Acc 231 - Test 2 Final Study Guide

Front 1

Promissory Note

Back 1

A written promise to pay a specified amount of money at a particular future date.

Front 2

Maturity Date

Back 2

The date when final payment of the note is due; also called the due date.

Front 3

Interest Rate

Back 3

The Percentage rate of interest specified by the note for one year.

Front 4

Payee of the Note

Back 4

The entity to whom the maker promises future payment.

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Note Term

Back 5

The period of time during which the interest is earned.

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Principal

Back 6

The Amount loaned out by the payee and borrowed by the maker of the note.

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Maturity Value

Back 7

The sum of the principal plus interest due at maturity.

Front 8

Maker of the Note

Back 8

The entity that signs the note and promises to pay the requires amount.

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Interest

Back 9

The revenue to the payee for loaning the money; the expense to the debtor.
Equation:Principal*Int. Rate* Time

Front 10

Current Asset

Back 10

An asset that will become cash, be sold, or be used up within twelve months.

Front 11

Multi-Step Income Statement

Back 11

The I/S format which shows important subtotals.

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Gross Profit Percentage

Back 12

Gross Profit / Net Sales Revenue

Front 13

Ending Retained Earnings

Back 13

Beg. Retained Earnings + Net Income - Dividends

Front 14

Current Ratio

Back 14

Current Assets / Current Liabilities

Front 15

Classified Balance Sheet

Back 15

Separated Current & Long-Term Assets and Liabilities

Front 16

Amortization

Back 16

The paying off of debt in regular installments over a period of time.

Front 17

Vertical Analysis

Back 17

shows you the relationships among components of one financial statement, measured as percentages. On your balance sheet, each asset is shown as a percentage of total assets; each liability or equity item is shown as a percentage of total liabilities and equity. On your statement of profit and loss, each line item is shown as a percentage of net sales.

Front 18

Horizontal Analysis

Back 18

provides you with a way to compare your numbers from one period to the next, using financial statements from at least two distinct periods.

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Consistency Principal

Back 19

The idea in accounting that once an accounting method is adopted, it should be followed consistently from one accounting period to the next.

Front 20

Materiality Concept

Back 20

he principle that trivial matters are to be disregarded in accounting, and all important matters are to be disclosed. Items that are large enough to matter are material items.

Front 21

Matching Principle

Back 21

A fundamental concept of accrual basis accounting that offsets revenue against expenses on the basis of their cause-and-effect relationship. It states that, in measuring net income for an accounting period, the costs incurred in that period should be matched against the revenue generated in the same period.

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Lower-of-cost-or-market rule

Back 22

states that if the market value of ending inventory is lower than the book value of such inventory, the resultant loss must be recognized in the current period.

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Market Value

Back 23

is the amount that would have been paid to replace the merchandise.

Front 24

Perpetual Inventory System

Back 24

means that the Inventory account is adjusted perpetually. The Inventory account is affected each time inventory is sold or purchased.

Front 25

Periodic Inventory System

Back 25

only adjusts the Inventory account at the end of an accounting period. Purchases and sales do not affect the Inventory account during the accounting period, but do affect at the period end.

Front 26

Inventory Turnover

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Cost of Goods Sold / Average Inventory

Front 27

Horizontal Analysis (Growth Rate (GR))

Back 27

(Current Year - Prior Year) / Prior Year

Measures change in $ numbers for one year to another. Used to compare same line item to itself between periods.

Front 28

Vertical Analysis (Common-size Income Stmt.)

Back 28

Income Statement line item / Net Revenues

Used to convert any/all $ data on the income statement to percentages to facilitate comparisons. Used to compare each line item to Net Sales for a single time period

Front 29

Vertical Analysis (Common-size Balance Sheet):

Back 29

Balance Sheet line item / Total Assets

Used to convert any/all $ data on the balance sheet to percentages to facilitate comparisons. Used to compare each line item to Net Sales for a single time period

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Working Capital

Back 30

Current Assets - Cur. Liab

Excess of C/A over C/L at a point in time.

Front 31

Quick Ratio (QR) (WAY calls this the “acid-test” ratio):

Back 31

Cash + Net A/R + mrkt. securities* / Current Liabilities

Measures short-term liquidity more rigorously than the current ratio by eliminating inventory, usually the least liquid current asset.

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Average Days in Receivables:

Back 32

365 days / A/R turnover ratio (WAY) or Average A/R / Average daily sales (RC)

Indicates days required to convert receivables into cash.

Front 33

Average days in Inventory:

Back 33

365 days / inventory turnover ratio (WAY) or Average Inventory / Average Daily COGS (RC)

Indicates days required to sell inventory