MGMT 200 CH 4-6 PURDUE

weighted average cost method

inventory cost method that assumes both cost of goods sold and ending inventory consist of a random mixture of all the goods available for sale

specific identification method

inventory costing method that matches each unit of inventory with its actual cost

lower of cost or market method

companies report inventory in the balance sheet at the market value (replacement cost)

inventory turnover ratio

cost of goods sold divided by average inventory

inventory

items a company intends for sale

income before income taxes

operating income + nonoperating revenues - nonoperating expenses

gross profit ratio

gross profit divided by net sales

gross profit

net sales - cost of goods sold

freight - out

cost of freight on shipments to customers

freight - in

cost to transport inventory to the company

cost of goods sold

cost of inventory sold during the period

collusion

2 or more people acting in coordination to circumvent internal controls

E-commerce controls

electronic controls

employee management

employee guidance

proper authorization

employees know their job and others have different responsibilities

physical controls

controlling assets and records with safes, files, backups

separation of duties

authorizing transactions, recording transactions, and maintaining control of the related assets should be separated among employees

Sarbaney Oakley Act (sox)

established a variety of guidelines related to auditor - client relations and internal control procedures (section 404)

internal controls

a company's plans to safeguard the company's assets and improve accuracy and reliability of accounting info

fraud triangle elements

motive, rationalization, and opportunity

occupational fraud

using ones occupation for personal enrichment through deliberate misuse of employer resources

deposits outstanding

cash receipts of the company that haven't been added to the bank statement

earnings quality

the ability of net income to help predict future performance of the company

free cash flow

operating cash flows + investing cash flows

bank reconciliation

matching the balance of cash in the bank account to the balance of cash in the company's own records

cash equivalents

short - term investments that have a maturity date no longer than 3 months from the date of purchase

checks outstanding

checks the company has recorded that have not been subtracted from the bank's records

NSF checks

bad checks drawn on non sufficient funds

petty cash fund

small amount of cash kept on hand to pay for minor purchases

accounts receivable

amount of cash owed to customer from sale of products or services on account

aging method

using a higher percentage for old accounts than for new accounts when estimating uncollectible accounts

allowance for uncollectible accounts

contra asset account representing the amount of accounts receivable that we don't expect to collect

allowance method

recording an adjustment at the end of each period to allow for the possibility of future uncollectible accounts; reduces assets and increasing expenses

average collection period

approximate number of the days the average accounts receivable balance is outstanding

bad debt expense

amount of the adjustment to the allowance for uncollectible accounts; represents the cost of estimated future bad debts

credit sales

providing goods or services today and risking collecting payment in the future

direct write off method

recording bad debt expense at the time we know the account is uncollectible

net accounts receivable

total accounts receivable - allowance for uncollectible accounts

net realizable value

amount of cash the firm expects to collect

net revenues

a company's total revenues - discounts - returns - allowances

notes receivable

formal credit arrangements by a written debt (note)

percentage of receivables method

method of estimating uncollectible accounts based on the percentage of accounts receivable expected not to be collected

receivables turn over ratio

number of times during a year that the average accounts receivable balance is collected

sales allowance

seller reduces the customer balance owed or provides a partial refund due to some deficiency

sales discount

reduction in the amount to be paid by a credit customer if paid in the allotted time

sales return

customer returns a product

trade discounts

reduction in the listed price of a product/service

uncollectible accounts

customer's accounts that are no longer considered collectible

average days in inventory

365 days divided by inventory turnover ratio; number of days average inventory is held