Accounting Test 2

Front 1

Perpetual inventory system

Back 1

companies keep detailed records of the cost of each inventory purchase and sale. These records continuously - perpetually, show the inventory that should be on hand for every item.

Front 2

Periodic inventory system

Back 2

Companies determine the cost of goods sold ONLY AT THE END OF THE ACCOUNTING PERIOD

Front 3

FOB Shipping Point

Back 3

Seller places the good free on board the carrier, and the buyer pays the frieght cost

Front 4

FOB Destination

Back 4

Seller places the goods free on board to the buyers place of business and the seller pays the freight

Front 5

NET INCOME Formula

Back 5

Sales Revenue - COGS= Gross Profit - Operating expenses = NET INCOME

Front 6

GROSS PROFIT RATE
formula

Back 6

gross profit / net sales

Front 7

Raw Materials

Back 7

Basic goods that will be used in production but have not yet been placed in production

Front 8

Work in process

Back 8

that portion of manufactured inventory that has been placed into the production process but is not yet complete

Front 9

Finished goods

Back 9

manufactured items that are completed and ready to sell

Front 10

Legal Title

Back 10

determined by the terms of the sale

Front 11

OWNERSHIP of FOB shipping point

Back 11

ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller

Front 12

OWNERSHIP of FOB Destination

Back 12

ownerships of the goods remain with the seller until the goods reach the buyer

Front 13

Consigned goods

Back 13

Goods held for sale by one party although ownership is retained by another party

Front 14

Specific Identification method

Back 14

An actual physical flow costing method in which items still in inventory are specifically costed to arrive at the total cost of the ending inventory

Front 15

FIFO

Back 15

earliest goods purchased are the first to be sold

Front 16

LIFO

Back 16

latest goods purchased are the first to be sold

Front 17

Average Cost Method

Back 17

allocates the cost of goods available for sale on the basis of the weighted average unit cost

Front 18

Lower of Cost or Market

Back 18

A basis whereby inventory is stated at the lower of either its cost or its market value as determined by current reokacement cost

Front 19

Internal Control

Back 19

All of the related mathods and activities adopted within an organization to safeguard its assets and enhance the accuracy and reliability of its accounting records

Front 20

Principles of Internal Control

Back 20

- establishment of responsibility
- segregation of duties
- Documentation procedures
- Physical controls
- Independent internal verifications
- Human resource control

Front 21

Establishment of Responsibility

Back 21

Control is most effective when only one person is responsible for a given task

Front 22

Segregation of Duties

Back 22

- Different individuals should be responsible for related activities
- The responsibiliy for record-keeping for an asset should be seperate from the physical custody of the asset

Front 23

Documentation Procedures

Back 23

- Prenumbered documents, and all documents should be accounted for
- promptly forward source documents for accounting entries to the accounting department. This control measure helps to ensure timely recording of the transition

Front 24

Physical Controls

Back 24

relates to the safeguarding of assets and enhance the accuracy and reliability of the accoutning records

Front 25

Independent Internal Verification

Back 25

involves the review of data prepared by employees

Front 26

Human Resource Controls

Back 26

- Bond employees who handle cash
- Rotate employees duties and require employees to take vacations
- Conduct thorough backroun checks