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114 Cards in this Set

  • Front
  • Back

Net Sales = x+y

Cost of Goods Sold + Gross Profit

What are two reasons the bank statement would not agree with the cash balance in the accounting records?

-Deposits outstanding that have been recorded on the company's records, but not on the bank's


-The company made an error in recording a deposit.


-The bank paid interest that the company has not recorded


-The bank made an error in recording a deposit made by the company.

True or False: Research suggest that companies emphasizing strong internal control and an ethical corporate culture can increase their financial performance.

True

Paying by cheque helps a business to control cash when the _______.

-Cheque is signed by an authorized manager.


-Manager studies the document supporting the payment before signing the cheque.


-Cheques are pre-numbered and written sequentailly

NSF cheques from customers should be a _____ on a bank reconciliation

Subtraction from the book balance

Bank reconciliations are need in order to reconcile for ______.

Outstanding cheques and deposits in transits

_____ of duties is essential for safeguarding assets. The person who has custody of an asset should not also account for the asst. A person who preforms both duties can steal the asset and hide the theft by making a bogus entry in the accounting records.

Segregation

Acme, Inc. books show an ending cash balance of $10,000 before preparing the bank reconciliation. Given the bank reconciliation shows outstanding cheques of $3,000; deposits in transit of $2,000; NSF cheques of $1000; and interest earned on the bank account of $10, the company's up-to-date ending cash balance equals ______.

$9,910 (10,000 - 100 + 10)

Under what inventory system, inventory records are updated only at the end of the accounting period?

Periodic

A cheque that you have written has cleared the bank when?

Funds have been withdrawn from your bank account to cover the cheque.

A bank ______ compares the company's cash records with the bank's and is a key internal control.

Reconciliation

On a bank reconciliation, which of the following are typical reconciliation items the bank would not know about because of time legs?

Outstanding cheques, Bounced cheques, Deposits in transit

Using a perpetual inventory system, the journal entry to record a sale on account will include


a) credit to inventory


b) debit to accounts Receivable


c) debit to cash


d) debit to Cost of Goods Sold


e) debit to inventory


f) a credit to sales revenue

a, b, d, f

In a bank reconciliation, an outstanding cheque is ______.

Deducted from the bank balance

For a merchandising company, a strong accounting system will provide information for/ about what 3 things?

For preparing financial statements


About inventory quantities


About inventory costs

True or False: Internal controls prevent and detect all errors and fraud.

False because of human error or fraud.

NSF cheques are the same as...

Not sufficient funds cheques and bounced cheques

Under what inventory system, the inventory account is updated every account is updated every time inventory is bought, sold, or returned.

Perpetual

Which of the following are typical reconciling items on the book side of a reconiliation because the company did not know about these items until it got the bank statement?


a) interest income


b) Electronic funds transfers


c) Deposits in transit


d) Service charges

a, b, d

What is segregated duties

Do not make one employee responsible for all parts of a process.

What is Establish resposiblities

Assign each task to only one employee in order to allow one to determine who is at fault for an error or theft.

What is Restrict access?

Do not provide access to assets or information unless it is needed to fulfill the assigned task.

What is Document procedures

Prepare documents to show activities that have occurred.

What is independent verify

Check others work

This months bank statement shows that the bank incorrectly credited ABC Corp.'s account for a $600 deposit that should have been credited to XYZ Corp.'s account. HOw would this item be treated on ABC's bank reconciliation?

It would be deducted from the bank balance.

Deposits in ______ are added to the _____ side of the bank reconciliation.

Transit, Bank

Inventory began was $30,000. Durning the period the company purchased $61,000 of merchandise. At the end of the period, inventory was $22,000. If the gross profit percentage was 40%, what was sales revenue?

$115,000, Cost of goods sold is calculated as $30,000+61,000-22,000=69,000. Since the gross profit percent is 40%, than the cost of good sold is 60%. Putting this information together you get sales equal 69,000/60% = $115,000.

X company, which uses a perpetual inventory system, sold $2,000 of merchandise on account with credit terms of 2/10, n/30. The journal entry to record the initial sale gross of any discount will include

-a debit to Accounts Receivable of $2,000


-a credit to Sales Revenue of $2,000

What order is an income statement in?


