accounting 201 exam 2 UKY

accrual-basis accounting

Accounting basis in which companies record, in the periods in which the events occur, transactions that change a company's financial statements, even if cash was not exchanged.

Accrued expenses

Expenses incurred but not yet paid in cash or recorded.

Accrued revenues

Revenues for services performed but not yet received in cash or recorded.

Adjusted trial balance

A list of accounts and their balances after all adjustments have been made. primary basis for the preparation for the financial statements

Adjusting entries

Entries made at the end of an accounting period to ensure that the revenue recognition and expense recognition principles are followed. NEVER INCLUDE CASH

Average-cost method

An inventory costing method that uses the weighted-average unit cost to allocate the cost of goods available for sale to ending inventory and cost of goods sold.

Book value

The difference between the cost of a depreciable asset and its related accumulated depreciation.

Cash-basis accounting

Accounting basis in which a company records revenue only when it receives cash and an expense only when it pays cash.

Closing entries

Entries at the end of an accounting period to transfer the balances of temporary accounts to a permanent stockholders' equity account, Retained Earnings.

Comprehensive income

An income measure that includes gains and losses that are excluded from the determination of net income.

Comprehensive income statement

A statement that presents items that are not included in the determination of net income, referred to as other comprehensive income.

Consigned goods

Goods held for sale by one party although ownership of the goods is retained by another party.

Contra asset account

An account that is offset against an asset account on the balance sheet.

Contra revenue account

An account that is offset against a revenue account on the income statement.

Cost of goods sold

The total cost of merchandise sold during the period.

Current replacement cost

The cost of purchasing the same goods at the present time from the usual suppliers in the usual quantities.

Days in Inventory

Measure of the average number of days inventory is held; calculated as 365 divided by inventory turnover.

Depreciation

The process of allocating the cost of an asset to expense over its useful life.

Earnings management

The planned timing of revenues, expenses, gains, and losses to smooth out bumps in net income.

Expense recognition principle (matching principle)

The principle that matches expenses with revenues in the period when the company makes efforts to generate those revenues. LET THE EXPENSES FOLLOW THE REVENUES

Finished goods inventory

Manufactured items that are completed and ready for sale.

First-in, first-out (FIFO) method

An inventory costing method that assumes that the earliest goods purchased are the first to be sold.

Fiscal year

An accounting period that is one year long.

FOB destination

Freight terms indicating that ownership of goods remains with the seller until the goods reach the buyer.

FOB shipping point

Freight terms indicating that ownership of goods passes to the buyer when the public carrier accepts the goods from the seller.

Gross profit

The excess of net sales over the cost of goods sold.

Gross profit rate

Gross profit expressed as a percentage by dividing the amount of gross profit by net sales.

Income Summary

A temporary account used in closing revenue and expense accounts.

Inventory turnover

A ratio that indicates the liquidity of inventory by measuring the number of times average inventory is sold during the period; computed by dividing cost of goods sold by the average inventory during the period.

Just-in-time (JIT) inventory

Inventory system in which companies manufacture or purchase goods only when needed.

Last-in, first-out (LIFO) method

An inventory costing method that assumes that the latest units purchased are the first to be sold.

LIFO reserve

For a company using LIFO, the difference between inventory reported using LIFO and inventory using FIFO.

Lower-of-cost-or-market (LCM)

A basis whereby inventory is stated at the lower of either its cost or its market value as determined by current replacement cost.

Net sales

Sales less sales returns and allowances and sales discounts.

Periodic inventory system

An inventory system in which a company does not maintain detailed records of goods on hand throughout the period and determines the cost of goods sold only at the end of an accounting period.determine inventory on hand

Periodicity assumption

An assumption that the economic life of a business can be divided into artificial time periods. generally month, quarter or year

Permanent accounts

Balance sheet accounts whose balances are carried forward to the next accounting period.

Perpetual inventory system

A detailed inventory system in which a company maintains the cost of each inventory item, and the records continuously show the inventory that should be on hand. Check accuracy of inventory

Post-closing trial balance

A list of permanent accounts and their balances after a company has journalized and posted closing entries.

Prepaid expenses (prepayments)

Expenses paid in cash before they are used or consumed.

Profit margin

Measures the percentage of each dollar of sales that results in net income, computed by dividing net income by net sales.

Purchase allowance

A deduction made to the selling price of merchandise, granted by the seller, so that the buyer will keep the merchandise.

Purchase discount

A cash discount claimed by a buyer for prompt payment of a balance due.

Purchase invoice

A document that provides support for each purchase.

Purchase return

A return of goods from the buyer to the seller for cash or credit.

Quality of earnings

Indicates the level of full and transparent information that a company provides to users of its financial statements.

Quality of earnings ratio

A measure used to indicate the extent to which a company's earnings provide a full and transparent depiction of its performance; computed as net cash provided by operating activities divided by net income.

Raw materials

Basic goods that will be used in production but have not yet been placed in production.

Revenue recognition principle

The principle that companies recognize revenue in the accounting period in which the performance obligation is satisfied. WHEN IT IS EARNED. service peformed-> cash recieved

Reversing entry

An entry made at the beginning of the next accounting period; the exact opposite of the adjusting entry made in the previous period.

Sales discount

A reduction given by a seller for prompt payment of a credit sale.

Sales invoice

A document that provides support for each sale.

Sales returns and allowances

Transactions in which the seller either accepts goods back from the purchaser (a return) or grants a reduction in the purchase price (an allowance) so that the buyer will keep the goods.

Sales revenue

Primary source of revenue for a merchandising company.

Specific identification method

An actual physical-flow costing method in which particular items sold and items still in inventory are specifically costed to arrive at cost of goods sold and ending inventory.

Temporary accounts

Revenue, expense, and dividend accounts whose balances a company transfers to Retained Earnings at the end of an accounting period.

Unearned revenues

Cash received and a liability recorded before services are performed.

Useful life

The length of service of a productive asset.

Weighted-average unit cost

Average cost that is weighted by the number of units purchased at each unit cost.

work in process

That portion of manufactured inventory that has begun the production process but is not yet complete.

Worksheet

A multiple-column form that companies may use in the adjustment process and in preparing financial statements.

Deferrals

Prepaid expenses: expenses paid in cash and recorded as asssets before they are used or consumed

Unearned service revenues: cash received before service are performed.

Accruals

accrued revenues: revenues for services performed but not yet received in cash or recorded.

Accrued expenses:expenses incurred but not yet paid in cash or recorded.

The primary source of revenue for a merchandising company results from performing services for customers.

service company

TRUE FALSE: the operating cycle of a service company is usually shorter than that of a merchandising company

true

TRUE OR FALSE: sales revenue less cost of goods sold equals gross profit

true

TRUE FALSE: Ending inventory plus the cost of goods purchased equals cost of goods available for sale

FALSE, beginning inventory+cost of goods sold.

In a perpetual inventory system, a return of defective merchandise by a purchaser is recorded by crediting...

inventory

credit terms

may allow buyer to claim a cash discount for a prompt payment

Temporary accounts

all revenue accounts

all expense accounts

Dividends

Permanent Accounts

All asset accounts

All Liability accounts

Stockholders' equity accounts

Post closing trial balance

the purpose is to prove the equality of the permanent account balances that the company carries forward into the next accounting period

All temp accounts will have a zero balance

balance sheet accounts have balances

How many cost flow assumptions are there?

three, FIFO, LIFO and average cost