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ACCT 200 > Exam 2 Ch. 5B, 6, 7, 8 & 9 > Flashcards

Exam 2 Ch. 5B, 6, 7, 8 & 9 Flashcards

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0
Q

What is a PURCHASE RETURN?

A

items that are returned to the supplier because they are not right for some reason

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1
Q

How are shipping cost of goods you receive as a company recorded?

A

In an account called FREIGHT IN

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2
Q

What is a PURCHASE ALLOWANCE?

A

price reductions, granted after the fact, by the supplier to make amends for some error on its part

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3
Q

What is a PURCHASE DISCOUNT?

A

When suppliers provide merchandisers a 2-3% discount as incentive to pay bills promptly

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4
Q

What is a QUANTITY DISCOUNT?

A

When merchandisers who usually buy in large quantities receive discounts before the purchase is made, simply for buying a lot

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5
Q

What does 2/10 n45 mean?

A

2% discount if bill is paid within 10 days and if not paid within 10 days, then the full amount is due in 45 days

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6
Q

What does 2/10 EOM mean?

A

2% discount if bill is paid within 10 days and if not paid, the amount is due at the end of the month

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7
Q

Summarize GIVING THE U.S. CREDIT WHERE IT’S DUE Wall Street Journal Article

A

Credit use in America is expanding due to consumers and banks getting a little more relaxed about the economy.

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8
Q

Summarize ZARA BUILDS ITS BUSINESS AROUND RFID Wall Street Journal Article

A

Zara is using Radio Frequency Identification Chips in all of their merchandise security tags to help improve inventory management.

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9
Q

Summarize TRUMP ENTERTAINMENT CASINO BANKRUPTCY STANDS TO CHANGE RIVALS’ LUCK Wall Street Journal

A

Increasing competition of casinos in surrounding states having Atlantic City casinos shutting down. If Trump’s casino could cut debt load, they may become one of the only surviving casinos after the crash.

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10
Q

Summarize THE CLEVELAND BROWNS’ STRATEGY: WRITE THIS DOWN Wall Street Journal Article

A

Writing is a great tool to memorization

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11
Q

Summarize FED CLOSES CHAPTER ON EASY MONEY Wall Street Journal Article

A

The central bank will quit purchasing bonds to boost the economy. In the next year, interest rates for short term borrowing will rise, causing a reduction in unemployment.

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12
Q

What are the Four Types of Bankruptcy and describe all but the one not discussed in class

A

Chapter 7: Liquidation —-> you completely disappear
Chapter 11: Corporate-Workout ——> you still exist (judge appoints people to run the company in the meantime)
Chapter 12: Farmers —> didnt discuss
Chapter 13: Individual-Workout —>you still exist

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13
Q

What is the TVM Formula to find the Present Value of a Future Payment

A

PV=FV*PV(n,i)

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14
Q

What is the TVM Formula to find the Future Value of a Present Payment

A

FV=PV*FV(n,i)

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15
Q

What is the TVM Formula to find the Present Value of an Annuity

A

PVA=PMT*PVA(n,i)

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16
Q

What is the TVM Formula to find the Future Value of an Annuity

A

FVA=PMT*FVA(n,i)

