Exam 3 lock In

What is the formula for Net Income?

Net Income = Revenues - Expenses.

How are long-term assets purchased recorded?

They are recorded as investing activities on the statement of cash flows.

What does the Current Ratio measure?

Current Ratio = Current Liabilities / Current Assets.

What is the main benefit of FIFO in rising price periods?

FIFO provides the highest net income by using older, cheaper costs for COGS.

What is the main accounting principle for recognizing revenue?

Revenue is recorded when earned, not when cash is received.

How should land be recorded in accounting?

Land should be recorded at the purchase price.

What are Accrued Liabilities?

Accrued Liabilities include wages, taxes, and interest owed but unpaid.

What are contra accounts?

Contra accounts, like Accumulated Depreciation, have credit balances; contra liabilities have debit balances.

What changes when an expense reimbursement is made?

Requires receipts and documentation for approval.

How does depreciation affect an asset's original cost?

Depreciation allocates the cost of an asset over time without changing its original cost.

What are the consequences of failing to enter a credit when a debit is recorded?

It violates the double-entry system, resulting in an unbalanced trial balance.

What entries are made when issuing common stock for cash?

Debit: Cash, Credit: Common Stock.

What is the definition of Current Liabilities?

Current Liabilities are obligations a company expects to settle within one year.

What does the Quick Ratio include?

The Quick Ratio includes cash, accounts receivable, and short-term investments.

What is the impact of dividends on Stockholders’ Equity?

Dividends decrease Stockholders’ Equity but do not affect expenses.

What is the formula for calculating Gross Profit?

Gross Profit = Sales Revenue - COGS.

What is Amortization related to?

Amortization pertains to the gradual write-off of intangible assets.

What is the accounting treatment for a cash sale of land?

Cash sale of land is recorded under investing activities and involves cash inflow.

What is the significance of Corporate Charters?

Corporate Charters state the company’s purpose, authorized stock, and structure.

What are contingent liabilities?

Contingent liabilities are recorded only if probable and estimable; otherwise, they are disclosed.

What is the main distinction of Specific Identification in inventory costing?

Specific Identification ties exact costs to specific items, providing the most accurate net income when applicable.