accounting test 2

  1. net realizable value
    face value minus allowance for doubtful accounts
  2. allowance for doubtful accounts
    estimated value of accounts recievable that will not be collected
  3. reinstate
    reversing write off
  4. contra asset account
    account subtracted from another asset account
  5. uncollectible accounts expense
    expense assosciated with uncollectible accounts recievable
  6. percent of revenue method
    estimating the amount of uncollectible accounts expense as a percentage of the revenue earned during the accounting period
  7. percentage of receivables method
    estimating the amount of the allowance for doubtful accounts as a percentage of the outstanding receivables balance; longer an account receivable is outstanding, the less likely it is to be paid
  8. aging of accounts receivable
    classigying each account recievable by the number of days it has been outstanding
  9. promissory note
    a legal document respresenting a credit agreement between a lender and a borrower
  10. maker
    borrower; must pay note on due date
  11. payee
    person to whom the note is made payable; lender
  12. principal
    amount of money loaned
  13. interest
    economic benefit earned for loaning the principal
  14. maturity date
    date on which the maker must repay and make final interest payment
  15. collateral
    assets belonging to the maker that are assigned as security to ensure everything is paid
  16. accrued interest
    interest that has been recognized before cash is exchanged
  17. adjusting entry
    updates the account balances prior to preparing financial statements
  18. matching concept
    revenue is recognized in the period in which it is earned regardless of when the related cash is collected
  19. liquidity
    how quickly assets are expected to be converted to cash during normal operations
  20. special identification inventory method
    each particular piece of inventory has the cost of good sold that that particular inventory costed (VIN #s for cars)
  21. FIFO
    first in, first out; the costof the iems purchased first are asigned to cost of goods sold
  22. LIFO
    last in, first out; cost of the items purchased last be charged to cost of good sold
  23. weighted average inventory method
    assigns the average cost of the items available to cost of goods sold
  24. physical flow of goods
    actual physical movement of goods through the business, usually FIFO
  25. lower of cost or market (LCM)
    if the market price is lower than its purchase price, use which ever is lower
  26. current assets
    assets that will be converted to cash or consumed within one year or operating cycle
  27. long-term operational assets
    assets used by a business to generate revenue (not sold or invested)
  28. tangible assets
    • have a physical presence;
    • 1)property, plant, and equipment
    • 2) natural resources
    • 3) land
  29. intangible assets
    • no physical form; rights and privledges
    • 1)identifiable useful lives
    • 2) indefinite useful lives
  30. property, plant, and equipment
    (plant assets) includes machinery, equipment, buildings
  31. depreciation
    term used to recognize expense for property, plant, and equipment
  32. depletion
    term used to recognize expense for natural resources
  33. land
    not suject to depreciation or depletion
  34. intangible assets with identifiable useful lives
    patents and copyrights
  35. amortization
    term used when recgnizing expense for intangible assets with identifiale useful lives
  36. intangible assets with indefinite useful lives
    trademarks, franchises
  37. historical cost concept
    requires that an asset be recorded at the amount paid for it, including and costs necessary to get the asset in the location and condition for its intended use (purchase price, taxes, title costs, installation, removal of old buildings)
  38. basket purchase
    acquiring a group of assets in a single transaction; must be allocated among assets required
  39. relative fair market value method
    each asset is assigned a percentage of the total price paid for all assets
  40. depreciation expense
    the amount of an assets cost that is allocated to expense during an accounting period
  41. salvage value
    expected market value of a fully depreciated asset
  42. depreciable cost
    total amount of depreciation a company recognizes for an asset (original cost-salvage value)
  43. estimated useful life
    time for which the asset is expected to be used
  44. straight-line depreciation
    allocates the cost of an asset to expense in equal parts over its life
  45. accumulated depreciation
    contra asset account that indicates the sum of all depreciation expense recognized for an asset since the date of inquisition
  46. book value
    cost-accumulated depreciation
  47. double declining balance depreciation
    recognizes larger amounts of depretiation in the early stages of an assets life and progressively smaller amounts as the asset ages (accelerated depreciation method)
  48. units of production depreciation
    based on a measure of production rather than a measure of time
Card Set
accounting test 2
accounting chapters 5-9