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Primary function of cash flow statement

answer

Report the cash receipts and cash payments from operating, investing, and financing activities during a period, in a format that reconciles the beginning and ending cash balances.

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Activities/ order of cash flow

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1) operating activities 2) investing activities 3) financing activities

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Operating activities

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Include the cash effects of transactions that create revenues and expenses

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Investing activities

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1) cash transaction that involve the purchase or disposal of investments and property, plant, equipment 2) lending money and collecting the loans

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Financing activities

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1) obtaining cash from issuing debt and repaying the amounts borrowed 2) obtaining cash from stockholders, repurchasing shares, and paying dividends

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What activity is "issued 100,000 shares of $5 par value common stock for $800,000 cash"

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Financing activity

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What activity is "borrowed $200,000 from castle bank, signing a 5 year note bearing 8% interest"

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Financing activity

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What activity is "purchased two semi-trailer trucks for $170,000 cash"

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Investing activity

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What activity is "paid employees $12,000 for salaries and wages"

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Operating

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What activity is "collected 20,000 cash for services performed"

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Operating activites

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What are the 3 sources needed for preparing the statement of cash flows

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1) comparative balance statement 2) current income statement 3) additional information

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Ending statement to cash flow

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1) operating activities 2) investing activities 3) financing activities --> (sum of the 3) = net increase/decrease in the cash period 4) add this to the beginning cash balance to arrive at the ending cash balance

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What is the product life cycle

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A series of phases in a products sales and cash flows over time.

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What are the product life cycle phases?

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1) introductory 2) growth 3) maturity 4) decline

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Introductory phase

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- occurs at the beginning - when it purchases fixed assets & begins to produce and sell products

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Growth phase

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- the company strives to expand its production and sales

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Maturity phase

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sales and production level off

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Decline phase

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Sales of the product decline due to a weakening in consumer demand

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Indirect method

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Adjusts net income for items that do not affect cash to determine net cash provided by operating activities --> 98% companies use this

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Direct method

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1) Shows operating cash receipts and payments 2) prepared by adjusting each item in the income statement from the accrual basis to the cash basis.

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Free cash flow

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Free cash flow= net cash provided by operating activities - subtract capital expenditures (equipment) - subtract cash dividends

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Liquidity

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Ability to pay obligations expected to become due within the next year --> measure with current ratio

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Current ratio

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Net cash provided by operating activities (current assets) --divided by-- Average current liabilities

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Solvency

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Ability of a company to survive over the long term --> measure in cash debt coverage

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Cash debt coverage

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Net cash provided by operating activities --divided by-- Average total liabilities

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Managerial accounting

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Provides economic and financial information for managers and other internal users

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T/F : managerial accountants have a single role within an organization, collecting and reporting costs to management

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False

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T/F : Managerial accounting reports are special- purpose and issued as frequently as needed"

answer

True

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MC : managerial accounting: A) governed by generally accepted accounting principles B) places emphasis on special-purpose info C) pertains to the entity as a whole and is highly aggregated D) limited to cost data

answer

B) places emphasis on special-purpose info

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The management of an organization period several functions. They are :?

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1) planning 2) directing 3) controlling

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Product cost

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Costs that necessary and integral part of producing the finished product

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Period costs

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Costs that are matched with the revenue of a specific time period rather than included as part of the cost of a salable product

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Determinants of product costs

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1) manufacturing costs 2) direct materials 3) direct labor 4) manufacturing overhead -indirect materials -indirect labor -other indirect costs

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Determinants or period costs

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1) non-manufacturing costs 2) selling expenses 3) administrative expenses

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Raw materials

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Basic materials and pears used in the manufacturing process

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Direct materials

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Raw materials that can be physically and directly associated with the finished product during the manufacturing process

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Indirect materials

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Have one of two characteristics 1) do not physically become part of finished product 2) are impractical to trace to the finished product because their physical association with the finished product is to small in terms of cost

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Direct labor

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The work of factory employees that can be physically and directly associated with converting raw materials into finished goods

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Manufacturing overhead

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Consists of costs that are indirectly associated with the manufacture of the finished products

