Acct Exam 2 Review

Front 1

internal control system

Back 1

policies and procedures use to:
protect assets
ensure reliable acct
promote efficient operations
urge adherence to company policies

Front 2

Principles of internal control

Back 2

1) establish responsibilities
2) maintain adequate records
3) insure assets and bond key employees
4) separate record keeping from custody of assets
5) Divide responsibility for related transactions
6) apply technological controls
7) Perform regular and independent reviews

Front 3

Liquidity

Back 3

company's ability to pay for its near-term obligations

Front 4

Cash over and Short

Back 4

an income statement account recording the income effects of cash overages and cash shortages

Front 5

Petty cash

Back 5

part of an imprest system which designates advance money ti establish the fund, to withdraw from the fund, and to reimburse the fund.

Front 6

Bank statement

Back 6

shows the activity in the account. Includes the following information:
1) beginning of period balance
2) checks and other debits decreasing the account during the period
3) Deposits and other credits increasing the account during the period
4) End of period balance of the depositor's account

Front 7

canceled checks

Back 7

checks the bank has paid and deducted from the customers account during the period

Front 8

Bank reconciliation

Back 8

a report explaining any differences between the checking account balance according to the depositors records and the balance reported on the bank statement

Front 9

outstanding checks

Back 9

checks written or drawn by the depositor, deducted on the depositors records, and sent to the payees but not yet received by the bank for payment at the banks statement date

Front 10

deposits in transit

Back 10

deposits made and recorded by the depositor but not yet recorded on the bank statement

Front 11

Day's sales uncollected

Back 11

accounts receivable/net sales X 365

Front 12

Bad debts account

Back 12

a company expects that some customers will not pay what they promised

Front 13

Direct write-off method

Back 13

records the loss from a bad debts account receivable when it is determined to be uncontrollable

Front 14

Matching principle

Back 14

requires expenses to be reported in the same accounting period as the sales they helped to produce

Front 15

allowance method

Back 15

matches the estimated loss from uncollectible accounts receivable against the sales they helped produce

Front 16

Allowance for doubtful accounts

Back 16

Contra asset account (instead of reducing accounts receivable directly)

Front 17

Interest formula

Back 17

principle of the note x annual interest rate x time expressed in years (#/360)=interest

Front 18

Accounts receivable turnover

Back 18

net sales/avg accounts receivable

Front 19

depreciation

Back 19

process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use

Front 20

salvage value ( also called residual value or scrap value)

Back 20

an estimate of the assets value at the end of its benefit period

Front 21

Useful life (service life)

Back 21

the length of time it is productively used in a company's operations. Might not be as long as the assets total productive life.

Front 22

straight line depreciation

Back 22

charges the same amount of expense to each period of the assets useful life

cost-salvage value/useful life in periods

Front 23

Units-of-production depreciation

Back 23

charges a varying amount to expense for each period of an assets useful life depending on its usage.
steps:
1) dep. per unit= cost-salvage value/total units of production

2)dep. expense=dep. per unit x units produced in period

Front 24

Double-declining balance method

Back 24

1) compute the assets straight line depreciation rate
2) double the straight-line rate
3) compute depreciation expense by multiplying this rate by the assets beginning of period book value