ACC 221 Exam 2

Which two timing errors effect the bank's balance?

- deposits outstanding and checks outstanding

does deposits outstanding increase or decrease Bank's Balance?

increase

does checks outstanding increase or decrease the Bank's balance?

decrease

examples of reasons when the company's balance would be effected:

- interest earned by company

- collections made by the bank on the company's behalf

- service fees

- charges for NSF checks

- NSF checks

Does an NSF check increase or decrease a company's balance?

decreases

journal entry made for NSF check:

- credit to cash

- debit to accounts receivable

Entry when customer pays within the timeline to receive a discount:

Cash is debited discount price

Discount Sales is debited discount difference

Accounts receivable it credited full price

Estimation of amount of A/R that will not be collected is recorded how?

- Credit for Allowance of Uncollectable Accounts

- Debit for Bad Expense

Entry for write-off method ( when someone cannot pay)

Debit to Allowance of uncollectable accounts

Credit to Accounts Receivable

when do you use write-off method

when you know exactly who cannot pay

how do you make an entry when you estimated uncollectables too high?

Debit to Allowance of uncollectable accounts

credit to bad debt expense

how do you make an entry when you estimated the uncollectable too low?

credit to allowance account

debit to bad debt expense

Notes Receivable

similar to accounts receivable, but are more formal credit arrangements evidences by a written debt instrument or note

- Usually arise from loans

What makes a note a long-term asset?

is the time to maturity is longer than one year

entry for initial long-term asset purchase

debit to notes receivable

credit to service revenue

Interest equation for note

Interest = Face Value x Annual Interest Rate x Fraction of the Year (x/12)

how do you record the collection of a notes receivable

- add the interest to the original face value

entry to journal for collection of a note receivable

debit to cash

credit to notes receivable

credit to interest revenue

How does a sales allowance affect accounts receivable?

lowers it

how does sales allowance affect revenue?

decreases it

what type of account is Sales Discount

Contra revenue account

weighted-average cost formula

Cost of Goods Available for sale / Number of units available for sale

when using weighted-average cost, how do you find ending inventory?

weighted-average times amount of units left in inventory

when using weighted-average cost, how do you find cost of goods sold?

weighted-average unit cost times the amount of units sold

regardless of method one uses (LIFO, FIFO, average weighted), which calculation will always be the same?

Sales Revenue

which cost flow assumption generally results in the highest reported amount for ending inventory when inventory costs are rising?

FIFO

which cost floor assumption generally results in the highest reported amount of net income when inventory costs are rising?

FIFO

Explain how LIFO generally results in lower income taxes payable when inventory costs are increasing

LIFO generally results in lower income taxes payable when inventory costs are increasing because net income in this case is lower (than if FIFO were used).

what is the LIFO conformity rule?

The LIFO conformity rule requires a company that uses LIFO for tax reporting to also use LIFO for financial reporting

A loss on a fixed asset results in what?

Credit

A gain on a fixed asset results in what?

Debit

book value

Original Cost - Accumulated Depreciation

difference between sales and trade discount

Trade discounts represent a reduction in the listed price of a product or service. A sales discount represents a reduction, not in the selling price of a product or service, but in the amount to be paid by a credit customer if paid within a specified period of time

what type of account is the sales discount account?

contra-asset account

When making the adjusting entry for inventory after the lower-of-cost-or-market method, which accounts are used?

- inventory and cost of goods sold

Entry for Direct-Write Off Method

Debit to Bad Debts Expense

Credit to Accounts Receivable

Direct Write off Method

Wait till the end of the month, know exactly who who is not going to pay and know exactly how much is not going to be payed. No estimation is required

Which account does the direct write off method not use?

Allowance for Uncollectible Accounts

2 entries that happen during Allowance method

- Actual Write off

- Adjusting Journal Entry

Actual Write off Entry

Every account that is not payed on time

- switched from accounts receivable to allowance for uncollectible accounts

What happens when you make an actual write off entry and then the customer decides to pay?

Reverse the original Actual Write off Entry

- Debit Accounts Receivable

- Credit Allowance for Uncollectible Accounts

Which estimate of uncollectibles is the most accurate?

Aging method

Regular Entry for Sales Discount

Debit

when trying to save on taxes, do you use LIFO/FIFO?

LIFO

LIFO Reserve

difference between ending inventory on LIFO and FIFO

which two accounts are adjusted when using Lower-cost of market

Cost of Goods Sold and Inventory