Accounting Test #2

Front 1

_________ are entrusted with the resources of both the company's lenders (_________) and owners (_________).

Back 1

Managers, liabilities, stockholders' equity

Front 2

In many cases, top executives misreported accounting information to cover up their company's poor _________ performance and hoped to fool investors into _________ the company's stock.

Back 2

operating, overvaluing

Front 3

Congress passed the _________ Act, also known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly referred to as _________.

Back 3

Sarbanes-Oxley, SOX

Front 4

From a financial accounting perspective, internal control is a company's plan to:
- Safeguard the company's _________.
- Improve the _________ and _________ of accounting information.
- Effective internal control builds a wall to prevent misuse of company funds by employees and _________ or errant financial reporting.

Back 4

assets, accuracy, reliability, fraudulent

Front 5

What component of internal control sets the overall ethical tone of the company with respect to internal control? It includes formal policies related to management's philosophy, assignment of responsibilities, and organizational structure.

Back 5

Control Environment

Front 6

What component of internal control identifies and analyzes internal and external risk factors that could prevent a company's objectives from being achieved?

Back 6

Risk Assessment

Front 7

What component of internal control includes formal procedures for reporting control deficiencies?

Back 7

Monitoring

Front 8

the policies and procedures that help ensure that management's directives are being carried out

Back 8

control activities

Front 9

The two general types of control activities are:
_________ controls: designed to detect errors or fraud that already have occurred (Separation of duties, Physical controls, Proper authorization, Employee management)
- _________ Controls: designed to keep errors or fraud from occurring in the first place (reconciliations, performance reviews)

Back 9

Detective, Preventative

Front 10

Who must take final responsibility for their establishment and success of internal control?

Back 10

top executives

Front 11

The _________ and _________ sign a report each year assessing whether the internal controls are adequate.

Back 11

CEO, CFO

Front 12

The _________ Board (PCAOB) further requires the auditor to express its own opinion on whether the company has maintained effective internal control over financial reporting.

Back 12

Public Company Accounting Oversight Board

Front 13

Internal control systems will more likely detect _________ and _________ errors. No internal control system can turn a bad employee into a good one.

Back 13

operating, reporting

Front 14

includes currency, coins, and balances in savings and checking accounts, as well as items acceptable for deposit in these accounts, such as checks received from customers

Back 14

cash

Front 15

short-term investments that have a maturity date no longer than three months from the date of purchase (CDs, treasury bonds)

Back 15

cash equivalents

Front 16

A _________ card does not remove cash from the cardholder's account after each transaction. A _________ card removes cash directly from the cardholder's bank account at the time of use.

Back 16

credit, debit

Front 17

A bank _________ matches the balance of cash in the bank account with the balance of cash in the company's own records. A company's cash balance as recorded in its book rarely equals the cash balance reported in the bank statement.

Back 17

reconciliation

Front 18

_________ differences in cash occur when the company records transactions either before or after the bank records the same transaction.

Back 18

Timing

Front 19

_________ can be made either by the company or its bank and may be accidental or intentional.

Back 19

Errors

Front 20

a small amount of cash on hand at a company's location for minor purchases such as postage, office supplies, delivery charges, and entertainment expense

Back 20

petty cash

Front 21

_________ activities include cash transactions involving revenue and expense events during the period.

Back 21

Operating

Front 22

_________ activities include cash investments in long-term assets and investment securities.

Back 22

Investment

Front 23

_________ activities include transactions designed to raise cash or finance the business. There are two ways to do this: borrow cash from lenders or raise cash from stockholders.

Back 23

Financing

Front 24

_________ quality is the ability of current net income to help us predict the future performance of a company.

Back 24

Earnings

Front 25

When net income does not provide a good indicator of future performance, the _________ its earnings quality is said to be.

Back 25

lower

Front 26

A type of sales that are common for large business transactions in which buyers don' have sufficient cash available or where credit cards cannot be used because the transaction amount exceeds typical credit card limits.