-Sales Revenue


-Cost of goods sold


-Gross Profit


-Sales Returns, Allowances and Discounts


-Net sales

Sales Revenue


Sales Returns, Allowances and discounts


Net Sales


Cost of goods sold


Gross profit





What is an example of an EFT?

Direct deposit of employee paycheques

What does a high gross profit percentage tell you?

That more is available to cover operating expenses.

Which of the following are included in an inventory accounting system?


a) Perpetual sales


b) Net income


c) inventory cost


d) inventory quantities


e) cash equivalents

c & d

A(n) _____ system controls the amount paid to others by limiting the total amount of money available for making payments

imprest

Good internal control over cash would include:


a) having a person who does not deposit the cash reconcile the bank statement.


b) having the most senior employee handle the cash sales and record them in the accounting records


c)giving a cash register receipt to every customer


d)having a fidelity bond covers all employees who handle cash

a, c, d

Bank reconciliation are needed in order to reconcile for ______.

deposits in transits and outstanding cheques

Which of the following reconciling items does not require a journal entry?


a) NSF cheques


b) Deposit in Transit


c) Bank collection of notes receivable


d) Bank service charge

B

FOB destination means that goods are owned by the buyer as soon as ______

They arrive at the buyer's place of business

On a bank reconciliation, what are typical reconciling items the bank would not know about because of time legs?

Deposits in transit and Outstanding cheques

An inventory system reports inventory as ______.

An asset until it is sold.

Which of the following are elements of good internal control over cash receipts?


a) A different employee deposits the cash at the bank


b) A manager is responsible for handling all cash transactions


c) Two employees cannot share the same cash drawer


d) Cash receipts are summarized and their total is calculated

a, c, d

A(n) _____ system is a process for approving and documenting all purchases and payments made on account.

voucher

The bank will show a customer's deposit on bank statements as a _____.

Credit, because a deposit is a liability from the banks point of view.

What are typical reconciling items on the book side of a reconciliation because the company did not know about these items until it got the bank statement?

Interest income


Services charges


Electronic funds transfters

The ______ is used to determine the amount of cash available for deposit at the bank.

Cash count sheet.

The operating cycle is a series of activities that the company undertakes to generate ____ and, ultimately, cash.

Sales

Every merchandise sale has two components, each of which requires and entry in a perpetual inventory system.


a) cost


b) selling price


c) operating expenses

a, b

Which of these are cash equivalents?


a) Money Market funds


b) Notes receivable that mature in 5 months


c) Investments within 3 months to maturity


d) US Treasury bonds that mature in 1 year

a, c

What does FOB shipping point mean?

Goods are owned by the buyer when they leave the sellers place of business.

Using a perpetual inventory system, what is the correct journal entry when a customer returns a product that was purchased on account?

Debit Sales Returns & Allowances and credit to accounts receivable: debit to inventory and credit to Cost of Goods Sold.

If a cashier rang up sales totalling $5,096, but had $5,100 to deposit, what would the journal entry be?

A debit to Cash of $5,100: a credit to Cash overage of $4: and a credit to sales Rev of $5,096

True or False: The primary goal of internal controls for cash payments is the ensure that the business pays only for properly authorized transactions.

True

Acme Enterprises, which uses a perpetual inventory system, recorded a debit to Sales Returns and Allowances and a Credit to Account Receivable. What happened?

The Customer recived a damaged product, but kept the product and asked for a reduction in the price.

Assuming Sales remain unchanged, if cost of goods sold increase then Gross profit ______.

Decreases

Boron Company has Net sales of $60,000; Beginning Inventory of $7,000; Purchases of $35,000 and Ending Inventory of $5,000. The Cost of Goods Sold is _____.

$37,000

If a new company calculates the average cost of its inventory by adding together the total cost all purchases and then dividing it by the number of units purchased during the period, it is using the weighted _____ cost method.

Average

Which inventory system requires that the inventory account be updated at the time merchandise is sold?

Perpetual system

The assumption that a company makes about its inventory cost flow has what impact on the balance sheet and income statement?

it has a significant effect on both the balance sheet and income statement.

In a perpetual system, the entry to record the sale of merchandise to a customer on account would include what?

debit Cost of good Sold


Credit to inventory

Which inventory system requires that the purchases of merchandise on account be debited to purchases?

Periodic system.

