ACCT 2301 Test 1 Study Guide

A comprehensive set of flashcards based on key accounting principles, terms, and formulas from the ACCT 2301 Test 1 Study Guide.

What is a cash discount?

A reduction in invoice price for prompt payment.

How is cost of goods available for sale calculated?

Beginning inventory + inventory purchases.

What does COGS stand for?

Cost of goods sold, the expense of goods sold during a period.

What does FOB Destination mean?

The seller pays shipping costs.

What does FOB Shipping Point refer to?

The buyer pays shipping costs.

How is gross margin calculated?

Net Sales - COGS.

What is merchandise inventory?

Goods available for sale.

What is a multistep income statement?

An income statement format showing gross margin and operating income.

Define net sales.

Sales revenue minus sales discounts and returns.

What is a perpetual inventory system?

A system for continuous tracking of inventory.

What do retail companies do?

They sell goods directly to consumers.

What is the role of wholesale companies?

They sell goods to retailers.

What is the formula for calculating ending inventory?

Ending Inventory = Cost of Goods Available for Sale - COGS.

How does a cash purchase affect accounting?

It increases inventory and decreases cash.

What happens during a purchase on account?

It increases inventory and accounts payable.

What effect do purchase returns/allowances have on inventory?

They reduce inventory and accounts payable.

What are purchase discounts?

They reduce inventory and accounts payable.

What does FOB Shipping Point add to?

It adds to inventory value.

What is the treatment of FOB Destination in terms of transportation?

It is considered an operating expense.

Describe the impact of a cash sale on accounts.

It increases cash and revenue, and records COGS.

What occurs when there is a sale on account?

It increases accounts receivable and revenue, and records COGS.

How do sales returns/allowances affect the financial statements?

They reduce revenue, accounts receivable, increase inventory, and reduce COGS.

What are the differences between revenues and gains?

Revenues arise from core business; gains come from non-operating activities.

What is the distinction between expenses and losses?

Expenses relate to operations; losses arise from non-operating activities.

What does FIFO stand for?

First-In, First-Out, oldest inventory costs assigned to COGS.

What does LIFO mean?

Last-In, First-Out, newest inventory costs assigned to COGS.

Define weighted-average in inventory accounting.

Average cost per unit applied to inventory.

What does the lower-of-cost-or-market (LCM) rule entail?

Inventory reported at lower of cost or market value.

What is the effect of using FIFO in inflationary periods?

It results in higher net income.

How does LIFO benefit during inflation?

It can lower taxes.

What does the weighted-average method do?

It smoothes price fluctuations.

When is specific identification used?

For high-value, unique items.

What is the purpose of the allowance for doubtful accounts (AFDA)?

To estimate bad debts.

How is net realizable value (NRV) calculated?

Accounts receivable - AFDA.

What is the sales revenue recognition principle for credit card sales?

Revenue is recorded at the full sale amount.

What is the formula for calculating interest on notes receivable?

Principal x Interest Rate x Time.

How is depreciation defined?

Allocating asset cost over its useful life.

What is the formula for straight-line depreciation?

(Cost - Salvage Value) / Useful Life.

What does accumulated depreciation represent?

A contra asset reducing the asset's value.

What are intangible assets?

Patents, trademarks, goodwill.

What consists of cost components for long-term assets?

Purchase price, taxes, legal fees for buildings; clearing costs for land.

What is the formula for recording depreciation?

Increases depreciation expense and accumulated depreciation.

How is a gain or loss on asset disposal calculated?

Cash Received - Book Value.

What signals an impairment of an asset?

If carrying value > fair value, record a loss.

What does amortization refer to in terms of intangible assets?

It is similar to depreciation.