Exam 2

Question 1

A balance sheet that contains standard classifications or sections.

Answer 1

Classified balance sheet

Question 2

Entries made at the end of an accounting period to transfer the balances of temporary accounts to a permanent owner’s equity account, Owner’s Capital.

Answer 2

Closing entries

Question 3

Entries to correct errors made in recording transactions.

Answer 3

Correcting entries

Question 4

Assets that a company expects to convert to cash or use up within one year or its operating cycle, whichever is longer.

Answer 4

Current assets

Question 5

Obligations that a company expects to pay within the coming year or its operating cycle, whichever is longer.

Answer 5

Current liabilities

Question 6

A temporary account used in closing revenue and expense accounts.

Answer 6

Income Summary

Question 7

Long-lived assets that do not have physical substance.

Answer 7

Intangible assets

Question 8

The ability of a company to pay obligations expected to be due within the next year.

Answer 8

Liquidity

Question 9

Generally, (1) investments in stocks and bonds or other companies that are normally held for many years; (2) long-term assets, such as land and buildings, not currently being used in operating activities; and (3) long-term notes receivable.

Answer 9

Long-term investments

Question 10

Obligations that a company expects to pay after one year.

Answer 10

Long-term liabilities

Question 11

The average time that it takes to purchase inventory, sell it on account, and then collect cash from customers.

Answer 11

Operating cycle

Question 12

Accounts that relate to one or more future accounting periods. Consist of all balance sheet accounts. Balances are carried forward to the next accounting period.

Answer 12

Permanent (real) accounts

Question 13

A list of permanent accounts and their balances after a company has journalized and posted closing entries.

Answer 13

Post-closing trial balance

Question 14

Assets with relatively long useful lives that are currently being used in operations.

Answer 14

Porperty, plant, and equipment

Question 15

An entry, made at the beginning of the next accounting period, that is the exact opposite of the adjusting entry made in the previous period.

Answer 15

Reversing entry

Question 16

The ownership claim of shareholders on total assets. It is to a corporation what owner’s equity is to a proprietorship.

Answer 16

Stockholders’ equity

Question 17

Accounts that relate only to a given accounting period. Consist of all income statement accounts, the Owner’s Drawings account, and the Income Summary account. All temporary accounts are closed at the end of the accounting period.

Answer 17

Temporary (nominal) accounts

Question 18

A multiple-column form that may be used in making adjustments and in preparing financial statements.

Answer 18

Worksheet

Question 19

Step 1 in the Accounting Cycle

Answer 19

Analyze Business Transactions

Question 20

Step 2 in the Accounting Cycle

Answer 20

Journalize the Transactions

Question 21

Step 3 in the Accounting Cycle

Answer 21

Post to the Ledger Accounts

Question 22

Step 4 in the Accounting Cycle

Answer 22

Prepare a Trial Balance

Question 23

Step 5 in the Accounting Cycle

Answer 23

Journalize and Post Adjusting Entries (Deferrals/Accruals)

Question 24

Step 6 in the Accounting Cycle

Answer 24

Prepare Adjusted Trial Balance

Question 25

Step 7 in the Accounting Cycle

Answer 25

Prepare Financial Statements

Question 26

Step 8 in the Accounting Cycle

Answer 26

Journalize and Post Closing Entries

Question 27

Step 9 in the Accounting Cycle

Answer 27

Prepare a Post-Closing Trial Balance

Question 28

An account that is offset against a revenue account on the income statement.

Answer 28

Contra-revenue account.

Question 29

The total cost of merchandise sold during the period.

Answer 29

Cost of goods sold.

Question 30

Freight terms indicating that the seller places the goods free on board to the buyer's place of business, and the seller pays the freight costs. $ considered an expense. Ownership of the goods remains with the seller until the goods reach the buyer.

Answer 30

FOB (free on board) Destination

Question 31

Freight terms indicating that the seller places the goods free on board the carrier, and the buyer pays the freight costs. $ considered inventory. The ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller.

Answer 31

FOB (free on board) Shipping point

Question 32

The excess of sales revenue over the cost of goods sold.

Answer 32

Gross profit

Question 33

Gross profit expressed as a percentage, calculated by dividing the amount of gross profit by net sales.

Answer 33

Gross profit rate

Question 34

Income from a company's principal operating activity, determined by subtracing cost of goods sold and operating expenses from net sales.

Answer 34

Income from operations

Question 35

The asset that represents the merchandise the companies buy and sell to customers.

Answer 35

Inventory

Question 36

An income statement that shows several steps in determining net income.