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17
Q

What does PV stand for

A

Present Value

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18
Q

What does FV stand for

A

Future Value

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19
Q

What does n stand for

A

number of periods

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20
Q

What does i stand for

A

Interest Rate

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21
Q

What does PMT stand for

A

Payment

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22
Q

What does PVA stand for

A

Present Value of an Annuity

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23
Q

What does FVA stand for

A

Future Value of an Annuity

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24
What is the different between an annuity and a single payment
with an annuity you make payments
25
what happens if you are using anything other than annual payments in a TVM problem: For example (Semi-annual, quarterly, etc)
you multiply the number of periods and divide the interest rate
26
what helps make difficult TVM problems more manageable
a time line
27
What is perpetual inventory? What is an advantage? Disadvantage? Example?
Every transaction goes through inventory account You know exact inventory count at any point in time, updated records Costly to install, requires more day to day overhead Big discount stores (walmart, best buy), Car dealerships
28
What is Periodic Inventory? Advantage? Disadvantage? Example?
At the end of the period you count all of your inventory manually Less costly (money, time, people) Have to do physical count to know, no idea if anything is missing Clothing stores, grocery stores
29
What does the inventory t-account look like broke down and labeled
Inventory ___________________________________________________________ (BI) Beginning Inventory I + Purchases I _____________________________________________________________ (GAS) Goods Available Sale I I Cost of Goods Sold (COGS) _____________________________________________________________ (EI) Ending Inventory
30
What is the equation of Goods Available for Sale (GAS)
GAS=BI+PURCH
31
What is the equation for Ending Inventory (EI)
EI=GAS-COGS
32
What does Conservatism mean and what do they require?
- assets and net income should never be overstated and liabilities should not be understated on the financial statements - that LCM Lower of Cost or Market be used (Assets can be written down but never up)
33
What is LCM and what does it require
Lower of Cost or Market inventory be recorded at the lower of its historical cost or its market value, which is its current replacement cost (Market value will be given on test)
34
What happens to inventory as COGS increases to reflect the loss in value
it gets written down
35
what are the two methods of estimating inventory
Gross Margin Method | Retail Method
36
What are the main points of the gross margin method of estimating inventory
You use the historical GM% The goal is to estimate ending inventory You use multiple steps to get ending inventory -use GM/Sales=GM% to calculate GM -use Sales-COGS=GM to calculate COGS
37
what are the main points of the retail method of estimating inventory
relationship between cost and selling price cost ratio=GAS@cost/GAS@retail (net sales)*(cost ratio)=COGS
38
what are three good inventory internal control elements
- Inventory physically counted at least once a year no matter the system - Inventory stored to protect against theft, damage and decay - Access to inventory should be limited to people w/o access to acct. - Inventory purchased in most economical quantities - Inventory on hand should be sufficient to prevent shortages/lost sales - Do not have an excessively large inventory to reduce expenses
39
Matching Concept
Expenses are recorded in the same period of any revenue associated with that expense
40
Historical Cost Concept
What you bought it for
41
What are the three common adjustments to purchases caused by
Costs (other than purchase price) incurred getting to merchandiser Items arrive damaged or unacceptable to merchandiser existence of discounts
42
What account is used to track the cost of getting inventory delivered to you as a business
Freight In
43
What account is used to track when you must return something to the supplier of your inventory
Purchase Returns
44
What is it called when you receive price reductions granted by the supplier to make amends for an error
Purchase Allowances
45
What account do you use to keep track of purchase returns and allowances
purchase returns and allowances
46
Why would a business receive a purchase discount
they pay their bills promptly so if they are offered more of a discount, they will pay even quicker
47
How do you calculate Net Purchases
(gross purchases+freight in)-(purchase discounts+purchase returns and allowances)=Net Purchases
48
How do you calculate gross margin
sales revenue - cost of goods sold
49
How do you calculate gross margin percentage
Gross Margin/Sales
50
What account is used to record unintentional cash errors
Cash short and over
51
How do companies use internal control with petty cash
Use single employee to administer fund Keep specific maximum amount in fund Use clear receipts when disbursements occur Replenish the fund through normal cash disbursement procedures
52
What does the entry to open petty cash look like
Petty cash. 300 | Cash. 300
53
What would it look like when you replenished petty cash? There was $25 for supplies, $15 for transportation, $32 for delivery
Supplies. 25 Transportation expense. 15 Delivery expense. 32 Cash. 72
54
What is it called when accounts receivable is never paid
Bad debt
55
What account do we use to record bad debt
Allowance for bad debt which is closed to bad debt expense
56
What is the easiest way to record bad debt expense
The direct write off method
57
What is the direct write off method
You take the money out of accounts receivable (credit it) and put it into bad debt expense (debit it)
58
How do companies prepare for bad debt expense
The estimate it using an allowance method
59
What are the two types of estimating bad debt expense
Percentage of sales | Aging of accounts receivable
60
How does the percentage of sales bad debt allowance method work
You look at how much of last years sales on credit ended up being bad debt and make that a percentage and then prepare for that much bad debt to happen in your current period
61
Can bad debt expense be taken back out if someone decides to finally pay? If yes, describe the entries
Yes A/R. Amount Allow. BDebt Amount ___________________________________________& Cash. Amount A/R. Amount
62
Describe how the aging of accounts receivable bad debt expense estimation works
Looks at how long the money has sat unpaid and classifies it into categories and there is a certain percent for each classification that is estimated to be bad debt
63
What is factoring
When a company needs cash so it sells it's receivables to a third party and they take the responsibility of collecting the money
64
When companies factor out their a/r do they get paid the full amount each account owes?
No
65
Who owes the money in a notes payable
Maker
66
Who lent the money in a n/p
Payee
67
How do you calculate interest
Interest=Principal(x)Annual Interest Rate (x) Time in Years
68
What is discounting a note
When companies sell their notes, at a lower price, to get cash and lose the responsibility of recollecting it
69
Where do you record the differences in how much you loaned (receivable or note) and how much you get paid when you sell it to a third party (factoring or discounting)
Interest expense or interest revenue
70
What is the turnover ratio
INCOME STATEMENT ACCOUNT VALUE FOR PERIOD ____________________________________________________________ AVERAGE LEVEL OF BALANCE SHEET ACCOUNT FOR PERIOD
71
Accounts receivable turnover ratio
NET SALES REVENUE _____________________________________ AVERAGE NET ACCTS RECIEVABLE
72
Collection period
365 ____________________ Turnover ratio
73
How do you get average accounts receivable amount
Beginning balance a/r (+) Ending balance a/r __________________________________________ 2
74
What is wrong with using the direct write off method
it does not record revenues and expenses in the same period
75
How do you calculate average cost
value of GAS/total # of units in inventory
76
What are long lived/operating asssets
assets use to produce and sell goods and services to customers
77
What are the three classifications of long lived assets
tangible intangible natural resources
78
what are tangible assets and give an example
longlived assets with physical form | land, equipment, furniture, buildings
79
what are two other terms for tangible assets
plant assets and fixed assets
80
what are intangible assets, examples
no physical form | patent, copyright, trademark, franchise
81
what are capital expenditures
expenses that provide benefits in the future

ACCT 200 (3 decks)

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