question

sales journal

answer

journal normally used to record sales of goods on credit

question

purchase journal

answer

journal normally used to record all purchases on credit

question

cash receipts journal

answer

special journal normally used to record all receipts of cash

question

6 internal controls

answer

establish responsibilities, maintain adequate records, insure assets and bond key employees, separate recordkeeping from custody of assets, divide responsibility for related transactions, apply technological controls, perform regular and independent reviews

question

subsidiary ledger

answer

list of individual subaccounts and amounts with a common characteristic; linked to controlling account in the general ledger

question

percent of sales method

answer

based on the idea that a percent of the companys CREDIT sales for the period is uncollectible also called the income statement method

question

aging of accounts receivable

answer

process of classifying accounts receivable by how long they are past due for purposes of estimating uncollectible accounts

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plant assets

answer

tangible long lived assets used to produce or sell products and services, also called property, plant and equipment, or fixed assets

question

maturity date

answer

date when a note's principal and interest are due

question

salvage value

answer

estimate of amount to be recovered at the end of an assets useful life, also called residual value or scrap value

question

book value

answer

assets acquisition costs less its accumulated depreciation (or depletion, or amortization) also sometimes used synonymously as the carrying value of an account

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useful life

answer

length of time an asset will be productively used in the operations of a business, also called service life or limited life

question

depreciation

answer

expense created by allocating cost of plant and equipment to periods in which they are used, represents the expense of using the asset

question

depletion

answer

process of allocating the cost of natural resources to periods when they are consumed and sold

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natural resource

answer

assets physically consumed when used, ex: timber, oil, gas fields, mineral deposits,; also called wasting assets

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accounts receivable ledger

answer

stores transaction data of individual customers

question

accounts payable ledger

answer

stores transaction data of indiviual suppliers

question

2 types of subsidiary ledgers

answer

accounts payable ledger, accounts receivable ledger

question

bank reconciliation

answer

report explaining any differences between the checking account balance according to the depositor's records and the balance reported on the bank statement

question

factors causing bank statement and book to differ

answer

outstanding checks, deposits in transit, outstanding deposits, deductions for uncollectible items and for services, additions for collections and for interest, errors

question

allowance for doubtful accounts

answer

matches estimated loss from uncollectible accounts receivable against the sales they helped produce. ESTIMATE of total bad debts expected to result from that period's sales

question

calculating percent of sales method

answer

sales x percent of est. uncollectible debit to bad debts expense, credit to allowance for doubtful accounts

question

calculating accounts receivable method

answer

accounts receivable x percent suggested debit to bad debts exp, credit to allowance for doubtful accts

question

need to factors for depreciation

answer

cost, salvage value, depreciable cost, useful life= accounting periods or units

question

cost of land

answer

total amount paid, real estate commission, title insurance fees, legal fees, accrued property taxes, surveying, clearing, grading, and draining, govt assessments,

question

Depreciation Expense Straight Line Method

answer

cost--salvage value/useful life in periods=per year depreciation

question

Depreciation Expense Double Decline Balance

answer

cost--salvage value/useful life in periods x 2=per year depreciation

question

Depreciation Expense Units of Activity Method

answer

cost-salvage value/total units of production=price per shoe x units produced

question

Depltion Expense on Tons of Ore

answer

cost - salvage value / total units of capacity = price per ton price per ton x units extracted AND sold = depletion expense

question

Accounting information systems

answer

collect and process data from transactions and events, organize them in useful reports, and communicate results to decisions makers. In an accounting system, the fundamental principles that must be included in any system are: control, relevance, compatibility, flexibility, and cost-benefit.

question

The control principle prescribes

answer

that an accounting information system have internal controls. Internal controls are methods and procedures allowing managers to control and monitor business activities

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The relevance principle prescribes

answer

that an accounting information system report useful, understandable, timely, and pertinent information for effective decision making. The system must be designed to capture data that make a difference in decisions.

question

The compatibility principle prescribes

answer

that an accounting information system conform with a company's activities, personnel, and structure. It also must adapt to a company's unique characteristics. The system must not be intrusive but must work in harmony with and be driven by company goals

question

The flexibility principle prescribes

answer

accounting information system be able to adapt to changes in the company, business environment, and needs of decisions makers. Technological advances, competitive pressures, consumer tastes, regulations, and company activities constantly evolve. A system must be designed to adapt to these changes.

