ACIS 3115 Exam 3 Review

Flashcards covering key concepts from Chapters 7-9 of ACIS 3115, focusing on cash, receivables, inventories, and accounting methods.

Cash and Cash Equivalents

Amounts readily available to pay off debt or to use in operations and short-term, highly liquid investments, readily convertible to cash.

Internal Controls

Processes designed to encourage adherence to company policies and procedures, promote operational efficiency, minimize errors and theft, and enhance the reliability and accuracy of accounting data.

SOX Section 404

Requires a company to document its internal controls and assess their adequacy, with auditors expressing an opinion on management’s assessment.

Restricted Cash

Cash that is restricted in some way and not available for current use, often required by debt instruments.

Sales Discounts

Reductions in the amount to be paid by a credit customer if paid within a specified period, intended to provide an incentive for quick payment.

Gross Method

Assumes the customer will not take the discount, records the sale at the full price, and later records the discount taken if applicable.

Net Method

Assumes the customer will take the discount, records the sale at the discounted amount, and adjusts the accounts if the discount is not taken.

Sales Returns

Merchandise returned for a refund or credit, with adjustments made at the time of sale to avoid overstated income.

Allowance for Doubtful Accounts

A contra-asset account used to reduce the carrying value of accounts receivable to the amount expected to be collected.

Aging Schedule

A report used to estimate the uncollectibility of accounts receivable, categorizing based on the length of time an invoice has been outstanding.

Perpetual Inventory System

An inventory system that continuously updates the inventory account for each change in inventory due to purchases, sales, or returns.

Periodic Inventory System

An inventory system that adjusts the inventory account and records cost of goods sold only at the end of each reporting period.

Cost of Goods Sold Formula

COGS = Beginning Inventory + Net Purchases - Ending Inventory.

FIFO (First-In, First-Out)

An inventory valuation method that assumes the first units acquired are sold first.

LIFO (Last-In, First-Out)

An inventory valuation method that assumes the last units acquired are sold first.

Lower of Cost or Market (LCM)

A valuation method that requires companies to report inventory using the lower of its cost or its market value.

Net Realizable Value (NRV)

Estimated selling price minus costs of completion, disposal, and transportation.

GROSS PROFIT METHOD

An estimation method used to determine inventory that has been lost, destroyed, or stolen.

Retail Inventory Method

A method used by high-volume retailers to estimate ending inventory and cost of goods sold based on tracking purchases at both cost and retail prices.

Purchase Commitments

Contracts obligating a company to purchase a specified amount of merchandise or raw materials at specified prices on or before specified dates.