Back 26

credit sales

Front 27

_________ is recognized at the time of a credit sale.

Back 27

Revenue

Front 28

An asset (_________) is recognized at the time of a credit sale.

Back 28

accounts receivable

Front 29

Credit sales transfer products and services to a customer today while bearing the _________ of collecting payment from that customer in the future. Even though the seller does not receive cash at the time of the credit sale, the firm records _________ immediately, as long as future collection from the customer is reasonably _________. Along with recognized revenue, at the time of sale the seller also obtains a legal right to receive cash from the buyer. The legal right to receive cash is valuable and represents an _________ of the company.

Back 29

risk, revenue, certain, asset

Front 30

receivables form those other than customers and include tax refund claims, interest receivable, and the loans by the company to other entities including stockholders and employees

Back 30

nontrade receivables

Front 31

receivables that are accompanied by formal credit arrangements made with written debt instruments (or notes)

Back 31

notes receivable

Front 32

represents a reduction, not in the selling price of a product or service, but in the amount to be paid by a credit customer if payment is made within a specified period of time; discount intended to provide incentive for quick payment; amount of the discount and the time period within which it's available usually are communicated in short-hand terms such as 2/10, n/30

Back 32

sales discount

Front 33

represent a reduction in the listed price of a product or service; companies recognize these discounts indirectly by recording the sale at the discounted price

Back 33

trade discounts

Front 34

if a customer returns a product it is _________. After this we reduce the customer's account balance if the sale was on _________ or we issue a _________ refund if the sale was for cash.

Back 34

return, account, cash

Front 35

If a customer does not return a product, but the seller reduces the customer's balance owed or provides at least a partial refund because of some deficiency in the company's product or service, we call that a sales _________.

Back 35

allowance

Front 36

The right to receive cash from a customer is a valuable resource for the company. This is why accounts receivable is an _________, reported in the company's balance sheet. To be useful decision makers, accounts receivable should be reported at the amount of cash the firm expects to collect, an amount known as _________.

Back 36

asset, net realizable value

Front 37

The upside of allowing customers the ability to purchase on account later is that it boosts _________. The downside of extending credit to customers is that not al customers will _________ fully on their accounts.

Back 37

sales, pay

Front 38

a method that involves allowing for the possibility that some accounts will be uncollectible at some point in the future.

Back 38

allowance method

Front 39

Uncollectible accounts have the effect of _________ assets (accounts receivable) by an estimate of the amount we don't expect to collect and increasing _________ expenses (bad debt expense) to reflect the cost of offering credit to customers

Back 39

reducing, increasing

Front 40

the amount of the adjustment to the allowance for uncollectible accounts, representing the cost of estimated future bad debts charged to the current period, we include this expense in the same income statement as the credit sales which these uncollectible accounts are associated.

Back 40

bad debt expense

Front 41

There is no cash _________ associated with bad debts.

Back 41

outflow

Front 42

It is not possible to record _________ future bad debts in the current period because we don't know the future expense when preparing the current period's financial statements.

Back 42

actual

Front 43

What method is it when management can estimate this percentage using historical averages, current economic conditions, industry comparisons, or other analytical techniques?

Back 43

aging method

Front 44

The aging method assumes that accounts that are 60 days past due are _________ likely to be collected than accounts that are 30 days past due.

Back 44

less

Front 45

The direct-write off method is used for tax purposes but is generally _________ permitted for financial reporting. This violates what principle?

Back 45

not, matching principle

Front 46

formal credit arrangements evidenced by a written debt instrument, or note

Back 46

notes receivable

Front 47

notes receivable are classified as either _________ or _________ depending on the expected collection date.

Back 47

current, noncurrent

Front 48

_________ applies to notes receivable but not to accounts receivable.

Back 48

Interest

Front 49

Interest = _________ Value x Annual _________ Rate x _________ of the Year

Back 49

Face, Interest, Fraction

Front 50

We record the collection of notes receivable the same way as a collection of accounts receivable, except we record interest earned as _________ revenue in the income statement. Debit _________, Credit _________ and _________.

