Accounting test 2

Petty cash is used for large payments such as those for equipment and machinery. True or False

False

Recording expenses early overstates current-period income; recording expenses late understates current period income. True or Fasle

False

Specific accounting principles are basic assumptions, concepts, and guidelines for preparing financial statements and arise out of long-used accounting practice. True or False

False

The choice of an inventory costing method has little to no impact on gross profit and cost of sales. True or False

False

The first step in preparing a worksheet is to prepare the income statement. True or False

False

When a voucher system is used, an invoice approval is not needed as long as the purchase is evidenced by an invoice and purchase order. True or False

False

in a periodic inventory system, cost of goods sold is recorded as each sale occurs. True or False

False

A limited liability company (LLC):

Has owners called members.

The cost of an inventory item includes its invoice cost minus any discount, plus any other costs, such as, shipping, storage, import duties, and insurance. True or False

True

The debt ratio helps to assess a company's risk of failing to pay its debts. True or False

True

The reasoning behind the retail inventory method is that if we can get a good estimate of the cost-to-retail ratio, we can multiply ending inventory at retail by this ratio to estimate ending inventory at cost. True or False

True

Unearned revenues are classified as liabilities. True or False

True

Gross Margin Ratio

(Net Sales − Cost of Goods Sold)/Net Sales

The credit terms 2/10, n/30 are interpreted as:

2% cash discount if the amount is paid within 10 days, or the full balance due in 30 days.

The length of time covered by a set of periodic financial statements, primarily a year for most companies, is referred to as the:

Accounting Period

Closing the temporary accounts at the end of each accounting period does not do which of the following?

Brings the asset and liability accounts to zero balances.

Lower of cost or market:

Can be applied to each individual item, major categories of items, or the whole inventory.

An income statement account that is used to record cash overages and cash shortages arising from petty cash transactions or from errors in making change is titled:

Cash Over and Short.

he understatement of the beginning inventory balance causes:

Cost of goods sold to be understated and net income to be overstated.

Days' Sales in Inventory Ratio

Ending Inventory/Cost of Goods Sold × 365

The number of days' sales uncollected is used to:

Estimate how much time is likely to pass before the current amount of accounts receivable is received in cash.

A company's fiscal year must correspond with the calendar year. True or False

False

A perpetual inventory system is able to directly measure and monitor inventory shrinkage, and thus there is never a need for a physical count of inventory. True or False

False

A voucher system should be applied to all payments, except those using petty cash. True or False

False

what is included in the cost of merchandise inventory?

Purchase discounts, Purchase returns and allowances, Freight costs paid by the buyer, Purchase price of inventory

The internal document that notifies that ordered goods have been received and describes the quantities and condition of the goods is the:

Receiving report.

A debit to Sales Returns and Allowances and a credit to Accounts Receivable:

Recognizes that a customer returned merchandise and/or received an allowance.

Increases in equity from a company's sales of products or services to customers are:

Revenues.

A company with an acid-test ratio of 0.1 is likely to face near-term liquidity problems. True or False

True

A department manager informs the purchasing department of its needs by preparing and signing a purchase requisition, which lists the merchandise requested to be purchased. True or False

True

If the Cash Over and Short account has a credit balance at the end of the period, the amount is reported as miscellaneous revenue. True or False

True

A set of procedures and approvals for verifying, approving and recording liabilities for cash payment, and for issuing checks for payment of verified, approved, and recorded liabilities is referred to as a(n):

Voucher system.

Inventory Turnover Ratio

cost of goods sold/average Merchandise inventory

Gross Profit

net sales - cost of goods sold