question

cost-benefit principle prescribes

answer

that the benefits from an activity in an accounting information system outweigh the costs of that activity. The costs and benefits of an activity such as producing a specific report will impact the decisions of both external and internal users

question

Accounting information systems consist of

answer

people, records, methods, and equipment. The systems are designed to capture information about a company's transactions and to provide output including financial, managerial, and tax reports. The five basic components of accounting systems are source documents, input devices, information processors, information storage, and output devices. Examples of source documents include bank statements and checks, invoices from suppliers, billings to customers, cash register files, and employee earnings records

question

Information storage

answer

is the accounting system component that keeps data in a form accessible to information processors. After being input and processed, data are stored for use in future analyses and reports

question

Components of Accounting Systems

answer

Five basic components of AIS are: A. Source Documents Documents (paper and electronic) that provide the basic information processed by an accounting system. B. Input Devices Capture information from source documents and enable its transfer to the information system's processing component. C. Information Processors Systems that interpret, transform, and summarize information for use in analysis and reporting. D. Information Storage System component that keeps data in a form accessible to information processors. E. Output Devices Means to take information out of an accounting system and make available to users.

question

Special credit columns

answer

are usually established for Accounts Receivable and Sales. A special debit column may be used for Sales Discounts. A special column is established to record the tracking of the perpetual inventory cost. Amounts in this column are debits to Cost of Goods Sold and credits to Inventory. Only the totals of special columns are posted to the General Ledger.

question

General Journal Transactions Used to record transactions that do not fit in any of the special journals. Examples:

answer

Adjusting entries. 2. Closing entries. 3. Correcting entries.

question

Internal Control A. Purpose of Internal Control

answer

Protect assets. 2. Ensure reliable accounting. 3. Promote efficient operations. 4. Urge adherence to company policies

question

Principles of Internal Control

answer

Establish responsibilities. 2. Maintain adequate records. 3. Insure assets and bond key employees. 4. Separate recordkeeping from custody of assets. 5. Divide responsibility for related transactions. 6. Apply technological controls. 7. Perform regular and independent reviews

question

Technology and Internal Control Technology provides quick access to databases and information. Examples of how technology impacts internal control

answer

Reduces processing errors. 2 Allows more extensive testing of records. 3. Limits hard copy evidence of processing steps but can electronically store additional evidence. 4. Requires that crucial separation of responsibilities be carefully distributed among fewer employees. 5. Increased e-commerce increases risks of credit card theft, computer viruses and online impersonation.

question

Control of Cash—

answer

Basic guidelines for control of cash and cash equivalents include: handling of cash must be separate from recordkeeping of cash, cash receipts are promptly deposited in bank, and disbursements of cash are by check. A. Cash, Cash Equivalents, and Liquidity 1. Liquidity refers to a company's ability to pay for its near term obligations.

question

Accounts Receivable

answer

Amounts due from customers for credit sales. They occur when a customer uses credit cards issued by third parties and when a company gives credit directly to customers Sales on credit—Increase (debit) Accounts Receivable for the full amount of the sale and increase (credit) Sales Credit card sales (Examples: Visa, MasterCard, American Express). Installment Sales and Receivables Valuing Accounts Receivable

question

Computations for Notes

answer

Maturity date is the date the note must be repaid. 2. Amount to be repaid is principal plus interest (maturity value). 3. The period of the note is the time from the note's date to its maturity date. 4. Formula for computing annual interest: Annual Time of note Principal of x rate of x expressed = Interest note interest in years

question

Plant Assets

answer

Tangible assets used in a company's operations that have a useful life of more than one accounting period. Consistent with cost principle, recorded at cost. Cost includes all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use. Land Land Improvements Costs that increase the usefulness of the land Buildings Machinery and Equipment Lump-Sum Purchase

question

Depreciation

answer

The process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use. Recorded as a debit to Depreciation Expense and a credit to Accumulated Depreciation Factors in Computing Depreciation 1. Cost—described in section I above. 2. Salvage value—(residual value or scrap value) an estimate of the asset's value at the end of its benefit period. 3. Useful life—(service life) length of time the asset is expected to be productively used in a company's operations. Factors affecting useful life include: a. Inadequacy—the insufficient capacity of plant assets to meet the company's growing productive demands. b. Obsolescence—refers to a plant asset that is no longer useful in producing goods or services with a competitive advantage because of new inventions and improvements

