Exam 3

Question 1

Inventory Turnover =

Answer 1

Cost of Goods Sold divided by Average Inventory

Question 2

Days in Inventory =

Answer 2

365 divided by Inventory Turnover

Question 3

Gross Profit =

Answer 3

Net Sales minus Cost of Goods Sold

Question 4

Gross Profit Rate =

Answer 4

Gross Profit divided by Net Sales

Question 5

Net Income =

Answer 5

Gross Profit minus Operating Expenses

Question 6

A system that collects and processes transaction data and communicates financial information to decision-makers.

Answer 6

Accounting Information System

Question 7

A subsidiary ledger that collects transaction data of individual creditors.

Answer 7

Accounts payable (creditors’) subsidiary ledger

Question 8

A subsidiary ledger that collects transaction data of individual customers

Answer 8

.Accounts receivable (customers’) subsidiary ledger

Question 9

A special journal that records all disbursements of cash. DR Other Accounts, DR Accounts Payable, CR Inventory, CR Cash.

Answer 9

Cash payments (cash disbursements) journal

Question 10

A special journal that records all cash received. DR Cash, DR Sales Discounts, CR Accounts Receivable, CR Sales Revenue, CR Other Accounts, DR/CR COGS/Inventory.

Answer 10

Cash receipts journal

Question 11

An account in the general ledger that summarizes subsidiary ledger data.

Answer 11

Control Account

Question 12

A crime that involves the Internet, a compuyter system, or computer technology.

Answer 12

Cybercrime

Question 13

A system in which someone performs each of the steps int he accounting cycle by hand.

Answer 13

Manual accounting system

Question 14

A special journal that records all purchases of merchandise on accoun. DR/CR Inventory/Accounts Payable.

Answer 14

Purchases journal

Question 15

A special journal that records all sales of merchandise on account. DR/CR Accounts Receivable/Sales Revenue, DR/CR COGS/Inventory.

Answer 15

Sales Journal

Question 16

Journals that record similar types of transactions, such as all credit sales.

Answer 16

Special Journals

Question 17

A group of accounts with a common characteristic.

Answer 17

Subsidiary ledger

Question 18

Resources that consist of coins, currency, checks, money orders, and money on hand or on deposit in a bank or similar depository.

Answer 18

Cash

Question 19

Short-term, highly liquid investments that can be converted to a specific amount of cash.

Answer 19

Cash equivalents

Question 20

A written order signed by a bank depositor, directing the bank to pay a specified sum of money to a designated recipient.

Answer 20

Check

Question 21

Initiative to provide guidance on enterprise risk management, internal control, and fraud deterrence.

Answer 21

Committee on Sponsoring Organizations (COSO)

Question 22

Deposits recorded by the depositor but not yet recorded by the bank.

Answer 22

Deposits in transit

Question 23

A disbursement system that uses wire, telephone, or computers to transfer funds from one location to another.

Answer 23

Electronic funds transfer (EFT)

Question 24

A dishonest act by an employee that results in personal benefit to teh employee at a cost to the employer.

Answer 24

Fraud

Question 25

The three factors that contribute to fradulent activity by employees: opportunity, financial pressure, and rationalization.

Answer 25

Fraud Triangle

Question 26

Company employees who continuously evaluate the effectiveness of the company's internal control system.

Answer 26

Internal auditors

Question 27

A process designed to provide reasonable assurances regarding the achievement of company objectives related to operations, reporting, and compliance.

Answer 27

Internal control

Question 28

A check that is not paid by a bank because of insufficient funds in a customer's bank account.

Answer 28

NSF check

Question 29

Checks issued and recorded by a company but not yet paid by the bank.

Answer 29

Outstanding checks

Question 30

A cash fund used to pay relatively small amounts.

Answer 30

Petty Cash Fund

Question 31

Cash that must be used for a special purpose.

Answer 31

Restricted cash

Question 32

Regulations passes by Congress to try to reduce unethical corporate behavior.

Answer 32

Sarbanes-Oxley Act (SOX)

Question 33

An authorization form prepared for each payment in a voucher system.

Answer 33

Voucher

Question 34

A network of approvals by authorized individuals acting independently to ensure that all disbursements by check are proper.

Answer 34

Voucher System

Question 35

Amounts owed by customers on account.

Answer 35

Accounts Receivable

Question 36

A measure of the liquidity of accounts receivable; computed by dividing net credit sales by average net accounts receivable.

Answer 36

Accounts receivable turnover

Question 37

The analysis of receivable balances by the length of time they have been unpaid.

Answer 37

Aging the accounts receivable

Question 38

A GAAP method of accounting for uncollectibles that involves estimating uncollectible accounts at the end of each period.

Answer 38

Allowance method

Question 39

The average amount of time that a receivable is outstanding; calculated by dividing 365 days by the accounts receivable turnover.

Answer 39

Average collection period

Question 40

An expense account to record uncollectible receivables.

Answer 40

Bad Debt Expense

Question 41

The net amount a company expects to receive in cash.

Answer 41

Cash (net) realizable value

Question 42

A non-GAAP method of accounting for uncollectibles that involves expensing accounts at the time they are determined to be uncollectible.

Answer 42

Direct write-off method

Question 43

A note that is not paid in full at maturity.

Answer 43

Dishonored (defaulted) note

Question 44

A finance company or bank that buys receivables from businesses and then collects the payments directly from the customers.

Answer 44

Factor

Question 45

The party in a promissory note who is making the promise to pay.

Answer 45

Maker

Question 46

Written promise (as evidence by a formal instrument) for amounts to be received.

Answer 46

Notes receivable

Question 47

Various forms of nontrade receivables, such as interest receivable and income taxes refundable.

Answer 47

Other Receivables

Question 48

The party to whom payment of a promissory note is to be made.

Answer 48

Payee

Question 49

A method by which management estimates what percentage of receivables will result in losses from uncollectible accounts.

Answer 49

Percentage-of-receivables basis

Question 50

A written promise to pay a specified amount of money on demand or at a definite time.

Answer 50

Promissory note

Question 51

Amounts due from individuals and other companies.

Answer 51

Receivables

Question 52

Notes and accounts receivable that result from sales transactions.

Answer 52

Trade receivables

Question 53

The 6 Principles of Internal Control

Answer 53

1. Establishment of Responsibility. 2. Segregation of Duties 3. Documentation Procedures 4. Physical Controls 5. Independent Internal Verifiation. 6. Human Resource Controls.