Chapter 3

Question 1

merchandising business

Answer 1

generate revenue by selling goods
the goods purchased for resale

Question 2

net income is

Answer 2

revenue minus expenses

Question 3

accounts payable

Answer 3

money a company owes

Question 4

inventory transactions

Answer 4

purchase and sell
transportation/ shipping cost, discounts

Question 5

cost of sales

Answer 5

indicates how much a retail or wholesale business spends on the products it purchases from suppliers for resale.

new vehicle, used vehicle

Question 6

gross profit

Answer 6

total cost of sales

Question 7

selling and administrative costs

Answer 7

costs not included in inventory sometimes called period costs

SG&A often includes rent, utilities, legal fees and insurance.

Question 8

balance sheet holds the

Answer 8

inventory which is sold, becoming cost of sales (selling price) on the income statement

Question 9

perpetual inventory system

Answer 9

inventory is perpetually (continuously) throughout the accounting period

Question 10

inventory increased for

Answer 10

merchandise/ purchased

Question 11

inventory decreased for

Answer 11

merch sold

Question 12

purchasing inventory often involves (4)

Answer 12

1) return inventory or receiving purchase allowances
2) taking purchase discounts
3) incurring transportation costs
4) recognizing inventory shrinkage
- a deduction from the invoice price granted

Question 13

FOB

Answer 13

Free on Board
shipping point or destination
- transport-in: FOB shipping point, pay transportation
- transportation-out: FOB destination means seller is responsible for the freight cost
- Freight cost: the amount paid to a carrier company for the transportation of goods from the point of origin to an agreed location.

Question 14

merchandising business include

Answer 14

retail companies and wholesale companies to sell merchandise inventory

Question 15

merchandise inventory is an

Answer 15

asset

Question 16

manufactures may not have high margins that is the

Answer 16

dealer

Question 17

inventory costs are

Answer 17

product costs
- price of goods purchased
- handling and shipping costs
- transit insurance

Question 18

costs not included in inventory are

Answer 18

selling and administrative costs

Question 19

asset account:
expense account:

Answer 19

merchandise inventory
costs of goods sold

Question 20

difference between sales revenue and cost of goods sold is

Answer 20

gross margin or gross profit

Question 21

modern companies record their inventory through the

Answer 21

perpetual inventory system

Question 22

gross margin percentage is found by

Answer 22

total revenue - cost of goods sold = gross margain

gross margin - all other expenses = operating income (net income)

(total revenue - COGS)/ net sales x 100

Question 23

find return on sales %

Answer 23

operating profit/ net sales

Question 24

signature card

Answer 24

signatures of the people authorized to sign checks

Question 25

bank statement

Answer 25

checking accounts- report the beginning balance, additions for customer deposits, subtractions for the payment of checks bank statement debit memos; describe transactions that reduce the customer account balance (bank liability) bank statement credit memos; describe activities that increase customers account balance (banks liability)

Question 26

bank reconciliation

Answer 26

explain the differences between the cash balance from the bank statement and the cash balance recorded in the depositors accounting records

Question 27

begins with unadjusted bank balance:

Answer 27

the cash balance recorded by the recorded by the bank final total is the true cash balance

Question 28

the true cash balance

Answer 28

add current non-cash assets together and subtract from the total current assets TCB= non-cash assets - total current assets

Question 29

The American Institute of Certified Public Accountants (AICPA)

Answer 29

requires members to comply with the code of professional conduct not including control domain

Question 30

audits conducted by Certified Public Accountants (CPA)

Answer 30

In an audit, a CPA is required to obtain an understanding of a business's internal control and assess fraud risk.

Question 31

financial statement audit, types of audit opinions

Answer 31

unqualified opinion : An unqualified report concludes that the financial statements of a company are fair and transparent based on thorough research adverse opinion : An adverse opinion states that the financial statements do not present fairly the financial position, results of operations, or cash flows of the entity in conformity with generally accepted accounting principles. qualified opinion : an auditor's declaration that there is an area of uncertainty in a company's financial statements.

