Accounting Exam 2

Other receivables

A miscellaneous category that includes any other type of receivable where there is a right to receive cash in the future.

Notes receivable

A written promise to pay a specified amount of money at a particular future date.

During the​ year, LutherLuther Company had net credit sales of $ 41 comma 000$41,000. At the end of the​ year, before adjusting​ entries, the balance in Accounts Receivable was $ 13 comma 000$13,000 ​(debit) and the balance in Allowance for Bad Debts was $ 690$690 ​(credit). If the company uses an income statement approach to estimate bad debts at 33​%, what is the ending balance in the Allowance for Bad Debts​ account?

Bad Debt Expense = $41,000 x 3% = $1,230 Allowance for Bad Debt = $690 + $1,230 = $1,920

Control procedures

Component of internal control that helps ensure business goals are achieved.

Separation of Duties

Dividing responsibilities between two or more people to limit fraud and promote accuracy of accounting records.

Adequate documents and records

Initial entry into the accounting system should be from a consistent source with complete information.

All of the following are true for a company that uses the allowance method of accounting for bad debts, EXCEPT:

It records bad debt expense each time an account is determined to be uncollectible.

If a company uses the direct write-off method of accounting for bad debts,

It will record bad debt expense only when an account is determined to be uncollected.

Firewalls

Limits access to a local network.

What is the distinguishing characteristic between accounts receivable and notes receivable?

Notes receivable generally specify an interest rate and a maturity date at which any interest and principle must be repaid.

Operational efficiency

Part of internal control that ensures resources are not wasted.

Clearly defined authority and responsibility

Specific approval is given by management for the performance of activities.

Debtor

The party to a credit transaction who takes on an​ obligation/payable.

$1,000 deposit erroneously recorded by the bank as $100

bank addition

outstanding checks

bank subtraction

Bank Collection

book addition

Credit memorandum from bank

book addition

EFT cash receipt

book addition

Interest revenue

book addition

Debit memorandum from bank

book substraction

$2,500 cash payment for rent expense erroneously recorded by the business as $250

book subtraction

service charge

book subtraction

Which of the following principles states that a business should NOT report anticipated gains?

conservatism

Which of the following states that the business should use the same accounting methods from period to period?

consistency principle

Gross profit is calculated as the difference between net sales revenue and ________.

cost of goods sold

The main expense of a merchandiser is usually ________.

cost of goods sold

While preparing a bank reconciliation, which of the following items would be added to the bank statement balance?

deposits in transit

Which of the following principles states that a business's financial statements must report enough information for outsiders to make knowledgeable decisions about the company?

disclosure principle

Which of the following inventory costing methods uses the cost of the oldest purchases to compute the cost of goods sold?

first-in, first-out

Risk assessment

identification of uncertainties that may arise due to a company's products, services or operations.

Which of the following items would be added to the company's cash balance on a bank reconciliation?

interest earned on the bank account

On the balance sheet of a retailer, the Merchandise Inventory account ________.

is included in the current assets section

Which of the following inventory costing methods uses the costs of the oldest purchases to calculate the value of the ending inventory?

last-in, first-out

Which of the following is NOT an inventory costing method?

lower of cost or market

A company decides to ignore a very small error in its inventory balance. This is an example of the application of the ________.

materiality concept

While preparing a bank reconciliation, which of the following items would be subtracted from the balance per the bank statement?

outstanding checks

Normally used for relatively inexpensive goods.

periodic inventory system

Requires a physical count of inventory to determine the quantities on hand

perpetual and inventory system

Perpetual inventory system

An inventory system that keeps a running computerized record of merchandise inventory.

Periodic inventory system

An inventory system that requires businesses to obtain a physical count of inventory to determine quantities on hand.

Uses bar codes to keep up-to-the-minute records of inventory.

Perpetual inventory system

Merchandise inventory accounting systems can be broadly categorized into two types. They are ________.

perpetual and periodic

The two main inventory accounting systems are the

perpetual and periodic

Achieves better control over merchandise inventory.

perpetual inventory system

Keeps a running computerized record of merchandise inventory.

perpetual inventory system

BlendedBlended Corporation uses the allowance method to account for uncollectible receivables. At the beginning of the​year, Allowance for Bad Debts had a credit balance of $ 800$800. During the year BlendedBlended wrote off uncollectible receivables of $ 2 comma 500$2,500. BlendedBlended recorded Bad Debts Expense of $ 2 comma 800$2,800. What is Blended'sBlended's ​year-end balance in Allowance for Bad​Debts?

800-2,500+2,800=1,100

Deposit in Transit

Bank Addition

The document that explains all the differences between the​ company's cash records and the​ bank's figures is called​ a(n)

Bank Reconciliation

Safeguards over assets and records

Blank checks should be stored in a locked location.

Which one of the following is an accurate description of the Allowance for Bad Debts?

Contra Account

Which of the following line items will appear on the income statement of a merchandiser but not of a service company?

Cost of Goods Sold

Internal Auditors

Employees of the business who ensure that the company's employees are following company policies, meeting legal requirements, and that operations are running efficiently.

Audits

Examination of a company's financial statements and accounting system by a trained accounting professional.

Gross profit

Excess of Net Sales Revenue over Cost of Goods Sold

Operating expenses

Expenses, other than Cost of Goods Sold, that are incurred in the entity's major ongoing operations.

Checks on recorded amounts

One employee or department should verify the work of another to determine that amounts are correct and that the correspond to properly authorized activities. An example would be to prepare a bank reconciliation.

Encryption

Rearranging plain-text messages by a mathematical process - the primary method of achieving security in e-commerce.

Sarbenes-Oxley Act

Requires companies to review internal control and take responsibility for the accuracy and completeness of their financial reports

Documents

Should be prenumbered to prevent theft and inefficiency.

At December 31 year-end, Craig Corp. has an $8,400 note receivable from a customer. Interest of 10% has accrued for 10 months on the note. What will Craig's financial statements report for this situation at December 31?

The balance sheet will report the note receivable of $8,400 and interest receivable of $700.

Payment by check is an important internal control over cash payments because

The check must be signed by an authorized official and before signing the​ check, the official reviews the invoice supporting the payment.

Cost of Goods Sold

The cost of merchandise inventory that the business has sold to customers.

Maturity date

The date when the note receivable is due.

Vendor

The individual or business from whom a company purchases goods.

Internal Control

The organizational plan and all the related measures adopted by an entity to safeguard assets, encourage employees to follow company policies, promote operational efficiency, and ensure accurate and reliable accounting records.

Creditor

The party who receives a receivable and will collect cash in the future.

Accounts receivable

The right to receive cash in the future from customers for goods sold or for services performed.

Environment

To establish an effective one, a company's CEO and top managers must behave honorably to set a good example for employees.

Collusion

Two or more people working together to overcome internal controls.

Which of the following is the correct formula to calculate weighted-average unit cost for merchandise inventory?

Weighted-average unit cost = Cost of goods available for sale / Number of units available

Information system

Without a sufficient one of these, information cannot properly be gathered and summarized.

Michelle Darby receives cash from customers. Her other assigned job is to post the collections to customer accounts receivable. Her company has weak

separation of duties