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ACCT 2000 > Exam 2 > Flashcards

Exam 2 Flashcards

1
Q

Which assumption requires accountants to divide the economic life of a business in to time periods called?

A

Periodicity Assumption

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2
Q

When do companies recognize revenue in the normal accounting period? When it is earned or when it is received?

A

When it is earned

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3
Q

What are the 2 main types of accounting?

A

Accrual based accounting and Cash-basis accounting

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4
Q

In accrued based accounting, revenues are recognized when ___________ and expenses are recognized when ___________

A

When they are earned; When they are incurred

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5
Q

In cash-basis accounting, revenues are recognized when ___________ and expenses are recognized when _____________

A

When cash is received; when cash is paid

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6
Q

Which type of accounting is NOT allowed under GAAP?

A

Cash basis accounting

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7
Q

What type of entry makes it possible to report correct amounts on the balance sheet and the income statement?

A

Adjusting Entries

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8
Q

Adjusting entries make it possible to report the correct amount on the:

A) Balance sheet
B) Ledger
C) Income statement
D) A and C
E) None of the above
F) All of the above
A

D) A and C

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9
Q

Companies make adjusting entries every time they prepare __________________

A

Financial statements

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10
Q

What are the 2 types of adjusting entries?

A

Deferrals and accruals

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11
Q

Expenses paid in cash and recorded as assets before they are used or consumed are called ____________

A

Prepaid expenses (e.g. insurance, supplies, depreciation)

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12
Q

Cash received and reported as liabilities before revenue is earned are called ___________

A

Unearned revenue

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13
Q

Prepaid expenses are a type of adjusting entry that results in a _________ (credit/debit) to an expense and a __________ (credit/debit) to an asset account

A

Debit; credit

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14
Q

Accumulated depreciation is known as a ____________

A

Contra asset

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15
Q

Adjusting entries that have been made to record the revenue earned and to show the liability that remains are called ___________

A

Unearned revenues

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16
Q

Unearned revenues are types of adjusting entries that result in a _________ (credit/debit) to a liability account and a ________ (credit/debit) to a revenue account)

A

Debit; credit

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17
Q

Unearned revenues result in debits (decreases) in a __________ account and credits (increases) in a _________ account

A

Liability; revenue

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18
Q

Prepaid expenses result in debits (increases) in an _______ account and credits (decreases) to a __________ account

A

Expense; asset

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19
Q

Deferrals include 2 types of adjusting entries: __________ and _________

A

Prepaid expenses and unearned revenue

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20
Q

_____________ (Accruals or deferrals) is revenue earned / expenses incurred that have not yet been received or paid

A

Accruals

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21
Q

Revenues earned but not yet received are called _____________

A

Accrued Revenues

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22
Q

Expenses incurred but not yet paid are called _____________

A

Accrued Expenses

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23
Q

What type of adjusting entry shows the receivable that exists and records the revenue earned?

A

Accrued Revenues

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24
Q

Accrued revenue adjusting entries result in a debit to a __________ account and a credit to a _________ account

A

Receivable (asset); revenue

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25
Q

What type of adjusting entry records the liability and recognizes the expense?

A

Accrued Expenses

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26
Q

Accrued expense adjusting entries result in a debit to ________ account and a credit to a ____________ account

A

Expense; Payable (liability)

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27
Q

Adjusting entries are made for prepaid expenses because _____________ are overstated and _____________ are understated

A

Assets; expenses

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28
Q

Adjusting entries are made for unearned revenue because _____________ is overstated and ____________ is understated

A

Liability; revenue

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29
Q

Adjusting entries are made for accrued revenues because ____________ is understated and ____________ is understated

A

Assets; revenue

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30
Q

Adjusting entries are made for accrued expenses because ______________ is understated and _______________ is understated

A

Expenses; liability

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31
Q

** IMPORTANT***

What is the primary basis for the preparation of the financial statements?

A

The adjusted trial balance

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32
Q

What is the order of the t-accounts on the adjusted trial balance?

A

Assets, liabilities, Stockholder’s equity, Revenues, expenses

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33
Q

What is the last step in the accounting cycle?

A

To prepare the closing trial balance

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34
Q

Which 3 financial statements are prepared directly from the adjusted trial balance?

