ACC101 FINAL
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23 Terms
What is the purpose of accounting?
To communicate financial information
Which inventory system updates inventory after every sale?
Perpetual Inventory System
Why is the allowance method preferred over direct write-off?
Because it follows the matching principle by estimating bad debt in the same period as the related revenue
Gain or Loss?
Book Value = $7,000
Sold for = $9,000
Calculate by Subtraction
Gain of $2,000
Identify the Type of Adjustment?
Rent expense has been incurred but not yet paid.
Accrued Expense
What is the normal balance of Accounts Payable?
Credit
Calculate Cost of Goods Sold by Addition and Subtraction?
Beginning Inventory = $10,000
Purchases = $25,000
Ending Inventory = $8,000
10,000 + 25,000 − 8,000 = $27,000
Calculate Profit Margin by Division and %
Net Income = $12,000
Net Sales = $60,000
12,000 ÷ 60,000 = 20%
Calculate Debt Ratio by Division and %?
Total Liabilities = $40,000
Total Assets = $100,000
40,000 ÷ 100,000 = 0.40 or 40%
Calculate the Current Ratio by Division?
Current Assets = $30,000
Current Liabilities = $15,000
30,000 ÷ 15,000 = 2.0
A company borrows $5,000 at 4% interest for 2 years.
Use Multiptican
5,000 × .04 × 2 = $400
A machine costs $20,000, has a salvage value of $2,000, and a useful life of 6 years.
( __ - __) /
(20,000 − 2,000) ÷ 6 = $3,000 depreciation per year
What is the formula for Interest?
Principal × Rate × Time
Which ratio measures short-term ability to pay debts?
Cuurent Ratio
What is Treasury Stock?
Company shares repurchased by the company
What is Accounts Payable?
Money owed to suppliers
What is an intangible asset?
Patent
Which formula calculates depreciation using straight-line method?
(Cost − Salvage Value) ÷ Useful Life
What does “2/10, n/30” mean?
2% discount if paid within 10 days
Which inventory system continuously updates inventory?
Perpetual
What is an accrued expense?
Expense incurred but not yet paid
Which account has a normal debit balance?
Expenses
Which financial statement reports revenues and expenses?
Income Statement