Accounting Exam 2

Front 1

What is an operating cycle?

Back 1

An operating cycle is the average time it takes to convert an investment in inventory back into cash.

Front 2

What are current assets? What are some examples?

Back 2

Current assets include cash and those assets that are expected to be converted into cash or used up within one year.

Examples: cash, inventories, accounts and notes recievable, short-term securities, prepaid expenses

Front 3

What different types of cash are there?

Back 3

Different types of cash: Coins and paper money, petty cash funds, undeposited recepits, mondy orders, checking accounts

Front 4

What are cash equivilaents?

Back 4

Commercial paper, US treasury securities, bank certificates of deposit, mondy market mutual funds

Front 5

What does the internal control system ensure?

Back 5

The internal control system ensures:
1. Effective and efficient operations
2. reliable financial reporting
3. compliance with applicable laws and regulations

Front 6

How do bank statements work?

Back 6

beginning bank balance + deposits processed by the bank - checks which have cleared the account +/- other adjustments made by the bank = ending balance

Front 7

What is the objective for bank reconciliation?

Back 7

The objective for bank reconciliation is to provide information for reconciling journal entries

Front 8

What do all reconciling items on the book side require?

Back 8

Reconciling items on the book side require an adjusting entry to the cash account

Front 9

What are short-term marketable securities?

Back 9

short-term marketable securities are: bond investments, readily marketable, almost as liquid as cash, current assets, capital stock investments

Front 10

What does market value mean?

Back 10

The market value is the current value of the investment

Front 11

When do you record an estimate of the uncollectable accounts?

Back 11

You need to record an estimate of the uncollectable amounts at the end of each period.

Front 12

What is the net realizable value?

Back 12

The net realizable value is the amount of accounts receivable that the business expects to collect

Front 13

What happens when an account is determined to be uncollectable?

Back 13

When an account is determined to be uncollectable, it no longer qualifies as an asset and should be written off (in the general journal)

Front 14

What does 2/10 and n/30 mean?

Back 14

2/10 means there is a 2% discount if paid in 10 days.
n/30 means you have to pay within 30 days (and you don't get a discount)

Front 15

What do notes tpically include?

Back 15

Notes typically include an interest charge for use of the money during the time period of the note

Front 16

What is required at the end of the accounting period for any unpaid interest?

Back 16

An adjusting entry is required at the end of the accounting period for any unpaid interest?

Front 17

What is inventory?

Back 17

Inventory is: goods owned and held for sale to customers, current assets

Front 18

What is cost of goods sold entered into a general journal as?

Back 18

Cost of goods sold is an expense

Front 19

How do you calculate ending inventory?

Back 19

Ending inventory = beginning inventory + purchases - COGS

Front 20

What does FIFO stand for?

Back 20

FIFO = first in, first out

Front 21

What does LIFO stand for?

Back 21

LIFO = last in, first out

Front 22

What are the four inventory valuation methods to determine cost of inventory sold?

Back 22

The four inventory valuation methods to determine cost of inventory sold are:
1. specific identification
2. weighted-average
3. FIFI
4. LIFO

Front 23

When a unit is sold, the specific cost of the unit is added to what?

Back 23

When a unit is sold, the specific cost of the unit is added to cost of goods sold?

Front 24

How do you calculate the average cost of the items in beginning inventory plus purchases made during the year?

Back 24

Average cost of items in beginning inventory plus purchases made during the year = cost of goods available for sale during the year / units available for sale during the year

Front 25

For FIFO, where do you start adding up cost of goods sold?

Back 25

You start at the top and work your way down

Front 26

What is the FIFO diagram?

Back 26

Oldest costs --> cost of goods sold

recent costs --> ending inventory

Front 27

What is the LIFO diagram?

Back 27

recent costs --> costs of goods sold

oldest costs --> ending inventory

Front 28

In reference to LIFO and FIFO what is the impact of changing costs?

Back 28

The impact of changing costs:

Rising costs = LIGO results in lower inventory and higher cost of goods sold than FIFO

Front 29

What is the impact of inventory quantity changes?

Back 29

Changes in the quantities of inventory will have an impact on profits that is dependent on the cost-flow assumption used and the extent of cost changes during the year

Front 30

What do errors in the amount of ending inventory have an effect on?

Back 30

Errors in the amount of ending inventory have a direct dollar-for-dollar effect on cost of goods sold and net income

Front 31

When must inventory be reported at market value?

Back 31

Inventory must be reported at market valye when market value is lower than cost

Front 32

How does lower of cost of market get applied?

Back 32

Lower of cost of market can be applied three ways:
1. separately to each individual item
2. to broad categories of inventory
3. to the whole inventory

Front 33

What are deferred tax assets?

Back 33

A deferred tax asset arises when an income tax expense is recognized for financial accounting purposes in a fiscal year before the fiscal year in which it is deductible in the determination of taxable income

Front 34

What are examples of non current assets?

Back 34

examples of non-current assets: land, buildings, equipment, intangible assets, natural resources

Front 35

What are non current assets?

Back 35

Non current assets are:
1. classified as assets because they are owned by the organization
2. have the ability to generate revenue beyond one year

Front 36

What is the equation for net income?

Back 36

Net income = sales - COGS

Front 37

How do you calculate total sales?

Back 37

Total sales = net inome + COGS

Front 38

How do you calculate weighted average?

Back 38

Weighted average = total cost / # units

Front 39

What is the primary issue for noncurrent assets?

Back 39

The primary issue for noncurrent assets is depreciation.

Front 40

Is land a depreciable asset?

Back 40

No, land is a non-depreciable asset

Front 41

In a general journal what is land entered as?

Back 41

Land is entered as both a credit and debit

Front 42

What is a basket purchase?

Back 42

A basket purchase: the total cost of a combined purchase of land and a building is allocated to each asset on the basis of relative market values and each asset is recorded separately