Exam 2 Review Flashcards

A collection of vocabulary flashcards designed to enhance understanding of key accounting concepts and terms for Exam 2.

Cash Equivalents

Highly liquid investments with a maturity of 3 months or less, included on the balance sheet as a separate line item from cash.

Sarbanes Oxley Act

Requires that managers and auditors certify the company’s system of internal control to reduce opportunities for fraud in financial reporting.

Incentive

A motivating factor that can lead an employee to commit fraud.

Consignment Inventory

Inventory that should be included in the inventory of the original owner.

Cost of Goods Sold (COGS)

The direct costs attributable to the production of the goods sold by a company.

Shrinkage

The loss of inventory due to theft, damage, or error.

FIFO (First In, First Out)

An inventory valuation method where the oldest inventory items are sold first.

LIFO (Last In, First Out)

An inventory valuation method where the newest inventory items are sold first.

Allowances for Doubtful Accounts

A contra asset account that reduces accounts receivable to reflect the amount expected to be collected.

Net Sales

Total sales revenue minus sales returns, allowances, and discounts.