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41 Cards in this Set

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A ratio used to measure the liquidity of accounts recievable and the reasonableness of the accounts recievable balance. Computed by dividing net sales by average recievables.
Accounts Recievable Turnover Rate
The process of classifying accounts receivable by age groups such as current, 1-30 days past due, 31-60 days past due, etc. A step in estimating the uncollectible portion of the accounts receivable.
Aging the Accounts Receivable
A valuation account or contra-asset account relating to accounts receivable and showing the portion of the receivables estimated to be uncollectible.
Allowance for Doubtful Accounts
An analysis that explains the difference between the balance of cash shown in the bank statement and the balance of cash shown in the depositor's records.
Bank Reconciliation
Very short-term investments that are so liquid that they are considered equivalent to cash. Examples include money market funds, U.S. Treasury bills, certificates of deposit, and commercial paper. These investments must mature within 90 days of acquisition.
Cash Equivalents
Planning, controlling, and accounting for cash transactions and cash balances.
Cash Management
A minimum average balance that a bank may require a borrower to leave on deposit in a non-interest-bearing account.
Compensating Balance
A traditional practice of resolving uncertainties by choosing an asset valuation at the lower end of the range of reasonableness. Also refers to the policy of postponing recognition of revenue to a later date when a range of reasonable choices exists. Designed to avoid overstatement of financial strength and earnings.
Conservatism
Failure to pay interest or principal of a promissory note at the due date.
Default
A method of accounting for uncollectible receivables in which no expense is recognized until individual accounts are determined to be worthless. At this point the account receivable is written off, with an offsetting debit to uncollectible accounts expense. Fails to match revenue and related expenses.
Direct Write-off Method
Transactions in which a business either sells its accounts receivable to a financial institution (often called a factor) or borrows money by pledging its accounts receivable as collateral.
Factoring
Cash and assets convertible directly into known amounts of cash (such as marketable securities and receivables) .
Financial Assets
An increase in owners' equity resulting from a transaction other than earning revenue or investment by the owners. The most common example is the sale of an asset at a price above book value.
Gain
A prearranged borrowing agreement in which a bank stands ready to advance the borrower without delay any amount up to a specified credit limit. Once used, a line of credit becomes a liability. The unused portion of the line represents the ability to borrow cash without delay.
Line of Credit
A decrease in owners' equity resulting from any transaction other than an expense or a distribution to the owners. The most common example is the sale of an asset at a price below book value.
Loss
Highly liquid investments, primarily in stocks and bonds, that can be sold at quoted market prices in organized securities exchanges.
Marketable Securities
The balance sheet valuation standard applied to investments in marketable securities, Involves adjusting the control account for securities owned to its total market value at each balance sheet date. (Represents an exception to the cost principle.)
Mark-to-Market
The date on which a note becomes due and payable.
Maturity Date
The value of a note at its maturity date, consisting of principal plus interest.
Maturity Value
The balance sheet valuation standard applied to receivables. Equal to the gross amount of accounts and notes receivable, less an estimate of the portion that may prove to be uncollectible.
Net Realizable Value
A customer's check that was deposited but returned because of a lack of funds (Not Sufficient Funds) in the account on which the check was drawn.
NSF Check
A stockholders' equity account representing the difference between the cost of investments owned and their market value at the balance sheet date. In short, gains or losses on these investments that have not been "realized" through the sale of the securities.
Unrealized Holding Gain (or Loss) on Investments
A method of valuing all units in inventory at the same average per-unit cost, which is recomputed after every purchase.
Average-cost Method
An accounting principle that calls for the use of the same method of inventory pricing from year to year, with the full disclosure of the effects of any change in method. Intended to make financial statements comparible.
Consistency (in inventory valuation)
Assumption as to the sequence in which units are removed from inventory for the pupose of sale. Is not required to parallel the physical movement of merchandise if the units are homogeneous.
Cost Flow Assumption
Units of merchandise acquired at the same unit cost. An inventory comprised of several cost layers is characteristic of all inventory valuation methods except average cost.
Cost Layer
The cost of merchandise expressed as a percentage of its retail selling price. Used in inventory estimating techniques, such as the gross profit method and the retail method.
Cost Ratio
A method of computing the cost of inventroy and the cost of goods sold based on the assumption that the first merchandise acquired is the first merchandise sold and that the ending inventory consists of the most recently acquired goods.
First-In, First-Out (FIFO) Method
A term meaning the seller bears the cost of shipping goods to the buyer's location. Title to the goods remain with the seller while the goods are in transit.
F.O.B. Destination
The buyer of goods bears the cost of transportation from the seller's location to the buyer's location. Title to the goods passes at the point of shipment, and the goods are the property of the buyer while in transit.
F.O.B. Shipping Point
A method of estimating the cost of the ending inventory based on the assumption that the rate of gross profit remains approximately the same from year to year. Used for interim valuations and for estimating losses.
Gross Profit Method
The cost of goods sold divided by the average amount of inventory. Indicates how many times the average inventory is sold during the course of the year.
Inventory Turnover Rate
A technique designed to minimize a company's investment in inventory. In a manufacturing company, this means receiving purchases of raw materials just in time for use in the manufacturing process and completing the manufacture of finished goods just in time to fill sales orders. Just-in-time also may be described as the philosophy of constantly striving to become more efficient by purchasing and storing less inventory.
Just-in-Time (JIT) Inventory System
A method of computing the cost of goods sold by use of the prices paid for the most recently acquired units. Ending inventory is valued on the basis of prices paid for the units first acquired.
Last-in, first-out (LIFO) Method
A method of inventory pricing in which goods are valued at original cost or replacement cost (market), whichever is lower.
Lower-of-cost-or-market (LCM) Rule
A method of valuing all units of inventory at the same average per-unit cost, recalculating this cost after each purchase. This method is used in a perpetual inventory system.
Moving Average Method
A systematic count of all goods on hand , followed by the application of unit prices to teh quantities counted and development of a dollar valuation of the ending inventory.
Physical Inventory
A method of estimating the cost of goods sold and ending inventory. Similar to the gross proffit method except that the cost ratio is based on current cost-to-retail price relationships rather than on those of the prior year.
Retail Method
Losses of inventory resulting from theft, spoilage, or breakage.
Shrinkage Losses
Recording as the cost of goods sold the actual costs of the specific units sold. Necessary if each unit in inventory is unique, but not if the inventory consists of homogeneuos products.
Specific Identification
A reduction in the carrying amount of an asset because it has become obsolete or its usefulness has otherwise been impaired. Involves a credit to the appropriate asset account, with an offsetting debit to a loss account.
Write-Down (of an asset)