process or recording a cost as an asset rather than an expense usually done for inventory. This way the inventory you have reflects all the money that went into it such as transportation costs etc. So a 100 dollar bike with transportation costs could be a 150 asset on the balance sheet. Anything after the bike is sold is an expense so transportation to the customer's house would be an expense.

Would the quantity and cost of an individual item be shown on the general ledger or the subsidiary ledger?

the subsidiary ledger since the general only shows the total cost of all inventory on hand.

Retained Earnings for a company

the total amount of net income since it first began operations less all the dividends paid to stockholders during that same time. Note this is money made because of its operations. So if the owners contributed 100k, there was a net income of 50k, dividends of 10k. The retained earnings are 40k.

Describe 2/10 and n/45

they are cash discounting terms. The numerator for the first ratio shows percentage discount and numerator the number of days buyer has to pay within in order to receive it. In this case a 2% saving by paying within ten days. In case they didn't take this route or they didn't pay all of it the second ration says the person has to pay Net Amount after 45 days. This is essentially when payment is due. Note a person doesn't have to pay the entire amount in order to get the savings.

How do T accounts organize information? What goes on the left and right side

they separate accounts into two sides with Debits on the left and credit on the right.

A company buys a piece of land for the ultimate use of a building site additional costs such as grading and clearing are done in order to ready the land for the building. Explain where the last two costs go?

they would go under the original land costs which would be an original property and equipment costs since it will generate revenue. Same thing with any costs it may take to build a retail store.

Sales revenue less cost of goods sold is referred to as net income, true or false?

this is false sales revenue less cost of goods sold is gross profit or profit margin.

Many times a business has net assets much higher than their retained earnings how can you explain this?

this usually happens because of contributions by investors through different types of stock.

What is the main purpose of a balance sheet

to report assets and liabilities at a particular point

Prior to preparing adjusting entries so that financial statements can be prepared, the bad expense t account should report a zero balance true or false?

true

True or False. Depreciation reduces both the pretax income and the net income.

true

True or False: Revenues measure the financial impact on a company resulting from sales

true

What is another term for deferred income?

unearned income. So you would debit unearned revenue asset and credit unearned revenue liability.

Sole Proprietorship

unincorporated business with one owner. Very easy to start up. However, owner is liable for all debts. Sole proprietorships are taxed on the owner's personal tax return. Hard to fund usually has to get friends and family to invest. Loans are usually only collateralized.

Practice of Conservatism

unsaid rule that accountants follow when something is too close to call, is this item really an asset? They do this to prevent a company from looking overly good.

Percentage of receivables method

used to estimate the uncollectible accounts. Estimates what amount of receivables will not be paid. This is a balance sheet approach.

Percentage of sales method

used to estimate the uncollectible accounts. Estimates what amount of sales will be delinquent. This is an income statement approach.

Half year convention

used when assets are sold anytime before the end of the accounting year. Any date besides Dec 21st calls for a half year convention to be applied (half years depreciation) in the end this levels out.

What is FOB Shipping Point

used when the buyer records the purchase of inventory when it leaves the warehouse of the seller. This makes buyer responsible for shipment and anything that occurs while shipping

What is FOB Destination Point

used when the buyer records the purchase of inventory when it physically arrives. This makes the seller responsible for shipment and anything that occurs while shipping.

Net method reporting discounts

when a buyer anticipates getting a discount and make initial entry taking that in mind.

Gross method of reporting discounts

when a company does not take off for discount if payment is early ahead of time. Once discount is received the money saved is a credit to inventory.

Ledger or General Journal

where all journal entries are maintained of a firm. These entries in the ledger are trial balances until they are recorded into the financial statements at the end of the year.

Working capital management includes decisions on which of the following (2 of them)? accounts payable, inventory, staff salaries, retained earnings

working capital management deals with events that are current. So the only relevant options are accounts payable and inventory

Is a count of goods on hand still needed when doing perpetual system?

yes

If you over estimated allowance for a year are they carried over to the next year?

yes allowance for uncollectible is a permanent account in assets. If the next years estimates are 10k you would subtract from this what was left over from the year before.

If a person is hired on Monday and starts working Monday (financial statements will be prepared at the end of the day) is an adjusting entry needed even if they are not paid until Friday (financial statements are prepared at that time too)?

yes because as of Monday you owe that person money.

How can market capitalization help when analyzing a company?

you can see if the market cap is close or far from the book value.

When you have a lower cost of market how do you record a drop in prices from when you bought them?

you debit CGS (expense) and credit inventory. So now you have higher CGS

How do you record a gain due to exchange rate fluctuation once a payment has been made?

you debit accounts receivable and credit revenue from "Gain in value of foreign currency receivable"

How do you record depreciation when a building was bought in the middle of the year and sold only halfway through year three explain the journal entries?

you debit building asset and credit cash. You debit depreciation expense and credit accumulated depreciation for only half a years value since you bought it halfway through the year so you multiply your usual depreciation value after calculating for straight line by 6/12 (6 months over 12). There is a full year in between so you don't multiply by a fraction. Then at the end of year three you would record depreciation for only half a year since you sold it halfway through the year so also multiply by (6/12).

How do you record depreciation expense?

you debit depreciation expenses and credit accumulated depreciation

What are the associated entries with buying inventory on account, paying transportation fees, then selling some of the inventory? (periodic system)

you debit inventory credit notes payable. You debit inventory you credit cash. You debit cash you credit revenue. You debit COGS you credit inventory

When an entry for rent expense had previously been properly recorded by debiting rent expense and crediting rent payable what are the journal entries after you pay for some of this rent

you debit rent payable and credit cash

If you decide to sell you property or equipment before it is fully depreciated and you make a gain explain the consequent journal entries

you debit the cash you received from sale. You credit original cost of the building. You debit depreciation expense for what it was at that time. You credit a gain for how much you gain. This might be a bit weird but it's the way it is done.

If a company foresees that they will not be able to collect on 7,000 what is the appropriate entry?

you expense bad debts and credit allowance for debit accounts.

How to figure out market Capitalization?

you take outstanding shares and multiply by the current stock price.

If a company has already expected not to receive payment on a receivable and in fact it does not receive this payment what is the subsequent journal entry?

you would debit allowance for doubtful accounts and credit accounts receivable.

If you wrote off an account (meaning you had already accounted for not receiving the money, and recorded it to be worthless) how would you reinstate the amount meaning they actually did pay for it?

you would do the exact opposite of your last step so you would. Debit receivables, and credit allowance for doubtful accounts. You would then do what you usual do for receiving money when it was a receivable. Debit cash and credit receivables.

if your revenues are erroneously overstated and expenses erroneously understated what is the effect

your net income is erroneously overstated doubly