Accounting 1A - Test 2 - Term Study Guide

Front 1

average inventory cost flow method

Back 1

The method of inventory costing that is based on the assumption that costs should be charged against revenue by using the weighted average unit cost of the items sold.

Front 2

consigned inventory

Back 2

Merchandise that is shipped by manufacturers to retailers who act as the manufacturer’s selling agent.

Front 3

consignee

Back 3

The name for the retailer in a consigned inventory arrangement.

Front 4

consignor

Back 4

The name for the manufacturer in a consigned inventory arrangement.

Front 5

first-in, first-out (FIFO) inventory cost flow method

Back 5

The method of inventory costing based on the assumption that the costs of merchandise sold should be charged against revenue in the order in which the costs were incurred.

Front 6

gross profit method

Back 6

A method of estimating inventory cost that is based on the relationship of gross profit to sales.

Front 7

inventory subsidiary ledger

Back 7

A ledger containing individual accounts with a common characteristic.

Front 8

inventory turnover

Back 8

The relationship between the volume of goods sold and inventory, computed by dividing the cost of goods sold by the average inventory.

Front 9

last-in, first-out (LIFO) inventory cost flow method

Back 9

A method of inventory costing based on the assumption that the most recent merchandise inventory costs should be charged against revenue.

Front 10

lower-of-cost-or-market (LCM) method

Back 10

A method of valuing inventory that reports the inventory at the lower of its cost or current market value (replacement cost).

Front 11

net realizable value

Back 11

The estimated selling price of an item of inventory less any direct costs of disposal, such as sales commissions.

Front 12

number of days’ sales in inventory

Back 12

The relationship between the volume of sales and inventory, computed by dividing the inventory at the end of the year by the average daily cost of goods sold.

Front 13

physical inventory

Back 13

A detailed listing of merchandise on hand.

Front 14

purchase order

Back 14

The purchase order authorizes the purchase of the inventory from an approved vendor.

Front 15

receiving report

Back 15

The form or electronic transmission used by the receiving personnel to indicate that materials have been received and inspected.

Front 16

retail inventory method

Back 16

A method of estimating inventory cost that is based on the relationship of gross profit to sales.

Front 17

specific identification inventory cost flow method

Back 17

Inventory method in which the unit sold is identified with a specific purchase.

Front 18

bank reconciliation

Back 18

The analysis that details the items responsible for the difference between the cash balance reported in the bank statement and the balance of the cash account in the ledger.

Front 19

bank statement

Back 19

A summary of all transactions mailed to the depositor or made available online by the bank each month.

Front 20

cash

Back 20

Coins, currency (paper money), checks, money orders, and money on deposit that is available for unrestricted withdrawal from banks and other financial institutions.

Front 21

cash equivalents

Back 21

Highly liquid investments that are usually reported with cash on the balance sheet.

Front 22

cash short and over account

Back 22

An account which has recorded errors in cash sales or errors in making change causing the amount of actual cash on hand to differ from the beginning amount of cash plus the cash sales for the day.

Front 23

compensating balance

Back 23

A requirement by some banks requiring depositors to maintain minimum cash balances in their bank accounts.

Front 24

control environment

Back 24

The overall attitude of management and employees about the importance of controls.

Front 25

electronic funds transfer (EFT)

Back 25

A system in which computers rather than paper (money, checks, etc.) are used to effect cash transactions.

Front 26

elements of internal control

Back 26

The control environment, risk assessment, control activities, information and communication, and monitoring.

Front 27

employee fraud

Back 27

The intentional act of deceiving an employer for personal gain.

Front 28

internal controls

Back 28

The policies and procedures used to safeguard assets, ensure accurate business information, and ensure compliance with laws and regulations.

Front 29

petty cash fund

Back 29

A special cash fund to pay relatively small amounts.

Front 30

Sarbanes-Oxley Act of 2002

Back 30

An act passed by Congress to restore public confidence and trust in the financial statements of companies.

