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52 Cards in this Set

  • Front
  • Back
service companies operating activities
sell services, receive cash, incur operating expenses...
merchandising companies operating activities
sell products, receive cash, incur operating expenses, buy products...
manufacturing companies operating activities
sell products, receive cash, incur operating expenses, buy raw materials, make products...
purpose of internal controls
to protect
to serve (promoting efficient and effective operations, alerting co. officials of violations of laws and regulations)
importance of bank reconciliations
1. bank errors
2. time lags on deposits and checks
3. interest earned
4. service charges
5. customer checks deposited but bounced
6. your errors
process of reconciling accounting records and bank statement
1. identify DOT's
2. identify outstanding checks
3. record other transactions on the bank statement
4. determine the impact of errors
nsf checks
not sufficient funds checks
segregation of duties
requires two workers to perform related activities
what account is freight-in added to?
(credit cash)
purchase returns and allowances
a reduction in the cost of inventory purchases associated with unsatisfactory goods
purchase discount
dr. accounts payable
cr. cash
cr. inventory
sales returns and allowances
reductions given to customers after goods have been sold and found unsatisfactory
dr. sales ret. and allowances
cr. cash
dr. inventory
cr. COGS
sale discount
dr. cash
dr. sales discounts
cr. acc. receivable
credit card discounts
fee charged by a credit card co. for its services
dr. cash
dr. credit card discounts
cr. sales revenue
dr. COGS
cr. inventory
gross profit
net sales minus COGS
gross profit percentage and what it is used for
gross profit/net sales
1. analyze changes in the co.'s operations over time
2. compare on co. to another
3. determine whether a co. is earning enough on each sale to cover operating expenses
pros and cons of credit to customers
1. increased employee costs
2. bad debt costs
3. delayed receipt of cash
allowance method for bad debt
1. record an estimated bad debt expense
2. remove specific customer balances in the period determined uncollectible
dr. bad debt exp
cr. allowance for doubtful accounts
dr. allowance for doubtful accoutns
cr. accounts receivable
recovery of a bad debt written off
dr. accnts rcvble
cr. allwnce for dbtfl accnts
dr. cash
cr. accnts rcvble
methods of estimating bad debts
1. percentage of credit sales
2. aging of accnts receivable
interest equation
interest=P X R X T
receivables turnover ratio
net credit sales revenue/ave net trade receivables

higher=faster collection of receivables and then more cash available
days to collect
365/receivables turnover ratio

ave. number of days to collect
factoring receivables
an arrangement where receivables are sold to another co. for immediate cash minus a factoring fee
inventory management goals
1. ensure sufficient quantities of inventory are available to meet customers needs
2. ensure inventory quality meets customers' expectations and co. standards
3. minimize costs of acquiring and carrying inventory
important factors in managing inventories
1. inventory cost
2. quality
3. quantity
4. product innovation
goods included in inventory
1. goods held for sale
2. used to produce goods
where is inventory recorded?
balance sheet as a current asset
manufacturers inventories
1. raw matierials
2. works in process
3. finished goods
relatively small amounts may be recorded and reported in most cost-beneficial way
4 inventory cost methods
LIFO FIFO weighted average, specific identification
weighted average cost
cost of goods available for sale/# of units anaivlable for sale
lower of cost or market
valuation rule that requires the inventory account to be reduced when the value of the inventory falls to an amount less than its cost
inventory turnover
COGS/ave inventory

measures how quickly inventory moves from purchase or production to customer
days to sell
365/turnover ratio
long lived assets
will not be used up in next year
capitalizing costs
recording costs as assets
general rule for tangible assets under cost principle:all reasonable and necessary costs of acquiring and preparing an asset for use should be capitalized
capital lease
long term agreement between two co.s accounted for like a credit purchase
capitalized interest
interest expenditures included in the cost of a self-constructed asset
maintenance costs incurred during use of tangible assets
1.ordinary reparis and maintenance:routine operating upkeep recorded as expenses
2.extraordinary repairs, replacements and additions, increase asset's economic usefulness in future, recorded as assets
depreciation methods
straight line
units of production
declining balance
declining balance depreciation
(cost-acc. dep)(2/useful life)

note that residual value is not included so must watch that accumulated depreciation does not over-depreciate
system used to calculate deprecition expense for tax returns
modified accelerated cost recovery system
not acceptable for financial reporting purposes
asset impairment losses
dr. loss due to impairment of assets
cr. rides and equipment
disposal of tangible assets
dr. depreciation expense
cr. accumulated depreciation
dr. cash
dr. acc. depreciation
cr. buildings
cr. gain on sale of hotel building
types of intangible assets
trademarks, copyrights(70 yrs, literary, musical,artistic,dramatic), patent(20yrs, product, procss), licensing rights, technology franchise, goodwill
how are costs of selfconstructed intangibles reported?
research and development expenses
net assets
assets minus liablilities
purchase price-fair market value of assets=goodwill to be reported
how to record amortization in journal
patent amortization exp.
acc. amortization
fixed asset turnover ratio
net sales rev/ ave net fixed assets

measures the sales dollars generated by each dollar invested in fixed assets
operating lease
rent fixed asset but do not record as asset on balance sheet so fixed asset turnover ratio is higher