Term
| What is the Consistency Principle? |
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Definition
| Requires use of same accounting methods period after period so the financial statements are comparable across periods. |
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Term
| What is the only exception in the Consistency Principle? |
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Definition
| Only exception is when a change from one method to another will improve its financial reporting aka full disclosure principle. |
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Term
| The Consistency Principle ___________ require a company to use one method exclusively. |
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Definition
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Term
| What is the Full Disclosure Principle? |
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Definition
| It prescribes that the notes to the statements report this type of change, its justification, and its effect on income |
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Term
| What is the Inventory Turnover Ratio? |
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Definition
| It is used to measure how quickly a company sells its inventory and can affect a merchandiser’s ability to pay its short-term obligations |
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Term
| How do you compute the Inventory Turnover Ratio? |
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Definition
| Cost of Goods Sold / Average Inventory |
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Term
| Inventory Turnover measures the number of times a company’s ________ ________ was sold during an accounting period. |
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Definition
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Term
| What is the Day's Sales in Receivables Ratio and what are its Characteristics? |
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Definition
~ It is when many companies sell to customers on credit and this means that cash receipts from customers are delayed until accounts receivable are collected.
~ How users of accounting information want to know how quickly a company can convert its accounts receivable into cash. |
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Term
| What is Days' Sales in Receivables ratio also refered to as? |
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Definition
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Term
| How do you compute Days' Sales in Revievables Ratio? |
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Definition
| Accounts Recievable / Net sales X 365 |
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Term
| The Days Sales in Receivable Ratio is important for ___________ a company's ____________. |
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Definition
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Term
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Definition
| It is a ratio used to evaluate a company’s ability to pay its short term obligations |
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Term
| How do you compute Current Ratio? |
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Definition
| Current Assets / Current Liabilities |
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Term
| What is the Acid Test Ratio? and what is it also known as? |
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Definition
~ It is one way to measure merchandisers ability to pay its current liabilities.
~ A.K.A "Quick Ratio" |
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Term
| How does the Acid Test Ratio DIFFER from the Current Ratio? |
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Definition
| ~ It differs from the Current Ratio by excluding less liquid current assets such as inventory and prepaid expenses that take longer to be converted to cash |
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Term
| How do you compute the Acid Test Ratio? |
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Definition
| (Cash and Equivalents + Short-Term Investments + Current Receivables)/ Current Liabilities |
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Term
| On the Bank Reconciliation the Outstanding Checks are: |
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Definition
| Deducted from the Bank Balance |
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Term
| On the Bank Reconciliation the Deposits in Transit are: |
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Definition
| Added to the Bank Balance |
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Term
| On the Bank Reconciliation the Bank Service Charges are: |
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Definition
| Deducted from the Book Balance |
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Term
| On the Bank Reconciliation the Debit Memos are: |
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Definition
| Deducted from the Book Balance |
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Term
| On the Bank Reconciliation the Credit Memos are: |
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Definition
| Added to the Book Balance |
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Term
| On the Bank Reconciliation the NSF Checks are: |
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Definition
| Deducted from the Book Balance |
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Term
| On the Bank Reconciliation the Interests are: |
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Definition
| Added to the Book Balance |
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Term
| On the Bank Reconciliation the Errors are: |
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Definition
| Must analyze individually, Bank Errors affect Bank Balance and Book Errors affect Book Balance |
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Term
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Definition
| It is when managers use an internal control system to monitor and control business activities |
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Term
| An Internal Control System consists of policies and procedures managers use to: |
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Definition
~ Protect Assests
~ Ensure Reliable Accounting
~ Promotes Efficient Operations
~ Urge Adherence to company policies |
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Term
| According to the Most Serious Limitations the Human Fraud : |
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Definition
| Involves intent by people to defeat internal controls, such as management override, for personal gain |
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Term
| According to the Most Serious Limitations the Human Error: |
