Accounting Exam 2

Front 1

expenses paid in cash and recorded as assets before they are used or consumed; one of the four types of adjusting entries

Back 1

prepaid expenses

Front 2

cash received and recorded as liabilities before revenue is earned; one of the four types of adjusting entries

Back 2

unearned revenue

Front 3

revenues earned but not yet received in cash or recorded; one of the four types of adjusting entries

Back 3

accrued revenues

Front 4

expenses incurred but not yet paid in cash or recorded; one of the four types of adjusting entries

Back 4

accrued expenses

Front 5

fundamental accounting principle that dictates that revenue be recognizes in the acounting period in which it is earned...ex. a dry cleaners cleans clothes june 30, cutomers pay in July. report on June 30, when the revenue is earned

Back 5

revenue recognition principle

Front 6

fundamental accounting principle that requires that expenses be recorded in the same period in which the revenues they helped produce are recorded

Back 6

matching principle

Front 7

for a prepaid expense, what are the accounts before adjustment

Back 7

assets- overstated
expenses- understated

Front 8

for unearned revenue, what are the accounts before adjustment

Back 8

liabilities- overstated
revenues- understated

Front 9

for accrued revenue, what are the accounts before adjustment?

Back 9

assets- understated
revenues- understated

Front 10

for accrued expenses, what are the accounts before adjustment?

Back 10

expenses- understated
liabilities- understated

Front 11

name the temporary accounts (their balance must equal 0 at the end of the month)

Back 11

revenue accounts
expense accounts
dividends
depreciation expense

Front 12

receive later, revenue now

Back 12

accrued revenue

Front 13

expense now, pay later

Back 13

accrued expense

Front 14

freight costs to buyer are recorded as...

Back 14

merchandise inventory

Front 15

freight costs to seller are recorded as...

Back 15

operating costs

Front 16

with the sale of merchandise there are 2 entries... what are they?

Back 16

1) increase accounts receivable
increase sales account
2) increase cost of goods sold (COGS)
decrease merchandise inventory

Front 17

what do you record with the purchase of inventory?

Back 17

increase merchandise inventory
increase accounts payable

Front 18

gross profit =

Back 18

net sales- COGS

Front 19

gross profit rate =

Back 19

gross profit/ net sales

Front 20

the following three reasons explain why this changes/ increases.
1. paying higher prices to suppliers
2. selling products with lower markup
3. increase competition can lower sale price

Back 20

gross profit rate

Front 21

profit margin ratio=

Back 21

net income/ net sales

Front 22

this percentage measures extent by which selling price covers ALL expenses

Back 22

profit margin ratio

Front 23

under the periodic system, COG purchased =

Back 23

purchases - purchases returns - purchases discounts + freight-in

Front 24

under the periodic system, COGS =

Back 24

beginning inventory + COG purchased - ending inventory

Front 25

in the periodic inventory system, where do you record purchases of merchandise?

Back 25

in purchase accounts rather than merchandise inventory accounts

Front 26

where are freight costs reported in a periodic inventory system?

Back 26

in a separate account from the merchandise inventory system

Front 27

cost flow assumption that assumes the earliest goods purchased are the 1st to be sold (not necessarily sold 1st, but recognized as sold 1st)

Back 27

FIFO- first in first out

Front 28

cost flow assumption that assumes the earliest foods purchased are the 1st to be sold

Back 28

LIFO last in first out

Front 29

in periods of increasing prices (inflation), which cost flow assumption reports the highest net income?

Back 29

FIFO

Front 30

in periods of deflation, which cost flow assumption reports the highest net income>

Back 30

LIFO

Front 31

in periods of inflation, which cost flow assumption reports the most accurate current costs on the balance sheet?

Back 31

LIFO

Front 32

Why do companies use LIFO during periods of rising prices?

Back 32

lower income taxes

Front 33

inventory turnover ratio=

Back 33

cost of goods sold/ average inventory

Front 34

days in inventory =

Back 34

365 days/ inventory turnover ratio