Answer 36

Multi-step income statement

Question 37

Sales revenue less sales returns and allowances and sales discounts.

Answer 37

Net sales.

Question 38

Various revenues, expenses, gains, and losses that are unrelated to a company's main line of operations.

Answer 38

Nonoperating activities.

Question 39

Expenses incurred in the process of earning sales revenue.

Answer 39

Operating expenses.

Question 40

A nonoperating-activities section of the income statement that shows expenses and losses unrelated to the company's main line of operations.

Answer 40

Other expenses and lossed.

Question 41

A nonoperating-activities section of the income statement that shows revenues and gains unrelated to the company's main line of operations.

Answer 41

Other revenues and gains.

Question 42

An inventory system under which the company does not keep detailed inventory records in the Inventory account throughout the accounting period but determines the cost of goods sold only at the end of an accounting period.

Answer 42

Periodic inventory system

Question 43

An inventory system under which the company keeps detailed records of the cost of each inventory purchase and sale in the Inventory account, and the records continuously show the inventory that should be on hand.

Answer 43

Perpetual inventory system

Question 44

A deduction made to the selling price of merchandise, granted by the seller so that they buyer will keep the merchandise.

Answer 44

Purchase allowance.

Question 45

A cash discount claimed by a buyer for prompt payment of a balance due.

Answer 45

Purchase discount

Question 46

A document that supports each credit purchase.

Answer 46

Purchase invoice.

Question 47

A return of goods from the buyer to the seller for a cash or credit refund.

Answer 47

Purchase return.

Question 48

A reduction given by a seller for prompt payment of a credit sale.

Answer 48

Sales discount

Question 49

A document that supports each credit sale.

Answer 49

Sales invoice

Question 50

Purchase returns and allowances from teh seller's perspective.

Answer 50

Sales returns and allowances

Question 51

The primary source of revenue in a merchandising company.

Answer 51

Sales revenue (sales)

Question 52

An income statement that shows only one step in determining net income.

Answer 52

Single-step income statement.

Question 53

Inventory costing method that uses the weighted-average unit cost to allocate to ending inventory and cost of goods sold the cost of good available for sale.

Answer 53

Average-cost method

Question 54

Goods held for sale by one party although ownership of the goods is retained by another party.

Answer 54

Consigned goods

Question 55

Dictates that a company use the same accounting principles and methods from year to year.

Answer 55

Consistency concept

Question 56

Measure of the average number of days inventory is held: calculated as 365 divided by inventory turnover.

Answer 56

Days in inventory

Question 57

Manufactured items that are completed and ready for sale.

Answer 57

Finished goods inventory

Question 58

Inventory costing method that assumes that the costs of the earliest goods purchased are the first to be recognized as cost of goods sold.

Answer 58

First-in, first-out (FIFO) method

Question 59

A method for estimating the cost of the ending inventory by applying a gross profit rate to net sales and subtracting estimated cost of goods sold from cost of goods available for sale.

Answer 59

Gross profit method

Question 60

A ratio that measures the number of times on average the inventory is sold during the period; computed by dividing cost of goods sold by the average inventory during the period.

Answer 60

Inventory turnover

Question 61

Inventory system in which companies manufacture or purchase goods only when needed for use.

Answer 61

Just-in-time (JIT) inventory

Question 62

Inventory costing method that assumes the costs of the latest units purchased are the first to be allocated to cost of goods sold.

Answer 62

Last-in, first-out (LIFO) method

Question 63

A basis whereby inventory is stated as the lower of either its cost or its net realizable value.

Answer 63

Lower-of-cost-or-net realizable value (LCNRV)

Question 64

Inventory costing method in which a new weighted-average unit cost is computed after each purchase, by dividing the cost of goods available for sale by the units on hand.

Answer 64

Moving-average method

Question 65

Net amount that a company expects to realize (receive) from the sale of inventory. Specifically, it is the estimated selling price in the normal course of business, less estimated costs to complete and sell.

Answer 65

Net realizable value

Question 66

Basic goods that will be used in production but have not yet been placed into production.

Answer 66

Raw materials

Question 67

A method for estimating the cost of the ending inventory by applying a cost-to-retail ratio to the ending inventory at retail.

Answer 67

Retail inventory method.

Question 68

An actual physical flow costing method in which items still in inventory are specifically tracked and costed to arrive at the total cost of the ending inventory.

Answer 68

Specific identification method

Question 69

Average cost that is weighted by the number of units purchased at each unit cost.

Answer 69

Weighted-average unit cost

Question 70

That portion of manufactured inventory that has been placed into the production process but is not yet complete.

Answer 70

Work in process