A201 Module 2

deposits outstanding

cash receipts of the company that have not been added to the bank's record of the company's balance

checks outstanding

checks the company has written that have not been subtracted from the bank's record of the company's balance

Sales Returns and Sales Allowances are ( ) accounts and require a debit entry to increase the account

contra-revenue

Inventory Turnover Ratio

cost of goods sold/average inventory

What is readily available from the perpetual accounting system?

cost of units sold, beginning/ending inventory balance, individual purchases

what does the term $5000, terms 3/10, n/30 imply?

3% discount if paid within 10 days, needs to be paid in full in 30

average days in inventory

365/inventory turnover ratio

Which of the following adjusts the company's balance of cash in a bank reconciliation? a) interest earned b) checks outstanding c) deposits outstanding

A

perpetual inventory system

A detailed inventory system in which a company maintains the cost of each inventory item, and the records continuously show the inventory that should be on hand.

Employee purchases of supplies with a company-issued credit card is typically recorded with a credit to...

Accounts Payable

specific identification method

An actual physical-flow costing method in which particular items sold and items still in inventory are specifically costed to arrive at cost of goods sold and ending inventory

periodic inventory system

An inventory system in which a company does not maintain detailed records of goods on hand throughout the period and determines the cost of goods sold only at the end of an accounting period.

A company estimates future uncollectible accounts to be $4500. The year adjusting entry would include... a) a credit to AR for $4500 b) a credit to allowance for uncollectible accounts for $4500 c) a debit to allowance for uncollectible accounts for $4500

B

The entry to write down inventory from cost to net realizable value at the end of the year includes a:

Debit to Cost of Goods Sold

When a company determines that the net realizable value of its ending inventory is lower than its cost, what would be the effect(s) of the adjustment to write down inventory to net realizable value?

Decrease total assets, net income, and retained earnings

What costs are recognized in a work in progress for a manufacturing company?

Direct labor, raw materials, overhead

Two main reasons financial statements are incorrect:

Errors and Fraud

Inventory is defined as

Items a company intends for sale to customers

Which cost flow assumption must be used for financial reporting if it is also used for tax reporting?

LIFO

What companies purchase inventory that is primarily in finished form and ready for sale?

Merchandising companies

What is the equation for the receivables turnover ratio?

Net credit sales divided by average accounts receivable (net).

Receivables Turnover Ratio

Number of times during a year that the average accounts receivable balance is collected (or "turns over"). It equals net credit sales divided by average accounts receivable.

Some provisions of Sarbanes-Oxley Act:

Paperwork is retained for 7 years, require that audit firms are hired by the audit committee of the board of directors

Managers should act as...

Stewards of the company's assets

What allows greater reliance by investors on reported financial statements?

Strong internal control systems

At any time, petty cash should equal...

The established balance of the fund less all vouchers written during the accounting period

What is the purpose of internal controls?

To improve the accuracy and reliability of accounting information

Weighted Average Method

a process costing method that blends together units and costs from both the current and prior periods

Bad Debt Expense

an expense account to record losses from extending credit (future uncollectible accounts credit allowance for uncollectible accounts)

multiple-step income statement

an income statement that reports multiple levels of income (or profitability)

The COMPONENTS of internal control are...

based on the ethical tone set by management

gross profit ratio

gross profit/net sales

LIFO

inventory accounting in which the most recently acquired items are assumed to be the first sold; method is supposed to create the lowest ending inventory in a period of rising prices. Also create a lower taxable income, lower gross profit.

FIFO

inventory accounting in which the oldest items (those first acquired) are assumed to be the first sold; creates a higher ending inventory and lower cost of goods sold, higher gross profit and higher taxable income.

Components of Internal Control:

monitoring, control environment, control activities, risk assessment

on a multiple step income statement, the category of revenue and expenses reported immediately after operating income is....

non-operating revenues and expenses

under what inventory system does the inventory account reflect purchases during the year, along with COGS

perpetual

net realizable value

the amount of cash the firm expects to collect (Accounts Receivable - Allowance for Uncollectible Accounts)