Chapter 6

Front 1

Operating activities

Back 1

1. Selling products and services
2. Acquire inventory for resale
3. Acquire and pay for other operating items

Front 2

Investing activities

Back 2

• Buying and selling property, plant, and equipment
• Buying and selling stocks and bonds of other companies

Front 3

Financing activities

Back 3

• Debt financing
• Equity financing

Front 4

3 Major Activites of a Business

Back 4

1. Operating
2. Investing
3. Financing

Front 5

How do most companies handle revenue recognition?

Back 5

1. Record sales when goods are shipped to customers
2. Recognize credit sales as revenues before cash is collected
3. Recognize revenues from services when the service is performed, not necessarily when cash is received

Front 6

Contra Account

Back 6

1. An account that is offset or deducted from another account.
2. Sales Discounts and Sales Returns are contra accounts deducted from Gross Sales.

Front 7

Foreign Currency Transactions

Back 7

A sale in which the price is denominated in a currency other than the seller’s home country currency

Front 8

Warranty Costs

Back 8

1. Estimates of warranty costs are made and recorded at the time of sale. (The estimate is usually based as a percentage of sales.)
2. The company will show an existing warranty liability at year end.
3. When warranty repairs are made, the liability is reduced.

Front 9

Bad debt

Back 9

1. An uncollectible account receivable
2. If you sell on credit, you are going to have bad debts!

Front 10

Direct Write-off Method

Back 10

Recording of losses as expenses during the period in which accounts receivable are determined to be uncollectible.