Review Chapter 4: Income Statement, Comprehensive Income, and Cah Flows
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56 Terms
What is the formula for net realizable value?
Accounts Receivable
How do you calculate bad debt expense using the percentage of credit sales method?
Net Credit
Sales x Estimated Uncollectible Percentage.
How do you calculate the required allowance adjustment when the allowance account has a credit balance?
Desired Ending Allowance
How do you calculate the required allowance adjustment when the allowance account has a debit balance?
Desired Ending Allowance + Current Allowance Debit Balance.
What is simple interest?
Principal x Annual Interest Rate x Time.
How do you calculate the maturity value of an interest
bearing note?
How do you calculate the discount on a note?
Maturity Value x Discount Rate x Discount Period.
How do you calculate cash proceeds from discounting a note?
Maturity Value
How do you calculate the proceeds from a noninterest
bearing note when interest is deducted upfront?
How do you calculate interest revenue using the effective interest method?
Beginning Carrying Value x Effective Interest Rate x Time.
How do you convert months into years for an interest calculation?
Number of Months + 12.
How do you convert days into years using a 360
day year?
How do you convert days into years using a 365
day year?
How do you calculate a trade discount?
List Price x Trade Discount Rate.
How do you calculate the price after a trade discount?
List Price
How do you calculate a cash discount?
Amount Eligible for Discount x Discount Rate.
How do you calculate cash collected after a cash discount?
Amount Owed
What does 2/10, n/30 mean?
A 2% discount is available if payment is made within 10 days;
otherwise, the full balance is due within 30 days.
What is added to the bank statement balance during a bank reconciliation?
Deposits in transit and bank errors that understated the bank balance.
What is subtracted from the bank statement balance during a bank reconciliation?
Outstanding checks and bank errors that overstated the bank balance.
What is added to the book balance during a bank reconciliation?
Unrecorded bank collections,
unrecorded interest earned, and company errors that understated cash.
What is subtracted from the book balance during a bank reconciliation?
Bank service charges, NSF
checks, and company errors that overstated cash.
What should the adjusted bank balance equal?
The adjusted book balance.
What are deposits in transit?
Deposits recorded by the company but not yet processed by the bank.
What are outstanding checks?
Checks recorded by the company but not yet cleared by the bank.
What is an NSF check?
A check returned because the payer has insufficient funds.
How do you calculate the amount needed to replenish petty cash?
Petty Cash Fund Amount
What is the petty cash fund relationship when there is no shortage or overage?
Cash Remaining + Receipts for Authorized Expenditures = Fund Amount.
What are common petty cash expenditures?
Office supplies, postage, and permitted small
entertainment expenses.
What is factoring?
Selling accounts receivable to a financial institution called a factor.
What services does a factor perform?
Buying accounts receivable and handling billing and collections.
What is a secured borrowing?
A loan backed by collateral, such as accounts receivable.
Who generally keeps receivables on the balance sheet in a secured borrowing?
The transferor.
What must happen for a transfer of receivables to qualify as a sale?
The transferor must surrender
control under the applicable accounting requirements.
What is a trade discount?
A reduction from the list price, often used for quantity discounts or to
disguise actual selling prices from competitors.
What is a cash discount?
A reduction offered to encourage customers to pay quickly.
What is one cost of offering a cash discount?
The company collects less cash from customers who
take the discount.
What is the allowance method?
A method that estimates uncollectible accounts before specific
accounts are written off.
What is the main purpose of the allowance method?
To report accounts receivable at the net amount expected to be collected.
What is a contra
asset account?
What is an interest
bearing note?
What is a noninterest
bearing note?
deducted from the face amount upfront.
What is the maturity value of a note?
The total amount due at maturity, including applicable interest.
What is recourse when receivables are sold?
An arrangement in which the seller may remain
responsible for certain losses if customers do not pay.
What is the difference between the transferor and transferee?
The transferor gives or sells the asset; the transferee receives it.