Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
82 Cards in this Set
- Front
- Back
What is the difference between an ordinary annuity and an annuity due? |
an ordinary annuity is an annuity where rents occur at the end of each period. An annuity due is an annuity where rents occur at the beginning of each period. |
|
What is the difference between simple interest and compound interest? |
simple interest is return on principal for one time period whereas compound interest is return on principal for two or more time periods (based on principal and interest earned). |
|
What does "accounts receivable turnover" tell you about a company? |
accounts receivable turnover tells you how successful a company is in collecting its outstanding receivables. It also assess the liquidity of the company's receivables. |
|
What is the purpose of a bank reconciliation? |
the purpose of a bank reconciliation is to make adjustments of there are differences between the bank's books and the company's books. The ultimate goal is to have both the bank and company's books to have the same cash balance. |
|
What are "goods in transit" and who owns them? |
Goods in transit are purchased merchandise that remains in transit (not yet received) at the end of fiscal year. If the terms are F.O.B. shipping point, the receiving company owns them once the common carrier receives the goods. If the terms are F.O.B. destination, the supplying company owns them until the receiving company actually receives the goods from the common carrier. |
|
If ending inventory is mistakenly recorded too high, what is the effect on net income in year 1 and net income in year 2? |
If ending inventory is mistakenly recorded too high the effect on net income in year 1 is overstated. The effect on net income in year 2 is understated. The error washes out because of both of these effects. |
|
What is market and what is cost in lower-of-cost-or-market? |
When it comes to lower-of-cost-or-market, market refers to the cost to replace an item by purchase or reproduction. Whereas cost, refers to the acquisition price of the item |
|
For an annuity due when some one is putting money is what do you look for? |
future vaule of an annuity due |
|
For an annuity due when someone is taking money out, what do you look for? |
presrent value of an annuity due |
|
Net Realizable Value |
the net amount they expect to receive in cash; value and report short-term receivables; estimate uncollectible receivables and any returns or allowances. |
|
Allowance method |
estimating uncollectible accounts at the end of each period; ensures company state receivables at net realizable value. |
|
Is the account allowance for Doubtful accounts closed at year end? |
no |
|
How do you write off uncollectible accounts? |
Dr. ADA Cr. Accounts receivable (name) |
|
How do you journal the recovery of uncollectible accounts? |
Dr. Accounts receivable (name) Cr. ADA Dr. cash Cr. Accounts receivable (name) |
|
What financial statement does write offs and recovery affect? |
balance sheet |
|
Percentage-of-sale approach |
AKA income approach; estimates percentage of credit sales that will be uncollectible; better matches expenses with revenues |
|
After determining the percentage of credit sales that will be uncollectible what journal entry do you record? |
Dr. Bad Debt Expense Cr. ADA |
|
Percentage-of-Receivables Approach |
AKA Balance Sheet approach; reports receivables on the balance sheet at net realizable value; doesn't fit matching costs withe revenue; |
|
Which approach must you pay attention to ADA account when calculating? |
Percentage of receivables |
|
When using the percentage of receivables and there is a credit balance in ADA what must you do? |
subtract amount in ADA |
|
When using the percentage of receivables and there is a debit balance in ADA what must you do? |
add amount in ADA |
|
What are long term notes reported at? |
present value of the cash they expect to collect |
|
How do you journal a note with a discount? |
Dr. Notes Receivable Cr. Discount Cash |
|
At the end of the year, how do you journal a interest baring note with a discount? |
Dr. Cash Discount Cr. Interest Rev. |
|
Recourse |
the right of a transferee of receivables to receive payment from the transferor of those receivables for 1) failure of the debtors to pay when due 2) the effects of prepayments or 3) adjustments resulting from defects in the eligibility of the transferred receivable. |
|
Without recourse |
purchaser assumes the risk of collectibility and absorbs any credit losses. |
|
Due from factor |
for the proceeds retained by the factor to cover probable sales discounts, sales returns, and sales allowances |
|
With recourse |
the seller guarantees payment to the purchaser in the event the debtor fails to pay |
|
Accounts Receivable turnover |
net sales/ average trade receivables (net) |
|
For the petty cash, do you debt or credit if cash is short? |
Debt |
|
For petty cash, do you debt or credit is cash is over? |
Credit |
|
When do you get interest revenue for notes? |
always at year end |
|
if under perpetual inventory system, and a physical count indicates $3,800 but books say $4,000, what journal entry do you make? |
Dr. Inventory Over and Short Cr. Inventory |
|
Inventory over and short |
adjusts CGS; reported on "Other" on Income statement; company with a periodic system does not have this account |
|
Cost of Goods available for sale |
Cost of Beginning Inventory + Cost of goods purchased |
|
Cost of Goods Sold |
Cost of Goods Available for Sale - Cost of Ending Inventory |
|
Consignor |
ships various merchandise to a consignee; goods ARE included in inventory |
|
Consignee |
agent for consignor; accepts goods without liability and sells them; collects selling commission and expenses incurred |
|
What are the Effects on current assets, current liabilities, CGS, NI and retained earnings is ending inventory is understated? |
Current Assets & Current Liabilities: Understated CGS: Overstated NI: Understated Retained Earnings: Understated |
|
What are the effects on current assets, and current liabilities, CGS, NI and retained earnings if ending inventory is overstated? |