Assuming rising inventory prices, rank which inventory method results in the higher ending inventory value. List in order of highest ending inventory to lowest ending inventory value.

FIFO > Weighted average > LIFO

Inventory costing methods allowed by GAAP include:


1) specific _______


2) ______ average; and


3) First in, _____ out.

1) identification


2) weighted


3) First

Berkley Company had beginning inventory of $4,000 and purchases of $20,000. If half of its inventory was sold, Berkley's goods available for sale will show as what on the balance sheet and income statement.

Be split between cost of goods sold and ending inventory.

Of the 4 companies listed below, which two companies are more likely to use specific identification to value their inventory and cost of goods sold?


1) Dog Biscuit manufacturer


2) Bulk candy merchandiser


3) Custom home builder


4) Wedding cake baker

3 & 4

On May 1st, beginning inventory consists of 10 items at a cost of $10 each. On May 3, 10 items are purchased at $12 each. On May 8, 12 items are sold. On May 15, 10 items are purchased at $14 each. Using perpetual FIFO, the Cost of Goods Sold for the month ended May 31 equal?

124 (10*10+12*2)

In a perpetual system, the entry to record the sale of merchandise includes a ________


1) credit to cost of goods sold


2) credit to purchases


3) debit to Purchases


4) debit to cost of goods sold

4

If a company assumes that its inventory costs flow out in the opposite order from which the goods were purchased, it uses what system to value it's inventory?

LIFO (Last in first out)

FIFO uses the _____ cost for cost of goods sold on the income statement and the ____ cost for inventory on the balance sheet.


1) oldest; oldest


2) newest; newest


3) newest oldest


4) oldest; newest

4, oldest; newest

Using a perpetual system, purchasing merchandise on account includes a ______.

debit to inventory and credit to accounts Payable.

Which of the following financial statement line items are affected by the inventory method chosen?

Gross Profit, Income Tax Expense, Income from operations, Net Income, Income before Income Tax Expense

Inventory is reported as what on what financial statement?

Current asset on the balance sheet.

On May 3, Botit Inc. purchased merchandise on account for 1000, FOB Shipping point, with terms 1/10, n/30 from Cellar, INC. On May 6, Botit received the merchandise, along with an invoice for $1000. In addition, $100 in shipping cost was owed to We Deliver, Inc. On May 12, Botit paid all amounts owed, which amounted to _______.

$1,090

The return of merchandise XYZ recently purchased on account will have the following effects on XYZ's accounting equation?

Assets will decrease, Liabilities will decrease.

As inventory quality increase, its cost usually _______.

Increases

Bary, Inc.'s sales equal $30,000 and cost of goods sold equals $10,000. Its beginning inventory was $800 and it's ending inventory is $1200. Barry's inventory turnover ratio equals _____ times.

10 ((800+1200)/2)

The ____ inventory system records all inventory-related transactions in the inventory account (e.g. transportation, purchase returns and allowances, purchase discounts) and reduces inventory at the time of sale. The ____ inventory system uses separate accounts for these items and records cost of goods sold at the end of the accounting period.

1 Perpetual


2 periodic

Blog Inc., has sales of $50,000, cost of goods sold of $30,000, and selling expenses of $5,000. It's gross profit is _____.

$20,000 (gross profit = sales - cost of goods sold)

In a periodic system, the entry to transfer beginning inventory and net purchases to cost of goods sold includes a _______.

Debit to Cost of Goods Sold


Credit to Purchases


Credit to Inventory (beginning)

The journal entry to record taking a discount when paying for goods previously purchased on account includes a _______.

Debit to a liability account


Credit to assets accounts

Delta Diamonds had 5 1-carat diamonds available for sale this year: 1 purchased June 1 for $500, 2 purchased July 9 for $550 each, and 2 purchased September 23 for $600 each. On December 24, it sold 1 of the diamonds. Using periodic weighted average cost, its inventory after the December 24 sale is ______.

$2,240 = ($500 + (600 * 2) +(550 * 2)/(1+2+2)


= 560 * 4

Which of these might cause the value of inventory to fall below its original cost?

Damage, Obsolescence, Increased competition.

On May 1, beginning inventory consists of 10 items at a cost of $10 each. On May 3, 10 items are purchased at $12 each. On May 8th 12 items are sold. On May 15, 10 items are purchased at $14 each. Using the perpetual weighted average cost, cot of goods sold for the month ended May 31 is ______.

