ACG 2021 Block 2 Accounting Theory & Practice Flashcards

Comprehensive vocabulary flashcards covering internal controls, inventory costing methods, depreciation calculations, financial statement components, and basic contra-revenue and expense account definitions based on the Block 2 study guide.

Internal Controls

A company’s plan to 1.) Safeguard the company’s assets, and 2.) Improve the accuracy and reliability of accounting information.

Separation of duties

The practice where authorizing transactions, recording transactions, and maintaining control of related assets are separated among different employees.

First-in, first-out method (FIFO)

An inventory costing method that assumes the first units purchased (the first-in) are the first ones sold (the first-out).

Last-in, first-out method (LIFO)

An inventory costing method that assumes the last units purchased (the last-in) are the first ones sold (the first out).

Multi-step income statement

An income statement that reports multiple levels of income (or profitability).

Residual (Salvage) value

The amount the company expects to receive from selling the assets at the end of its service life.

Straight line depreciation calculation

Alocates an equal amount of depreciation to each year of the assets service life.

Double declining balance depreciation calculation

An accelerated method that allocates a higher depreciation in the earlier years of the asset’s life and lower depreciation in later years.

Intangible asset

Long-term assets that lack physical substance, and whose existence is often based on a legal contract.

Net accounts receivable (Net A/R)

The calculated difference between total accounts receivable and the allowance of uncollectible accounts, expressed as: $\text{Accounts Receivable} - \text{Allowance for Uncollectible Accounts}$.

Net revenues (Net Sales)

Total revenues less any discounts, returns, and allowances. Formula: $\text{Sales Revenue} - (\text{Sales Discounts} + \text{Sales Returns} + \text{Sales Allowances})$.

Gross profit

Calculation: $\text{Sales Revenue} - \text{Cost of Goods Sold}$.

Book value

Calculation: $\text{Original cost of long-term asset} - \text{Accumulated Depreciation}$.

Contra revenue account

An account with a balance that is opposite, or contra, to that of its related (companion) revenue account.

Allowance for uncollectible accounts

A contra asset account representing the amount of accounts receivable that we do not expect to collect. Major category: contra asset, asset; Normal balance: credit; Financial statement: Balance Sheet.

Sales allowance

Seller reduction of customers’ balance owed or provision of a partial refund because of some deficiency in the company’s product or service. Major category: contra revenue, revenue; Normal balance: debit; Financial statement: Income Statement.

Sales discount

Reduction in the amount to be paid by a credit customer if payment on account is made within a specified period of time. Major category: contra revenue, revenue; Normal balance: debit; Financial statement: Income Statement.

Sales return

Customer returns a product. Major category: contra revenue, revenue; Normal balance: debit; Financial statement: Income Statement.

Bad Debt Expense

The amount of the adjustment to allowance for uncollectible accounts, representing the cost of estimated future bad debts charged to the current period. Major category: Expense; Normal balance: debit; Financial statement: Income Statement.

Cost of goods sold (COGS)

Cost of inventory that was sold during the period. Major category: Expense; Normal balance: debit; Financial statement: Income Statement.

Amortization Expense

Allocation of the cost of an intangible asset over its service life. Major category: Expense; Normal balance: debit; Financial statement: Income Statement.