Current assets & Current Liabilities: Overstated CGS: Understated NI: Overstated Retained Earnings: Overstated |
|
How do you find the cost per unit under the weighted average approach? |
Total Purchase Cost/ Total Purchase units |
|
What does FIFO fail to match? |
fails to match current costs against current revenue, rather is matches oldest costs to current revenue |
|
What does LIFO do? |
matches the cost of the last goods purchased against revenue |
|
LIFO Reserve |
allowance to reduce inventory or LIFO account the difference between the inventory method used for internal reporting and external reporting |
|
LIFO effect |
changes in allowance balance from one period to the next. Dr. CGS Cr. Allowance to Reduce Inventory to LIFO |
|
Price Index for current year. |
Ending Inventory for period current cost/ ending inventory for period base year |
|
Which inventory method is more vulnerable to price declines? |
FIFO |
|
Which inventory method has the highest cash balance? |
LIFO |
|
Which inventory method reports the highest net income? |
FIFO, Avg., LIFO |
|
What is the order or inventory methods in regards to cash balance |
Highest: LIFO, Avg, FIFO
|
|
Which inventory method is used for tax purposes and and external reporting? |
LIFO |
|
Which inventory method is used for internal reporting? |
FIFO |
|
What is bad about LIFO? |
generally understates inventory and can lead to poor buying habits |
|
Which inventory method reports a more realistic Balance sheet (current cost of Inventory)? |
FIFO |
|
Which inventory method reports reports more realistic income statement (current cost of CGS)? |
LIFO |
|
When it comes to LCM, what is the ceiling? |
NRV of inventory; selling price- costs of completion |
|
When it comes to LCM, what is the floor? |
NRV- normal profit margin |
|
For Purchase Commitments, when the contract price is greater than the market price, what must the buyer do? |
Buyer should recognize losses in period during which such declines in market prices occurs |
|
What does the buy journal if in August a non cancelable agreement to buy inventory at $100,000 in 6 months and at 12/31 the market is $90,000? |
Dr. Unrealized Holding Loss Purchase Commitments 10,000 Cr. Estimated Liability on the Purchase Commitments 10,000 |
|
When buy in January and the value of the inventory is $93,000, what do you journal? |
Dr. Inventory 93,000 Liability 10,000 Cr. Cash 100,000 Recovery of Loss 3,000 |
|
When you buy in January and the value of the inventory is $88,000, what do you journal? |
Dr. Liability 10,000 Inventory 88,000 Loss on Purchase Commitment 2,0000 Cr. Cash 100,000 |
|
When you buy in January and the value of the inventory is $107,000, what do you journal? |
Dr. Liability 10,000 Inventory 100,000 Cr. Cash 100,000 Gain on Purchase Commitments 10,000 |
|
When estimating ending inventory and using gross profit method, what must be known? |
gross profit percentage, Beginning inventory, Purchases, and current sales |
|
When there is Freight in with inventory where do you include it?; Do you include this in the cost to retail ratio? |
at cost; yes |
|
When there are purchase returns with inventory where do you include it? Do you include this in the cost to retail ratio? |
at cost and at retail; yes |
|
When there are purchase discounts and allowances with inventory where do you include it? Do you include this in the cost to retail ratio? |
at cost; yes |
|
When there are transfers in with inventory where do you include it? Do you include this in the cost to retail ratio? |
at cost; yes |
|
When there are normal shortages with inventory where do you include it? Do you include this in the cost to retail ratio? |
at retail; no |
|
When there are abnormal shortages with inventory where do you include it? Do you include this in the cost to retail ratio? |
at cost and at retail; yes |
|
When there are employee discounts with inventory where do you include it? Do you include this in the cost to retail ratio? |
at retail; no |
|
Inventory Turnover |
CGS/ Avg. Inventory; number of times a company sells inventory during a period; liquidity of inventory |
|
Average days to sell invenoty |
average number of days sales for which a company has inventory on hand; inventory turnover/ 365 |
|
For the LIFO retail method what is considered about markups and markdowns? |
Markups and markdowns apply only to the goods purchased during that current period and not beginning inventory |
|
How do you convert conventional retail method to LIFO retail? |
1) net purchases at cost/ net purchases at retail + Markups - markdowns 2) take percentage found in 1) X Reatil = ending inventory |
|
For the difference between conventional retail method and LIFO retail what journal entry do you make? |
Dr. Inventory Cr. Adjustment to record inventory at cost |
|
The difference between carrying value and fair value is a _______ which is closed to the income statement. |
unrealized gain/loss |
|
If you had a due from factor of 15,000 and there was 10,000 in returns, what do you journal? |
Dr. Cash 5,000 Cr. Due from factor 15,000 Dr. Return 10,000 |
|
If you had a due from factor of 15,000 and there was 17,000 in returns, what do you journal? |
Dr. Cash 15,000 Cr. Due from factor 15,000 |
|
If you sell receivables with recourse and guarantee factor will collect at least $380,000, if not you will reimburse and the liability is valued at $10,000 what do you journal when the factor collects $390,000? |
Dr. Recourse Liability 10,000 Cr. Loss 10,000 |
|
If you sell receivables with recourse and guarantee factor will collect at least $380,000, if not you will reimburse and the liability is valued at $10,000, what do you journal is the factor collects $360,000? |
Dr. Recourse Liability 10,000 Cr. Cash 10,000 |
|
What is included in a loss, when recording factoring of receivables with recourse? |
the finance charge percentage plus recourse liability |
|
What conditions must be met for a transfer of receivables with recourse to be accounted for sale? |
1) transferred assets isolated from transferor 2) Transferee has right to pledge or sell assets 3) Transferor doesn't maintain control through repurchase agreement |