question

Depreciation Methods

answer

Straight-line method—charges the same amount to expense for each period of the asset's useful life. Method used by most companies. Computation: Cost minus salvage value (equals the depreciable cost) divided by the number of accounting periods in the asset's useful life equals the periodic depreciation. 2. Units-of-production method—charges a varying amount of cost to expense for each period of an asset's useful life depending on its usage. Examples of capacity measurements: miles driven, product outputs, hours used. Computation: a. Cost minus salvage value divided by the total number of units expected to be produced during assets useful life equals the depreciation per unit. b. Depreciation per unit is multiplied by number of units consumed in the period equals the period's depreciation

question

Declining-balance method

answer

an accelerated depreciation method which yields larger depreciation expenses during the early years of an asset's life and smaller charges in later years. Computation: Multiply the asset's beginning of period book value by a depreciation rate (usually twice the straight-line rate) to determine the period's depreciation. If double the straight-line rate is used the method is referred to as double declining-balance.

question

Depreciation for tax reporting

answer

differences between financial and tax accounting systems are normal and expected Many companies use accelerated depreciation in computing taxable income because it postpones its tax payments by charging higher depreciation expense in the early years and lower amounts in the later years. b. Federal income tax law rules for depreciating assets are called the Modified Accelerated Cost Recovery System (MACRS). c. MACRS is not acceptable for financial reporting because it allocates costs over an arbitrary period that is less than the asset's useful life.

question

Partial Year Depreciation

answer

When an asset is purchased (or disposed of) at a time other than the beginning or end of an accounting period, depreciation is recorded for part of the year.

question

Revising Depreciation

answer

If estimated salvage and/or useful life is revised Depreciation expense computations are revised by spreading the remaining cost to be depreciated over the revised useful life remaining. 2. The revision is referred to as a change in an accounting estimate and is reflected in current and future financial statements, not prior statements.

question

Ordinary Repairs

answer

expenditures to keep an asset in normal, good operating condition. They do not materially increase the asset's life or productive capabilities.

question

Betterments (Improvements) and Extraordinary Repairs—

answer

expenditures to make a plant asset more efficient or productive; both are treated as a capital expenditure Betterments often involves adding a component to an asset that does not always extend its useful life. a. Examples: adding a wing to a building or changing a machine from manual function to automatic Extraordinary repairs are expenditures that do extend the asset's useful life beyond its original estimate. Examples: roofing replacement and major overhauls of machinery and equipment

question

Types of Intangibles

answer

Patent—an exclusive right granted to its owner to produce and sell a patented item or to use a process for 20 years. 2. Copyright—the exclusive right to publish and sell a musical, literary, or artistic work during the life of the creator plus 70 years. 3. Franchises and Licenses—rights that a company or government grants an entity to deliver a product or service under specified conditions. If agreement is for indefinite or perpetual period, costs are not amortized. 4. Trademarks and Trade Names—symbols, names, phrases, or jingles identified with a company, product, or service. 5. Goodwill—specific meaning in accounting: the amount by which the value of a company exceeds the value of its individual assets and liabilities. Implies the company as a whole has certain valuable attributes not measured among its individual assets and liabilities. Goodwill is measured as the excess of cost of an acquired entity over the valuable of net assets acquired. It is not amortized but is tested annually for impairment. 6. Leasehold—the rights to possess and use leased property granted by the property's owner (lessor) to the lessee in a contract called a lease. Recorded, if there was a cost involved, as an intangible asset by the lessee (or sublessee). As Leaseholds are amortized, the cost is charged to Rent Expense. 7. Leasehold improvements—alterations or improvements to leased property, such as partitions, painting, and storefronts. Amortization results in debit to Amortization Ex

question

Source documents:

answer

Provide the basic information processed by an accounting system

question

The sales journal is used for recording

answer

Credit sales.

question

The purchases journal is used for recording

answer

Credit purchases

question

A subsidiary ledger

answer

Is a listing of individual accounts and amounts with a common characteristic

question

An accounts receivable ledger is

answer

A subsidiary ledger that contains an account for each credit customer

question

General Electronics uses a sales journal, a purchases journal, a cash receipts journal, a cash disbursements journal, and a general journal. General recently completed the following transactions a through h. Identify the journal in which each transaction should be recorded

answer

Paid cash to a creditor. Cash disbursements journal b. Sold merchandise on credit. Sales journal c. Purchased shop supplies on credit. Purchases journal d. Paid an employee's salary in cash. Cash disbursements journal e. Borrowed cash from the bank. Cash receipts journal f. Sold merchandise for cash. Cash receipts journal g. Purchased merchandise on credit. Purchases journal h. Purchased inventory for cash. Cash disbursements journal

question

Wecker Company's year-end unadjusted trial balance shows accounts receivable of $89,000, allowance for doubtful accounts of $500 (credit), and sales of $270,000. Uncollectibles are estimated to be 1.5% of accounts receivable.