A

1) Balance sheet
2) Income statement
3) Retained earnings statement

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35
Q

True or False: At the end of the accounting period, companies transfer the temporary account balances to the permanent stockholder’s equity account

A

True – all temporary accounts are then transferred to the retained earnings account at the end of the accounting period

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36
Q

What are the 3 temporary accounts that get transferred to retained earnings at the end of the accounting period?

A

1) Revenue accounts
2) Expense accounts
3) Dividends

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37
Q

*** IMPORTANT **

Which 2 accounts get closed directly in to retained earnings?

A

Dividends and income summary

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38
Q

Income summary is a temporary account used at the end of the accounting period where ________ and ________ accounts feed in to

A

Revenue and expense

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39
Q

All temporary accounts have a _______ balance at the end of the accounting period

A

Zero

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40
Q

What type of company deals with products?

A

Merchandising company

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41
Q

What is the primary source of revenue for merchandising companies?

A

Sales Revenue

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42
Q

Which type of company has a longer operating cycle?

A

Merchandising

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43
Q

What 2 types of inventory systems can a company use?

A

Perpetual or periodic

44
Q

The perpetual method of inventory is also known as the __________ method

A

Scanner

45
Q

What type of inventory method maintains detailed records of the cost of each inventory purchase or sale?

A

Perpetual inventory method

46
Q

True or False: A company that uses the perpetual inventory method determines cost of goods sold each time a sale occurs

A

True

47
Q

The periodic inventory method is also known as the _____________ method

A

Mom and Pop

48
Q

True or False: The periodic inventory method keeps detailed records of the goods on hand

A

False – It does NOT keep detailed records on hand

49
Q

How is the cost of goods sold determined for the periodic inventory method?

A

By a count at the end of the accounting period

50
Q

If a purchaser buys something from another company, the purchaser would debit _________ and credit __________

A

Inventory; accounts payable

51
Q

If the purchaser pays freight charges, the purchaser would debit _________ and credit _________

A

Inventory; cash

52
Q

When a purchaser returns goods to the company which they bought them from, the purchaser debits ________ and credits ________

A

Accounts payable; inventory

53
Q

If a purchaser pays within the discount period of the other company’s credit terms, the purchaser would record that as a debit to ________ and a credit to _________ and _________

A

Accounts payable; cash, inventory

54
Q

If a purchaser pays after the discount period of another company’s credit terms, the purchaser would debit ________ and credit _________

A

Accounts payable; cash

55
Q

If the seller records the sale of goods to a purchaser, the seller would debit ______, credit ________, then in a separate entry, would debit ________ and credit _________

A

Accounts receivable; sales revenue; cost of goods sold, inventory

56
Q

If the seller records the credit for returned goods from the purchaser, the seller would debit ________, credit _______, then in a separate entry, would debit _________ and credit __________

A

Sales returns and allowances; accounts receivable;

inventory; cost of goods sold

57
Q

If the seller records the entry for money received from a purchaser who paid within the discount period, the seller would debit ________ and __________ and credit ________

A

Cash and sales discounts; accounts receivable

58
Q

Advantages of the _________________________ is that it is simple and easy to read

A

Single step income statement

59
Q

Advantages of the __________________________ are that it highlights the components of net income, and contains gross profit, income from operations, and net income

A

Multiple step income statement

60
Q

On a multiple step income statement, normal operations take place where? Above or below the line?

A

Above the line

61
Q

On a multiple step income statement, unusual operations take place where? Above or below the line?

A

Below the line

62
Q

Interest revenue, dividend revenue, rent revenue, and gains go under the _____________ category on the multiple step income statement

A

Other revenues and gains

63
Q

Interest expense, casualty losses, and other losses go under the ______________ category on the multiple step income statement

A

Other expenses and losses

64
Q

Profit margin measures the ______________________

A

Percent of sales kept as net income

65
Q

What are the 3 classifications of the inventory of a Manufacturing company?

A
  • Raw materials
  • Works in Progress
  • Finished Goods
66
Q

Taking a physical inventory involves _____________, _______________, and __________________ each kind of inventory on hand

A

Weighing, counting, and measuring

67
Q

How does a company determine ownership of goods?

