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ACCT 102: EXAM 2
cost of merchandise sold |
when merchandise is sold, the revenue is reported as sales and its cost is recognized as an espense |
gross profit |
merchandise sold subtracted from the sales. The profit before deducting operating expenses |
merchandise inventory |
merchandise on hand at the end of an accounting period |
multiple-step income statement |
contains several sections, subsections, and subtotals |
sales |
the total amount charged customers for merchandise sold |
sales returns and allowances |
granted by the seller to customers for damaged or defective merchandise
|
sales discounts |
granted by the seller to customers for early payment of amounts owed |
net sales |
determined by subtracting sales returns and allowances and sales discounts from sales
|
purchases returns and allowances |
sellers grant a buyer sales returns and allowances for returned or damaged merchandise
|
purchase discounts |
sellers grant a buyer a sales discount for early payment of the amount owed |
net purchases |
returns and allowances and purchases discounts subtracted from purchases |
freight in |
freight costs incurred in obtaining the merchandise increase the cost of the merchandise purchased |
cost of merchandise purchased |
adding freight in to net purchases yields |
Merchandise available for sale
|
beginning inventory plus the cost of merchandise purchased |
periodic inventory system |
method of determining the cost of merchandise sold and the amount of merchandise on hand
|
perpetual inventory system
|
each purchase and sale of merchandise is recorded in the inventory and the cost of merchandise sold accounts |
income from operations (operating income) |
determined by subtracting operating expenses from gross profit |
selling expenses |
incurred directly in the selling of merchandise |
administrative expenses (general expenses) |
incurred in the administration or general operations of the business |
other income |
revenue from sources other than the primary operating activity of a business |
other expense |
expense that cannot be traced directly to the normal operations of the business |
single-step income statement |
deducts the total of all expenses in one step from the total of all revenues |
report form |
a downward sequence in three sections of the balance sheet |
indirect method |
the net cash flows from operating activities |
invoice |
bill that seller sends to the buyer |
credit terms |
the terms for when payments for merchandise are to be made |
credit period |
buyer is allowed an amount of time in which to pay |
credit memorandum |
shows the amount of and the reason for the sellers credit to an account receivable |
debit memorandum |
informs the seller of the amount the buyer proposes to decrease to the account payable due to the seller |
free on board shipping point FOB |
the ownership of the merchandise may pass to the buyer when the seller delivers the merchandise to the freight carrier or transportation company |
free on board destination FOB |
the ownership of the merchandise may pass to the buyer when the buyer receives the merchandise |
inventory shrinkage (shortage) |
the physical inventory on hand at the end of the accounting period i usually less than the balance of merchandise inventory |
sarbanes-oxley act of 2002 |
purpose is to restore public confidence and trust in the financial reporting of caompanies |
internal control |
the procedures and processes used by a company to safeguard its assets, process info accurately, and ensure compliance with laws and regulations |
employee fraud |
intentional act of deceiving an employer for personal gain |
elements of internal control |
control environment, risk assessment, control procedures, monitoring, information and communication |
cash |
coins, currency (paper money), checks, and money orders |
cash short and over account |
used to record the difference between the amount of cash in a cash register and the amount of cash that should be on hand according to the records |
electronic funds transfer EFT |
customers may authorize automatic electronic transfers from their checking accounts
|
voucher system |
a set of procedures for authorizing and recording liabilities and cash payments
|
voucher |
any document that serves as proof of authority to pay cash or issue and electronic funds transfer
|
bank reconciliation |
analysis of the items and amounts that result in the cash balance reported in the bank statement differing from the balance of the cash account in the ledger |
petty cash fund
|
a special purpose cash fund to pay relatively small amounts |
cash equivalents |
highly liquid investments that are usually reported with cash on the balance sheet |
receivables |
all money claims against other entities, including people, companies and other organizations
|
accounts receivable |
normally collected within a short period such as 30-60 days |
maturity value |
the amount that must be paid at the due date of the note |
bad debt expence |
operating expense recorded from uncollectible receivables |
direct write-off method |
records bad debt expense only when an account is determined to be worthless |
allowance method |
records bad debt expense by estimating uncollectible accounts at the end of the accounting period
|
allowance for doubtful accounts |
the contra asset account for accounts receivable |
aging the receivables |
the process of analyzing the accounts receivable and classifying them according to various age groupings with the due date being the base point for determining age |
merchandise inventory |
merchandise on hand at the end of the period is a current asset |
materials inventory |
the cost of raw materials used in manufacturing a product |
work in process inventory |
the costs for partially completed product |
finished goods inventory |
the costs for completed product |
cost of goods sold |
the cost of products sold |
specific identification inventory cost flow method |
the unit sold is identified with a specific purchase |
first in first out inventory cost flow method (FIFO) |
the first units purchased are assumed to be sold and the ending inventory is made up of the most recent purchases |
last in first out inventory cost flow method (LIFO) |
the last units purchased are assumed to be sold and the ending inentory is made up of the first purchases |
average cost inventory cost flow method |
the cost of the units sold and in ending inventory is an average of the purchase costs |
LIFO conformity rule |
a financial reporting rule requiring a firm that elects to use LIFO inventory valuation for tax purposes to also use LIFO for external financial reporting |
LIFO reserve |
a required disclosure for LIFO firms showing the difference between inventory valued under FIFO and inventory valued under LIFO |
net realizable value |
where merchandise should be valued (net realizable value = estimated selling price - direct costs of disposal) |
lower of cost or market method LCM |
a method of valuing inventory that reports the inventory at the lower of its cost or current market value |
amortization |
the periodic transfer of the cost of an intangible asset to expense |
capital expenditures |
the costs of acquiring fixed assets adding a component or replacing a component of a fixed asset
|
copyright |
an exclusive right to publish and sell a literary, artistic, or musical composition |
depletion |
the process of transferring the cost of natural resources to an expense account |
depreciation |
the systematic periodic transfer of the cost of a fixed asset to an expense account during its expected useful life |
goodwill |
an intangible asset of a business that is created from favorable factors such as location, product quality, reputation and mangerial skill as verified from a merger transaction |
intangible assets |
long lived assets without tangible properties that are used in the operations of a business and are not held for sale |
patents |
exclusive rights to produce and sell goods with one or more unique features |
residual value |
the estimated value of a fixed asset at the end of its useful life |
revenue expenditures
|
costs that benefit only the current period or costs incurred for normal maintenance and repairs of fixed assets |
straight line method |
a method of depreciation that provides for equal periodic depreciation expense over the estimated life of a fixed asset |
trademark |
a name term or symbol used to identify a business and its products |