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Definition
| Can occur from negligence, fatigue, misjudgment, or confusion |
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Term
| According to the Most Serious Limitations the Cost-Benefit Principle: |
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Definition
| Dictates the costs of internal controls must not exceed their benefits |
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Term
| With the Cost-Benefits Principle Companys have the right to ______ , ______ , _______ , ________ If presented with Evidence. |
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Definition
~ Read Employee's e-mails
~ Tape Phone
~ Drug Test
~ Hide Cameras |
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Term
| What is Damaged/Obsolete? and what is it also known as? |
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Definition
~ Damages and obsolete (and deteriorated) goods that are not counted in inventory if they cannot be sold
~ A.K.A "Net Realizable Value" |
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Term
| According to the Damaged/Obsolete goods can be sold at a reduced price, they are included in inventory at their ___________________. |
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Definition
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Term
| How do you compute the Net Realizable Value? |
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Definition
| Sale price - Cost of making the sale |
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Term
| What is Inventory Shrinkage? |
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Definition
| It is the term used to refer to the loss of inventory and it is computed by comparing a physical count of inventory with recorded amounts |
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Term
| What are the characteristics of FOB Shipping point? |
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Definition
~ Buyers pay freight
~ Ownership passes when goods are loaded on the transport vehicle |
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Term
| What are the characterisitics of FOB Destination? |
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Definition
~ Sellers pay frieght
~ Ownership passes when goods arrive at destination |
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Term
| What is Purchase Discounts? |
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Definition
| It is Cash discounts to encourage the buyer to pay quickly |
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Term
| What are the characterisitics of Purchase Discounts according to 2/10 n/30? |
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Definition
~ The "2" represents that you get 2% off if payed within 10 days
~ The "N" is the net amount due by months end. |
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Term
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Definition
| They are Discounts off the list price. |
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Term
| An example of the Trade Discounts off the list price computes as: |
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Definition
| Trade Discounts = Selling price(2,000 in catalog -40% discount= 1,200) |
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Term
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Definition
| It is the amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any discounts allowed |
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Term
| What are Sales Discounts? |
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Definition
| Sales discounts are usually not recorded until a customer actually pays with the discount period |
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Term
| Sales Discounts is a ____________________; Subtracted from __________. Describe how this would work as well. |
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Definition
~ contra-revenue account
~ sales account
~ Sales - Sales Discounts - Sales returns and allowances = Net Sales |
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Term
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Definition
| It is when buyers return goods to the sellers |
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Term
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Definition
| It is when reductions in the selling price of merchandise sold to customers (for damaged or defective goods) |
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Term
| What does the Income Statement Effect if Ending Inventory is Understated ? |
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Definition
~ Cost of Goods Sold is overstated
~ Net income is understated |
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Term
| What does the Income Statement Effect if beginning inventory is understated? |
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Definition
~ Cost of Goods Sold is Understated
~ Net Income is Overstated |
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Term
| What does the Income Statement Effect if Ending Inventory is Overstated? |
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Definition
~ Cost of Goods Sold is Understated
~ Net Income is Overstated |
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Term
| What does the Income Statement Effect if Beginning Inventory is Overstated? |
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Definition
~ Cost of Goods Sold is Overstated
~ Net Income is Understated |
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Term
| What does the Balance Sheet Effect if Ending Inventory is Understated? |
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Definition
~ Assets are Understated
~ Equity is Understated |
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Term
| What does the Balance Sheet Effect if Ending Inventory is Overstated? |
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Definition
~ Assests are Overstated
~ Equity is Overstated |
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Term
| How do you compute COGAS( cost of goods available for sale)? |
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Definition
| Beginning inventory + Net purchases = COGAS |
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Term
| How do you compute Ending Inventory? |
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Definition
| COGAS - COGS = Ending Inventory |
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Term
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Definition
| COGAS - Ending Inventory = COGS ( at the end of the day, COGAS is either sold or its not) |
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Term
| ___________ period ending inventory = ___________ period beginning inventory |
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Definition
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