Question 32

outstanding check

Answer 32

a written check that hasn't been cleared by the bank

Question 33

deposit in transit

Answer 33

money that has been received by the company and recorded in the company's system

Question 34

true cash balance =

Answer 34

unadjusted bank balance + the deposit in transit - outstanding checks

Question 35

NSF

Answer 35

non-sufficient funds banks refuse payment because the customer doesn't have enough in that account

Question 36

COSO's framework

Answer 36

Control Environment; the integrity and ethical values the company has Risk Assessment; monuments process of identifying potential risks in misted financial statements Control Activities; "internal controls, segregation of duties" Information and Communication; the internal and external reporting process monitoring; assessing companies quality and watching overtime

Question 37

The fraud Triangle is the concept that explains why workers commit fraud at a workplace this consists of;

Answer 37

opportunity, pressure, rationality

Question 38

the "book"=

Answer 38

cash account

Question 39

separation of duties include

Answer 39

authorization, recording, and custody of assets

Question 40

cash is important because

Answer 40

its difficult to prove to rightful owner, has a universal appeal, and small quantities can hold a lot

Question 41

human error is a common cause of

Answer 41

internal failure

Question 42

in a checking account it reports

Answer 42

customer deposits made during the period checks paid during the period bank accounts beginning balance

Question 43

cash is; checks,

Answer 43

money orders, bank drafts, and certain saving accounts

Question 44

materiality

Answer 44

The materiality concept of accounting guides the recognition of a transaction. It means that transactions of little importance should not be recorded. A transaction may be recorded, but its relevance and significance should be kept in mind. For example, a newly purchased pencil is an asset of the business.

Question 45

account receivable notes receivable are both...

Answer 45

buy now, pay later, usually short periods of time, not a lot of money longer period, bigger amount of money, involves interest are both assets

Question 46

net realizable value of accounts receivable

Answer 46

represents the amount of receivables a company will actually collect the face value less an allowance for doubtful accounts is equal to the net realizable value of the receivables.

Question 47

allowance for doubtful accounts what are the two accounts? % of

Answer 47

estimate of what they don't collect (uncollectables) percentage of sales/ revenue (income statement approach) percentage of accounts receivable (balance sheet approach)

Question 48

net realizable value =

Answer 48

accounts receivable - allowance for doubtful accounts

Question 49

when uncollectible accounts are estimated

Answer 49

there is a better change of matching revenues and expenses the balance sheet reports the amount of cash the company expects to collect

Question 50

bad debts expense

Answer 50

estimated uncollectible accounts expense

Question 51

writing off uncollectible accounts is an

Answer 51

asset source transaction

Question 52

FIFO

Answer 52

first-in, first-out highest gross margain

Question 53

LIFO

Answer 53

last-in, first out

Question 54

Weighted average

Answer 54

average

Question 55

beginning inventory + purchase = goods available to sell - cost of goods sold

Answer 55

= ending inventory

Question 56

tangible resources include

Answer 56

property, equipment, natural resources

Question 57

historical cost concept

Answer 57

an asset must be recorded at the amount paid for it this amount includes the purchase plus any costs necessary to get the asset in the location and condition for its intended use once the asset is recorded at its original cost on the balance sheet, it cannot be adjusted for any changes in its market value.

Question 58

straight line depreciation expense=

Answer 58

use up asset as your making revenue (asset cost - salvage value) / useful life

Question 59

salvage value

Answer 59

expected market value of a fully depreciated asset

Question 60

straight line method

Answer 60

same amount of depreciation expense each period (cost - salvage value) / useful life = depreciation expense

Question 61

double-declining balance

Answer 61

an accelerated method, produces more depreciation expense in the early years of an assets life and declining expense later 1/useful life x 2 = DDB rate BV of asset BOY x DDB rate = depreciation expense

Question 62

units of production

Answer 62

varying amounts of depreciation expense in different accounting periods cost - salvage value / useful life in units = units of production UoP rate x actual usage each year = depreciation expense

Question 63

to calculate depreciation you need;

Answer 63

cost of the asset useful life any salvage

Question 64

double-declining balance depreciation;

Answer 64

straight line rate percentage (1 / useful life) x 2 = DDB rate

Question 65

promissionary note

Answer 65

legally documented credit agreements to settle potential disputes about payment terms like credit on a recently passed due account maker, payee, principle, interest, maturity date, collateral

Question 66

aging of accounts receivable

Answer 66

the longer an account is pasted due the less likely it will be paid

Question 67

promissionary note; collateral

Answer 67

assets belonging to the maker that are assigned as security to ensure that the principle and interest will be paid when due

Question 68

2/10 n/30 what is the discount? what are the days?

Answer 68

2% discount A buyer will receive a 2% discount on the net amount if they pay the invoice in full within the first ten days of the invoice date. Otherwise, the full invoice amount is due in 30 days without a discount.

Question 69

the inventory cost flow methods are;

Answer 69

LIFO, FIFO, Weighted Average

Question 70

To determine the depreciation expense you

Answer 70

depreciation cost - salvage value

Question 71

The recognition of depreciation expense acts to:

Answer 71

Decrease assets and stockholders' equity, and does not affect cash flow

Question 72

What term is used to describe the situation where there is a permanent decline in the value of an intangible asset

Answer 72

impairment`