Front 31

special-purpose fund

Back 31

A cash fund used for a special business need.

Front 32

voucher

Back 32

A special form for recording relevant data about a liability and the details of its payment.

Front 33

voucher system

Back 33

A set of procedures for authorizing and recording liabilities and cash payments.

Front 34

account receivable

Back 34

A claim against the customer created by selling merchandise or services on credit.

Front 35

accounts receivable turnover

Back 35

The relationship between net sales and accounts receivable, computed by dividing the net sales by the average net accounts receivable; measures how frequently during the year the accounts receivable are being converted to cash.

Front 36

aging the receivables

Back 36

The process of analyzing the accounts receivable and classifying them according to various age groupings, with the due date being the base point for determining age.

Front 37

Allowance for Doubtful Accounts

Back 37

The contra asset account for accounts receivable.

Front 38

allowance method

Back 38

The method of accounting for uncollectible accounts that provides an expense for uncollectible receivables in advance of their write-off.

Front 39

bad debt expense

Back 39

The operating expense incurred because of the failure to collect receivables.

Front 40

direct write-off method

Back 40

The method of accounting for uncollectible accounts that recognizes the expense only when accounts are judged to be worthless.

Front 41

dishonored note receivable

Back 41

A note that the maker fails to pay on the due date.

Front 42

maturity value

Back 42

The amount that is due at the maturity or due date of a note.

Front 43

net realizable value

Back 43

The estimated selling price of an item of inventory less any direct costs of disposal, such as sales commissions.

Front 44

notes receivable

Back 44

A customer’s written promise to pay an amount and possibly interest at an agreed-upon rate.

Front 45

number of days’ sales in receivables

Back 45

The relationship between sales and accounts receivable, computed by dividing the net accounts receivable at the end of the year by the average daily sales.

Front 46

receivables

Back 46

All money claims against other entities, including people, business firms, and other organizations.

Front 47

accelerated depreciation method

Back 47

A depreciation method that provides for a higher depreciation amount in the first year of the asset’s use, followed by a gradually declining amount of depreciation.

Front 48

amortization

Back 48

The periodic transfer of the cost of an intangible asset to expense.

Front 49

book value

Back 49

The cost of a fixed asset minus accumulated depreciation on the asset.

Front 50

boot

Back 50

The amount a buyer owes a seller when a fixed asset is traded in on a similar asset.

Front 51

capital expenditures

Back 51

The costs of acquiring fixed assets, adding to a fixed asset, improving a fixed asset, or extending a fixed asset’s useful life.

Front 52

capital leases

Back 52

Leases that include one or more provisions that result in treating the leased assets as purchased assets in the accounts.

Front 53

copyright

Back 53

An exclusive right to publish and sell a literary, artistic, or musical composition.

Front 54

depletion

Back 54

The process of transferring the cost of natural resources to an expense account.

Front 55

depreciation

Back 55

The systematic periodic transfer of the cost of a fixed asset to an expense account during its expected useful life.

Front 56

double-declining-balance method

Back 56

A method of depreciation that provides periodic depreciation expense based on the declining book value of a fixed asset over its estimated life.

Front 57

fixed asset turnover ratio

Back 57

The number of dollars of sales that are generated from each dollar of average fixed assets during the year, computed by dividing the net sales by the average net fixed assets.

Front 58

fixed assets

Back 58

Long term or relatively permanent tangible assets such as equipment, machinery, and buildings that are used in the normal business operations and that depreciate over time.

Front 59

goodwill

Back 59

An intangible asset that is created from such favorable factors as location, product quality, reputation, and managerial skill.

Front 60

intangible assets

Back 60

Long-term assets that are useful in the operations of a business, are not held for sale, and are without physical qualities.

Front 61

operating leases

Back 61

Leases that do not meet the criteria for capital leases and thus are accounted for as operating expenses.

Front 62

patents

Back 62

Exclusive rights to produce and sell goods with one or more unique features.