answer

Prepare the December 31 year-end adjusting entry for uncollectibles 2. What amount would have been used in the year-end adjusting entry if the allowance account had a year-end unadjusted debit balance of $200? Explanation: 1. To record estimate of uncollectibles [($89,000 × 1.5%) − $500 credit] = $835 2. Amount used in the year-end adjusting entry ($89,000 × 1.5%) + $200 debit = $1,535

question

Plant assets are

answer

Tangible assets used in the operation of a business that have a useful life of more than one accounting period.

question

Depreciation

answer

Is the process of allocating to expense the cost of a plant asset

question

The useful life of a plant asset is

answer

The length of time it is productively used in a company's operations

question

Obsolescence:

answer

Refers to a plant asset that is no longer useful in producing goods and services with a competitive advantage

question

A machine originally had an estimated useful life of 5 years, but after 3 complete years, it was decided that the original estimate of useful life should have been 10 years. At that point the remaining cost to be depreciated should be allocated over the remaining

answer

7 years. 10 year revised life - 3 years depreciated = 7 remaining

question

Accounts receivable information for specific customers is important because it reveals

answer

All of these. How much each customer has purchased on credit. How much each customer has paid. How much each customer still owes. The basis for sending bills to customers

question

A credit sale of $3,275 to a customer would result in

answer

A debit to the Accounts Receivable account in the general ledger and a debit to the customer's account in the accounts receivable subsidiary ledger

question

A promissory note received from a customer in exchange for an account receivable

answer

Is a note receivable for the recipient

question

The person who signs a note receivable and promises to pay the principal and interest is the

answer

Maker.

question

A promissory note:

answer

Is a written promise to pay a specified amount of money at a certain date.

question

On July 10, collects 740 from a company from a prior credit sale. what would the recorded be

answer

debit to cash and credit accounts receivable

question

method of accounting for bad debts matches the estimated loss from uncollectable accounts receivables

answer

allowance

question

compute interest due on a maturity date use this formula

answer

principal X interest rate X time expresed in fraction of year

question

sells merchandise on account in the amount of 1200 the entry record this sale

answer

credit of sales and debit accounts receivable

question

when a note makers is unable or refuses to pay to maturity the note is considered

answer

dishonored

question

constraints permits the use of the direct write off method when bad debts expenses are very small in relations to other financial statements such as sales and net income

answer

materiality

question

companies sometimes convert receivables to cash before they are due when a company sells its receivable it is called ____ and uses receivables collateral for bank loans

answer

factoring / pledging

question

on Nov 1 received a $6000 60day 6% note from a customer as payment on his $6000 account, the journey entry was done on Nov 1

answer

6000 debit to notes receivable and credit to accounts receivable

question

to record a customers check in full payment for a sale that was made prior month a company should debit

answer

cash account

question

Thomas Co. Sold $1000 worth of merchandise on credit cards. The net cash receipts from the sales received 10 days later less 3% fee. The entry

answer

debit to accounts receivable in the amount $970

question

The Iron company collects cash in full from a customer who purchased the item on credit last month. To record the cash reciept you must in the journal

answer

credit accounts receivable and debit to cash

question

____ method used also referred to as a balance sheet method uses balance sheet relations to estimate bad debits

answer

accounts receivable

question

allowance for doubtful accounts is an ____ asset account and has a normal credit balance

answer

contra

question

the expected proceeds from accounts receivable determined by taking accounts receivable less the allowance for doubtful accounts is called

answer

realizable value

question

Donco inc sold merchandise on Jan 14 and accepted a 90 day 5% promissary note in the amount of $5000 On Jan 14 the entry to record this transactions would include debit

answer

notes receivable in the amount of $5000

question

in sept dk company sells merchandise to lions company on credit in october lions company pays the balance in full the entry to record the collection cash in october will include a

answer

credit to accounts receivable

question

in august Johns co account receivable balance was written off using the direct method, in Nov John pays the balance in full. The jounal entry record receipt of payment must include a credit to the ______ account before recording a debit to cash account

answer

bad debit expense

question

____ of the note is the one that signed the note and promised to pay at maturity. The ____ of the note is the person to whom the note is payable

