Acct. Section 2 Test – Flashcards
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As an incentive for customers to pay their accounts promptly, a business may offer its customers....
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a sales discount
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If goods in transit are shipped FOB shipping point
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the buyer has legal title to the goods until they are delivered
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The term FOB denotes
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free on board
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The LIFO inventory method assumes that the cost of the latest units purchased are
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the first to be allocated to cost of goods sold
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Inventories affect
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both the balance sheet and the income statement
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The factor which determines whether or not goods should be included in a physical count of inventory is
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legal title
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Independent internal verification of the physical inventory process occurs when
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a second employee counts the inventory and compares the result to the count made y the first employee
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An employee assigned to counting computer monitors in boxes should
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determine that the box contains a monitor
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Beginning inventory plus the cost of goods purchased equals
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cost of goods available for sale
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The inventory method which results in the highest gross profit (taxes) is
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the FIFO method
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The accounting principle that requires that the cost flow assumption be consistent with the physical movement of goods is
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nonexistent; that is, there is no accounting requirement
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What is the definition of Merchandise Inventory?
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Things that are for sale to our customers
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What kind of asset is merchandise inventory?
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A current asset. (Not long term)
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What is Merchandise Inventory NOT?
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It is not supplies or PPE.
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Where do sales fall in the income statement?
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At the very top!!
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Sales is a... (Dr./Cr.)
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Credit
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What is the formula for Net Sales?
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Sales - Discount & Allowances = Netsales
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_______ produces the highest COGS. (FIFO/LIFO)
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LIFO
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________ produces the highest Ending Inventory. (FIFO/LIFO)
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FIFO
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________ produces the lowest Net Income. (FIFO/LIFO)
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LIFO
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What are source documents?
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They provide basic info for accounting records.
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What are some examples of source documents?
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Purchase orders, invoices & time cards
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What are the 5 journals?
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1. General Journal 2. Cash Receipts 3. Cash Payments 4. Sales 5. Purchases
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What goes in the general journal?
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Everything that you can't put somewhere else
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What goes in cash receipts?
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Sales of merchandise with cash
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What goes in cash payments?
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Purchase of merchandise with cash
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What goes in Sales?
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Sale of merchandise on account.
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What goes in Purchases?
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Purchase of merchandise on account
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What is the definition of cash & cash equivalents?
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They are money market accounts.
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Give some examples of cash & cash equivalents.
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Petty cash, CDs less than 3 months, money orders
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What are NOT examples of cash & cash equivalents?
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Postage stamps, NSF checks & post-dated checks
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How do you establish a petty cash fund?
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DEBIT: Petty Cash CREDIT: Cash
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How do you replenish a petty cash fund?
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DEBIT: Expenses CREDIT: Cash
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What is a cash over/short? (Revenue, expense, asset, liability?)
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It's an expense either way.
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What should a bank reconciliation for a balance per bank look like?
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BALANCE PER BANK + Deposit in transit - Outstanding checks
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What should a bank reconciliation for a balance per book look like?
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BALANCE PER BOOKS - Check printing charge + Note collected by bank - NSF checks + Interest earned + Error correction
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A check returned by the bank marked "NSF" means
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Not sufficient funds
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A subsidiary ledger
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A group of accounts with a common characteristic that provides detailed information about a control account in the general ledger
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A company would NOT likely use subsidiary ledgers:
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Owner's capital
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Postings are made daily to subsidiary ledgers so that:
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individual account information is kept current
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A sales journal is used to record
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only credit sales of merchandise
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The one characteristic that all entries recorded in a cash receipts journal have in common is:
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A debit to the Cash account
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If merchandise from a cash sale is returned by a customer for a refund, the sales return is recorded in the
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Cash payments journal
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A cash sales return would be recorded in the:
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Cash payments journal
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Debit postings to the individual accounts in an accounts receivable subsidiary ledger generally comes from the:
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Sales journal
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A typical entry in the sales journal looks like what?
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DEBT: Accounts Receivable CREDIT: Sales
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The process of totaling the columns of a journal is termed:
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footing
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What does FOB shipping point mean?
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The buyer owns the goods in transit and the buyer pays for shipping.
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What does FOB destination mean?
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The seller owns goods in transit and the seller pays for shipping.
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What is Perpetual Inventory?
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It is when a company keep detailed records at EACH inventory purchase and sale.
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When recording perpetual inventory journal entries what must you have?
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2 sets of entries- 1 at retail and 1 at cost
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What is Periodic Inventory?
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It is when a company determines the cost of good only at the end of the accounting period.
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When recording perpetual inventory journal entries what do you do?
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Only record the retail- very vague. Use purchase here.
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When we pay in full what does that journal entry look like when you use perpetual?
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DEBIT: Account payable CREDIT: Cash CREDIT: Merchandise Inventory (this is the discount!) *Dr. & Cr. should equal each other
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When we receive payments in full what does that journal entry look like when you use perpetual?
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DEBIT: Cash DEBIT: Sales Discounts CREDIT: Accounts Receivable
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What is the equation for Cost of Good Purchases when you use periodic inventory?
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Purchases - Purchase Returns & Allowances - Purchase Discounts = Net Purchases + Freight In = Cost of Goods Purchased
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What is the equation for Cost of Goods Sold when you use periodic inventory?
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Beginning Inventory + Cost of Goods Purchased = Cost of Goods Available for Sale - Ending Inventory = Cost of Goods Sold
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When using perpetual what does a journal entry look like when you receive credit?
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DEBIT: Accounts Payable CREDIT: Merchandise Inventory
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When using perpetual, what does a journal entry look like when you give credit?
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DEBIT: Sales Returns & Allowances CREDIT: Account Receivable