Front 63

residual value

Back 63

The estimated value of a fixed asset at the end of its useful life.

Front 64

revenue expenditures

Back 64

Costs that benefit only the current period or costs incurred for normal maintenance and repairs of fixed assets.

Front 65

straight-line method

Back 65

A method of depreciation that provides for equal periodic depreciation expense over the estimated life of a fixed asset.

Front 66

trade-in allowance

Back 66

The amount a seller allows a buyer for a fixed asset that is traded in for a similar asset.

Front 67

trademark

Back 67

A name, term, or symbol used to identify a business and its products.

Front 68

units-of-production method

Back 68

A method of depreciation that provides for depreciation expense based on the expected productive capacity of a fixed asset.

Front 69

contingent liabilities

Back 69

Liabilities that may arise from past transactions if certain events occur in the future.

Front 70

defined benefit plan

Back 70

A pension plan that promises employees a fixed annual pension benefit at retirement, based on years of service and compensation levels.

Front 71

defined contribution plan

Back 71

A pension plan that requires a fixed amount of money to be invested for the employee’s behalf during the employee’s working years.

Front 72

employee’s earnings record

Back 72

A detailed record of each employee’s earnings.

Front 73

FICA tax

Back 73

Federal Insurance Contributions Act tax used to finance federal programs for old-age and disability benefits (social security) and health insurance for the aged (Medicare).

Front 74

fringe benefits

Back 74

Benefits provided to employees in addition to wages and salaries.

Front 75

gross pay

Back 75

The total earnings of an employee for a payroll period.

Front 76

net pay

Back 76

Gross pay less payroll deductions; the amount the employer is obligated to pay the employee.

Front 77

payroll

Back 77

The total amount paid to employees for a certain period.

Front 78

payroll register

Back 78

A multicolumn report used to assemble and summarize payroll data at the end of each payroll period.

Front 79

pension

Back 79

A cash payment to retired employees.

Front 80

quick assets

Back 80

Cash and other current assets that can be quickly converted to cash, such as marketable securities and receivables.

Front 81

quick ratio

Back 81

A financial ratio that measures the ability to pay current liabilities with quick assets (cash, marketable securities, accounts receivable).

Front 82

cash dividend

Back 82

A cash distribution of earnings by a corporation to its shareholders.

Front 83

common stock

Back 83

The stock outstanding when a corporation has issued only one class of stock.

Front 84

cumulative preferred stock

Back 84

Stock that has a right to receive regular dividends that were not declared (paid) in prior years.

Front 85

discount

Back 85

The interest deducted from the maturity value of a note or the excess of the face amount of bonds over their issue price.

Front 86

earnings per common share (EPS)

Back 86

Net income per share of common stock outstanding during a period.

Front 87

in arrears

Back 87

Cumulative preferred stock dividends that have not been paid in prior years are said to be in arrears.

Front 88

outstanding stock

Back 88

The stock in the hands of stockholders.

Front 89

par

Back 89

The monetary amount printed on a stock certificate.

Front 90

preferred stock

Back 90

A class of stock with preferential rights over common stock.

Front 91

premium

Back 91

The excess of the issue price of a stock over its par value or the excess of the issue price of bonds over their face amount.

Front 92

prior period adjustments

Back 92

Corrections of material errors related to a prior period or periods, excluded from the determination of net income.

Front 93

restrictions

Back 93

Amounts of retained earnings that have been limited for use as dividends.

Front 94

statement of stockholders’ equity

Back 94

A summary of the changes in the stockholders’ equity in a corporation that have occurred during a specific period of time.

Front 95

stock

Back 95

Shares of ownership of a corporation.

Front 96

stock dividend

Back 96

A distribution of shares of stock to its stockholders.

Front 97

stock split

Back 97

A reduction in the par or stated value of a common stock and the issuance of a proportionate number of additional shares.

Front 98

stockholders

Back 98

The owners of a corporation.

Front 99

treasury stock

Back 99

Stock that a corporation has once issued and then reacquires.