answer

maker and payee

question

purchased a machine for $12000 and estimated it will use a machine for five years with 2000 salvage, using the double decline depreciation method, compute managers depreciation

answer

12000 X (100X 5X2) = 1800

question

straight line value depreciation can be calculated by

answer

cost - salvage value / useful life

question

sells equipment that cost 9000 with current accumulated depreciation of $8000 for $2000 cash, record this transaction credit

answer

gain on sale of equipment equipment

question

a plant asset is _____ when it no longer useful to be the company and it has no value

answer

discarded

question

brice purchased land, it would be considered on classified balance sheet

answer

plant asset and natural resources

question

factor of depreciation

answer

salvage value cost of asset useful life

question

useful life means

answer

length of time the asset is productivly used in the companys operations

question

the cost of plant asset should not include

answer

all expenditures necessary to get asset in place ready for its intended use including repairs of daage incurred after installation.

question

plant asset is

answer

building being used for operation and equipment used in the office

question

purchased a machine $15000. The machine is expected to last seven years and have a salvage value of $1000. Assuming the company uses the straight-line method depreciation expense should be

answer

$2000 per year $15000 - 1000 /7 = 2000 per yr

question

method of depreciation that changing in vary amount of depreciation expense for each period of an assets useful depending on its usage is called _____ method

answer

units of production

question

capital expenditure

answer

room addition

question

purchased land for $190,000 also paid $5000 brokerage of $1000 in legal fees and $500 in title cost

answer

$196,500

question

iron sells machine that cost $5000 with current book value of $1500 for $2000, would record debit to

answer

accumulated depreciaton - equipment for $3500

question

calculate depletion expense , first determine the depletion per unit

answer

cost - salvage / total units of capacity

question

revenue expenditure of car

answer

dent repair, car wash, oil change

question

accumulated depreciation is listed on

answer

balance sheet

question

_____is a permanent decline in market value of an asset of its book value

answer

impairment

question

when revises an estimate used to record depreciation expense the company should revise depreciation by using

answer

book value - revised salvage value / revised remaining useful life.

question

the depreciation method that determines the depreciation charge for period by multiplying a depreciation rate (often twice the straight line rate) assets beginning book value.

answer

declining balance

question

company replaced the roof of its existing building extending buildings life by 10 years

answer

extraordinary repair

question

Land

answer

purchase price, taxes, fees, commisions, insurance

question

acquisition cost

answer

purchase price and all expenditures needed to prepare the asset for its intended use

question

land improvements

answer

parking lots, driveways, fences, walks, shrubs, and lighting systems

question

computing depreciation

answer

cost, salvage value, useful life

question

depreciation methods

answer

straight-line, units of production, decling-balance

question

straight-line method

answer

cost-salvage value / useful life in periods = 10000-1000 / 5 years = 1800 per year

question

units production

answer

depreciation per units = cost - salvage value / total units of productions = 9000/36000 = $0.25 unit $0.25 x 7000 = $1750

question

double-declining-balance method

answer

straight-line rate = 100% / useful life = 100% / 5 years = 20% Doubling-declining balance rate = 2 x straight line rate = 2 x 20% = 40% 40% x $10,000 = $4,000

question

partial year depreciation

answer

$10,000 - $1,000 / 5 years x 3/12 = $450

question

discarding plant assets chart

answer

if cash > BV = record a gain (credit) if cash < BV, record a loss (debit) If cash = BV, no gain or loss

question

natural resources

answer

oil, goal, cold,

question

cost determination and amortization

answer

patents, copyrights, leaseholds, leasehold improvements, franchises and licenses, goodwill, trademarks, and trade names, other intangibles

question

total asset turnover

answer

total asset turnover = net sales / averae total assets

question

two methods of accounting bad debts

answer

direct write off method allowance method

question

matching vs materiality

answer

matching principles requires expenses to be reported in the same accounting period as the sales they helped produce Materiality state that an amount can be ignored if its effect on the financial statements is unimportant to users business decisions

question

estimating bad debts expenses

answer

% of sales method accounts receivable methods

question

interest computation

answer

principal X annual interest rate X time expressed in fraction year = interest $1000 X 12% X 90/360 = $1000 x 0.12 X 0.25 = $30

question

limitation of internal control

answer

human error and human fraud human fraud triple threat: opportunity, pressure, and rationalization

question

limitations of internal control

answer

the cost of internal controls must not exceed their benefits

question

petty cash fund

answer

is only used for business expenses

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