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What does manufacturing overhead include

answer

1) indirect materials 2) indirect labor 3) depreciation on factory buildings and machines 4) insurance 5) taxes 6) maintenance on factory facilities

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Cost of goods manufactured

answer

Beginning work in process + total manufacturing costs = total cost of work in process --> Total cost of work in process - ending work in process inventory = cost of goods manufactured

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Just in time

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Inventor system in which goods are manufactured or purchased just in time for sale

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Direct materials are:

answer

1) product costs 2) not manufacturing overhead or period costs

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Indirect labor is : A) non manufacturing cost B) raw materials cost C) product cost D) period cost

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C) product cost

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Which of the following is not an element of manufacturing overhead? A) sales managers salary B) plant managers salary C) factory repairman wages D) product inspectors salary

answer

A) sales managers salary

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Which of the following costs are classified as a period cost? A) wages paid to a factory custodian B) wages paid to a production department supervisor C) wages paid to a cost accounting department supervisor D) wages paid to an assembly worker

answer

C) wages paid to a cost accounting department supervisor

question

Cost accounting

answer

An area of accounting that involves measuring, recording, and reporting product costs

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What are the two types of cost accounting

answer

1) job order cost system 2) process cost system

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Job order cost system

answer

The company assigns costs to each job or to each batch of goods

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Process cost system

answer

When a company manufactures a large volume of similar products

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Job cost sheet

answer

An accounting record in assigning cost to jobs

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Predetermined overhead rate

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Based on the relationship between estimated annual overhead costs and expected annual operating activity, expressed in terms of a common activity base.

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Over applied overhead

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A situation in which overhead assigned to work in process is greater than the overhead incurred

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Under applied overhead

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A situation in which overhead assigned to work in process is less than the overhead incurred.

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A company is more likely to use a job order cost system if:

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It manufactures product with unique characteristics

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When incurred, factory labor costs are debited to:

answer

Factory labor

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The flows of costs in job order costing:

answer

Parallels the physical flow of materials as they are converted into finished goods

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Raw materials are assigned to a job when:

answer

The materials are issued by the materials storeroom

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Predetermined overhead rate formula

answer

Estimated annual overhead costs divided by an expected annual operating activity

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T/F : Job order costing provides more precise costing for custom jobs than process costing

answer

True

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Manufacturing is under applied if:

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Actual predetermined overhead is greater than applied

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Process cost system

answer

To apply costs to similar products that are mass-produced to a continuous fashion

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Equivalent units of production

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A measure of the work done during the period , expressed in fully completed units

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T/F : a manufacturer of paintballs is likely to use process costing

answer

True

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T/F: a law firm is likely to use process costing for major lawsuits

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False

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T/F : process costing does no keep track of manufacture overhead

answer

False

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Characteristics or process cost system

answer

1) once production begins, it continues until the finished product emerges 2) the focus is on continually producing homogenous products 3) when the finished product emerges, all units have precisely the same amount of materials, labor, and overhead

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T/F: manufacturing costs are assigned the same way in a job order and in a process system

answer

False

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T/F : a job order cost system uses only one worm in process account, whereas cost system uses multiple work in process accounts

answer

True

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T/F: both a job order and a process cost system track the same 3 manufacturing cost elements : direct materials, direct labor , & manufacturing overhead

answer

True

question

In a process cost system, the flow of costs is:

answer

1) work in process 2) finished goods 3) cost of goods sold

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In making journal entries to assign raw materials costs a company using process costing :

answer

Often debits two or more work in process accounts

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In a process account, manufacturing overhead

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Is assigned to work in a process account for each production department as overhead costs are incurred

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Conversion costs are the sam of

answer

Labor costs and overhead costs

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A production cost report shows

answer

Both the production quantity and cost data related to a department

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In a production cost report, units to be accounted for are calculated as

answer

Units started into production + units in beginning work in process

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4 steps in preparing a production cost report

answer

1) compute the physical unit flow 2) compute the equivalent units of production 3) compute unit production costs 4) prepare a cost reconciliation schedule

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