A

By counting all the goods for which the company has legal title

68
Q

Goods purchased, but not yet received are called OR sold goods that haven’t been delivered yet are called…

A

Goods in Transit

69
Q

FOB shipping point means that the ________ owns the goods while they are on the truck (in transit)

A

Buyer / purchaser

70
Q

FOB destination means that the ______ owns the goods while they are on the truck (in transit)

A

Seller

71
Q

In which transit method does the seller own the goods while on the truck?

A

FOB Destination

72
Q

In which transit method does the buyer own the goods while on the truck?

A

FOB Shipping Point

73
Q

Goods held for sale by one party, but are owned by another party are known as…

A

Consigned goods

74
Q

The _________ is the owner of the goods that are being held by a company

A

Consignor

75
Q

The _________ is the one holding the goods for another party, although they do not own the goods

A

Consignee

76
Q

True or False: The consignor does not include the consigned goods in his / her inventory count

A

False – the consignor is the owner of the goods, and although the goods are not in their possession at the time, the ownership still belongs to them

77
Q

True or False: The consignee does not include the consigned goods in his / her inventory count

A

True – the consignee is merely a holder of the goods, but they do not own the goods.

78
Q

The amount of items left over after all sales have been made is referred to as ______________

A

Ending inventory

79
Q

What cost flow assumption is being described: “Earliest goods purchased are the first to be sold”

A

First In First Out (FIFO)

80
Q

Which cost flow assumption is generally used because it is the best business practice?

A

FIFO – it is better to sell oldest units first

81
Q

What cost flow assumption is being described: “Latest goods purchased are the first to be sold”

A

Last In First Out (LIFO)

82
Q

What cost flow assumption is being described: “allocates cost of goods available for sale on the basis of weighted average”

A

Average Cost

83
Q

In periods of rising prices, FIFO reports lowest _______________, while LIFO reports lowest ___________

A

Cost of goods sold; net income and ending inventory

84
Q

In periods of rising prices, FIFO reports highest ______________, while LIFO reports highest _______________

A

Ending inventory and net income; cost of goods sold

85
Q

Lost sales could be a result of ____________

A

Low inventory levels

86
Q

High carrying costs could be a result of _____________

A

High inventory levels

87
Q

The market value of an object is also its __________________

A

Replacement cost (occurs mostly during price declines)

88
Q

What is the term for the allowing of the transfer of funds without paper (deposit tickets, checks, etc.)

A

Electronic Funds Transfer (EFT)

89
Q

Many employers send __________ through the EFT

A

Payroll

90
Q

Deposits received by a bank are recorded with _________

A

Credits

91
Q

Deposits received by a bank ___________ the bank’s liability

A

Increase

92
Q

Payments and other deduction taken out of a bank account are recorded with __________

A

Debits

93
Q

Payments and other deduction taken out of a bank account ______________ the bank’s liability

A

Decrease

94
Q

Deposits to a bank are considered ____________ to the bank

A

Liabilities

95
Q

______________ prevent one of the parties from recording the transaction in the same period

A

Time lags

96
Q

________ can be made by either party (bank or company)

A

Errors

97
Q

When reconciling a bank account, you reconcile the balance per _____ and the balance per _____

A

Bank; books

98
Q

What are the adjustments made to the bank balance? (start with beginning and then add/subtract)

A

Cash balance per bank statement
+ Deposits in transit
- Outstanding checks
+/- Bank errors

99
Q

What are the adjustments made to the book balance?

A 
Cash balance per books
\+ EFT
- NSF checks 
- Service charges 
\+/- Company errors
100
Q

The adjusted cash balance per bank and adjusted cash balance per books must be _________

A

Equal

101
Q

What is used to record transactions included in the company’s books?

A

Journal entries

102
Q

To record the collection of EFT (electronic funds transfer), you:

Debit ______
Credit ________

A

Cash; accounts receivable

103
Q

To record NSF check, you:

Debit ________
Credit ______________

A

Accounts receivable; cash

104
Q

To record bank service charges, you:

Debit _________
Credit ________

A

Bank service charge expense; cash

105
Q

What do you always subtract from the bank statement balance?

A

Outstanding checks

106
Q

What do you always add to the bank statement balance?

A

Deposits in transit

ACCT 2000 (10 decks)

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