Back 50

interest, cash, notes receivable, interest revenue

Front 51

What ratio shows the number of times during a year that the average accounts receivable balance is collected?

Back 51

Receivables Turnover Ratio

Front 52

What shows the approximate number of days the average accounts receivable balance is outstanding?

Back 52

Average Collection Period

Front 53

includes items a company intends for sale to customers, also includes items that are not yet finished products

Back 53

inventory

Front 54

_________ resell inventory to retail companies or to professional users

Back 54

Wholesalers

Front 55

_________ purchase inventory from manufacturers or wholesalers and then sell this inventory to end-users.

Back 55

Retailers

Front 56

companies that manufacture the inventories they sell, rather than buying them in finished form from suppliers

Back 56

manufacturing companies

Front 57

Manufacturers classify inventory into three categories:
- _________ inventory: includes the cost of components that will become part of the finished product but have not yet been used in production.
- _________ inventory: Refers to the products that have started the production process but are not yet complete at the end of the period
- _________ inventory: includes the cost of the units that have been completed by the end of the period but not yet sold.

Back 57

raw materials, work-in-process, finished goods

Front 58

Inventory represents the cost of _________ not sold, while cost of goods sold represents the cost of _________ sold.

Back 58

inventory (x2)

Front 59

Beginning inventory + Purchases - Ending Inventory is the equation for what?

Back 59

Cost of goods sold

Front 60

Beginning Inventory is a/an _________. Purchases during the year are a/an _________. Ending inventory is recorded as a/an _________ in the balance sheet. Cost of Goods sold is recorded as a/an _________ in the income statement.

Back 60

asset, asset, asset, expense

Front 61

What method matches or identifies each unit of inventory with its actual cost but is practicable only for companies selling unique, expensive products?

Back 61

Specific Identification Method

Front 62

What method assumes that the first units purchased are the first ones sold?

Back 62

First-In, First-Out (FIFO)

Front 63

What method assumes that the last units purchased are the first ones sold?

Back 63

Last-In, First- Out (LIFO)

Front 64

What method assumes that both cost of goods sold and ending inventory consist of a random mixture of all the goods available for sale?

Back 64

Weighted-Average Cost

Front 65

_________ matches physical flow for most companies, results in higher assets and net income when inventory costs are rising, and has a balance sheet focus.

Back 65

FIFO

Front 66

_________ results in tax savings when inventory costs are rising, has an income statement focus.

Back 66

LIFO

Front 67

_________ difference is the additional amount of inventory a company would report if it used FIFO instead of LIFO.

Back 67

LIFO

Front 68

A _________ Inventory System amins a continual tracking of inventory.

Back 68

Perpetual

Front 69

A _________ Inventory system does not continually modify inventory amounts, but adjusts for purchases and sales of inventory at the end of the reporting period based on a physical count of inventory on hand.

Back 69

Periodic

Front 70

When the value of inventory falls below its cost, companies are required to report inventory at the lower _________ value. And it is considered to be the _________ cost. Once it has determined both the cost and market value of inventory, the company reports ending inventory in the balance sheet at the _________ of the two amounts.

Back 70

market, replacement, lower

Front 71

Investors often rely on the _________ ratio to determine the core profitability of a company's operations.

Back 71

gross profit

Front 72

a ration that shows the number of times the firm sells its average inventory balance during a reporting period

Back 72

inventory turnover ration

Front 73

approximate number of days the average inventory is held

Back 73

average days in inventory

Front 74

A _________ adjustment is needed only under the periodic system. It adjusts the balance of inventory to its proper ending balance. Records the cost of goods sold for the _________, to match _________ costs with related revenues. Closes the _________ accounts.

Back 74

period-end, period, inventory, temporary