ACCT 200 Exam 2 (ch 5-7)
Board of Directors
Elected by the shareholders to represent their interests; its audit committee is responsible for maintaining the integrity of the company's financial reports
Financial Accounting Standards Board (FASB)
The private sector body given the primary responsibility to work out the detailed rules that become generally accepted accounting principles
Corporate Governance
The procedures designed to ensure that the company is managed in the interests of the shareholders
Form 10-Q
The quarterly report that publicly traded companies must file with the SEC
Form 8-K
The report used by publicly traded companies to disclose any material event not previously reported that is important to investors
Goods Available for Sale
The sum of beginning inventory and purchases (or transfers to finished goods) for the period
Net Sales
The top line reported on the income statement. Net Sales= Sales Revenue -(Credit card discounts + Sales discounts + Sales returns and allowances)
Average Cost Method
Uses the weighted average unit cost of the goods available for sale for both cose of goods sold and ending inventory
Lower of Cost or Net Realizable Value
Valuation method departing from the cost principle; it serves to recognize a loss when net realizable value drops below cost
Notes Receivable
Written promises that require another party to pay the business under specified conditions (amount, time, interest)
Public Company Accounting Oversight Board (PCAOB)
The private sector body given the primary responsibility to work out detailed auditing standards
Cost of Goods sold equation
Beg Inv + Purchases - Ending Inventory =COGS
Finished Goods Inventory
Manufactured goods that are complete and ready for sale
Factory Overhead
Manufacturing costs that are not raw material or direct labor costs
LIFO Reserve
A contra-asset for the excess of FIFO over LIFO inventory
Sarbanes-Oxley Act
A law that strengthens US financial reporting and corporate governance regulations
Bank Statement
A monthly report from a bank that shows deposits recorded, checks cleared, other debits and credits, and a running bank balance. This same info is available on a daily basis from the bank's online banking site.
Purchase Returns and Allowances
A reduction in the cost of purchases associated with unsatisfactory goods
Sales Returns and Allowances
A reduction of sales revenue for return of or allowances for unsatisfactory goods
LIFO liquidation
A sale of a lower-cost inventory item from beginning LIFO inventory
Press Release
A written public news announcement normally distributed to major news services
Material Amounts
Amounts that are large enough to influence a user's decision
First in, First out (FIFO) Method
An inventory costing method that assumes that the first goods purchased (the first in) are the first goods sold.
Last-In, First-out (LIFO) Method
An inventory costing method that assumes that the most recently purchased units (last in) are sold first
Specific Identification Method
An inventory costing method that identifies the cost of the specific item that was sold
Perpetual Inventory System
An inventory system in which a detailed inventory record is maintained, recording each purchase and sale during the accounting period
Periodic Inventory System
An inventory system in which ending inventory and cost of goods sold are determined at the end of the acct period based on a physical count of inventory
Unqualified (Clean) Audit Opinion
Auditor's statement with the financial statements are fair presentation in all material respects in conformity with GAAP
Allowance Method
Bases bad debt expense on an estimate of uncollectible accounts
Percentage of Credit Sales Method
Bases bad debt expense on the historical percentage of credit sales that result in bad debts
Sales (or cash) discount
Cash discount offered to encourage prompt payment of an account receivable
Purchase Discount
Cash discount received for prompt payment of an account
Allowance for Doubtful Accounts (Allowance for Bad Debts, Allowance for Uncollectible Accounts)
Contra-asset account containing the estimated uncollectible accounts receivable
Aging of Accounts Receivable Method
Estimates uncollectible accounts based on the age of each account receivable
Bad Debt Expense (Doubtful Accounts Expense, Uncollectible Accounts Expense, Provision for Uncollectible Accounts)
Expense associated with estimated uncollectible accounts receivable
Credit Card Discount
Fee charged by the credit company for its services
Merchandise Inventory
Goods held for resale in the ordinary course of business
Work in Process Inventory
Goods in the process of being manufactured
Private Investors
Individuals who purchase shares in companies
Raw Materials Inventory
Items acquired for the purpose of processing into finished goods
Institutional Investors
Managers of pension, mutual, endowment, and other funds that invest on the behalf of others
Operating Income (Income from Operations)
Net sales (operating revenues) - operating expenses (including cost of goods sold)
Gross Profit (Gross Margin)
Net sales- Cost of Goods sold
Accounts Receivable (Trade Receivables or Receivables)
Open accounts owed to the business by trade customers
Earnings Forecasts
Predictions of earnings for future accounting periods, prepared by financial analysts
bank reconciliation
Process of verifying the accuracy of both the bank statement and the cash accounts of a business
Internal Controls
Processes by which a company provides reasonable assurance regarding the reliability of the company's financial reporting, the effectiveness and efficiency of its operations, and its compliance with applicable laws and regulations
Cost Effectiveness
Requires that the benefits of accounting for and reporting information should outweigh the costs
Income before Income Taxes (pretax earnings)
Revenues minus all expenses except income tax expense
Lenders (Creditors)
Suppliers and financial institutions that lend money to companies
Inventory
Tangible property held for sale in the normal course of business or used in producing goods or services for sale
Securities and Exchange Commission (SEC)
The US gov agency that determines the financial statements that public companies must provide to stockholders and the measurement rules that they must use in producing those statements
Form 10-K
The annual report that publicly traded companies must file with the SEC
Direct Labor
The earnings of employees who work directly on the products being manufactured
Net Realizable Value (NVR)
The expected sales price less selling costs (Ex: repair and disposal costs)
Cash
money or any instrument that banks will accept for deposit and immediate credit to a company's account, such as a check, money order, or bank draft
cash equivalents
short-term investments with original maturities of 3 months or less that are readily convertible to cash and whose value is unlikely to change