132= (((10*10) + (10*12))/20)*11


The May 15 purchases is not used because the sale occurred before those items were bought.

In a perpetual system, the entry to record the sale of merchandise to a customer on account would include a _______.

Credit to inventory, Debit to cost of goods sold.

In a periodic system, the end-of-period adjustment that adjusts cost of goods sold for the amount in ending inventory requires a ____ to Cost of Goods Sold.

Credit

The purchaser of inventory pays for shipping of the shipping terms are FOB ____ _____. (One word per black)

Shipping Point

How do you calculate a vertical Analysis on a income statement?

(x Account/Net Sales Revenue)*100

How do you calculate a vertical Analysis on a Balance sheet. (Hint Both for Assets and Liabilities and shareholders equity)

(x Account/Total Assets)*100


and


(x Account/Total Liabilities and shareholders equity)*100

How do you calculate a horizontal Analysis on a financial document?

((Current Years Total - Prior Years Total)/Prior Years Total)*100

What is the Net Profit Margin?

(Net Income/Net Sales Revenue)*100

What is the Gross Profit Percentage?

((Net sales Revenue - Cost of Goods Sold)/Net Sales Revenue)*100

What is the Asset Turnover equation?

Net sales Revenue/Average Total Assets

What is the Fixed Asset Turnover equation?

Net sales Revenue/Average Net Fixed Assets

What is the Return on Equity (ROE) equation?

(Net income/Average shareholders equity)*100

What is the Earnings per Share (EPS) equation?

Net income/Average Number of Common shares Outstanding

What is the price/earnings Ratio equation

Share Price/EPS (Earnings per Share)

Which of the following is not a profitability Ratio?


a) Fixed Asset Turnover


b) Net Profit Margin


c) Inventory Turnover


d) Price/Earnings ratio

c) Inventory Turnover

Name at least 3 Liquidity Ratios.

Receivable Turnover


Days To collect


Inventory Turnover


Days To sell


Current Ratio


Quick Ratio

What is the Receivable Turnover Ratio?

Net sales Revenue/Average Net Receivables

What is the Days to collect formula?

365/Receivable Turnover ratio

What is the Inventory Turnover Ratio

Cost of goods sold/ average inventory

what is the days to sell ratio?

365/Inventory turnover ratio

What is the Current Ratio

Current assets/current liabilities

what is the quick ratio?

(cash + short term investments + Accounts Receivable, Net)/ Current Liabilities

What are the solvency Ratios

Debit-to-assets


Times Interest Earned

What is the Debit-to-assets ratio?

Total Liabilities/Total Assest

Times Interest Earned equation?

(Net Income + Interest Expense + Income Tax Expense) Interest Expense

What is FIFO?

First in First Out

What is Weighted Average Cost?

Adding up all the cost of all goods bought and finding the average cost.

To be useful, ratio must be ______.


a)analyzed


b)interpreted


c)smaller this year than last year


d)larger this year than last year

a + b

Often loan agreements require the borrower to comply with certain requirements, such as maintaining a particular current ratio or limiting future borrowing. To decide if a company has complied with its loan agreements, you should look at its _______.

Financial statement

The primary objective of financial accounting, in contrast to managerial accounting, is to provide useful information to _______ users for decision making.

External

Acme, Inc. had net income of $120,000 in 2005 ad net income of $126,000 in 2016. The percentage increase in net income was _____.

5%

Which of the following financial analyses results may indicate going-concern problems?


A) Increasing gross profits


B) Significant increases in times interest earned


C) Current ratios less than 1


D)Significant increases in debit-to-asset ratios

c + d

______ ratio include net profit margin, gross profit percentage, asset turnover, fixed asset turnover, return on equity, earnings per share and price/earnings ratios.

Profitablilty

A qualified audit opinion


a)indicates that either the financial statements do not follow GAAP or the auditors were not able to complete the tests needed to determine whether the financial statements follow GAAP.


B) None of the choices are correct.


C) indicates that the financial statements are not presented in accordance with GAAP.


D) indicates that the financial statements are presented in accordance with GAAP.

a)indicates that either the financial statements do not follow GAAP or the auditors were not able to complete the tests needed to determine whether the financial statements follow GAAP.