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What are the two main inventory accounting systems?
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What does the Journal entry for the purchase of inventory look like?
- DR: Inventory
- CR: Accounts Payable
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What is the Final closing entry for a corporation?
Retained Earnings to Dividends
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Which subtotals appear on the Multi-stpe income statement but NOT on the Single-step income statement?
Gross Profit & Income from operations
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What does LIFO mean?
- Last In, First Out
- (Last inventory purchased is the first one to leave)
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What does FIFO mean?
- First in, First Out
- (First inventory purchesed is the first one to leave)
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In a period of Rising costs, which inventory costing method results in the highest net income?
FIFO
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In a period of Rising costs, which inventory costing method results in the Lowest net income?
LIFO
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If you overstate your ending inventory, how does it affect the other accounts?
It Understates cost of goods sold and Overstates net income
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Why do some companys prefer using the LIFO system?
Because it reports their net income at its lowest, which in turn lowers its taxes
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What is the Sarbanes-Oxley Act?
It requires that an ouside auditor must evaluate a companies internal control
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What does Encryption do?
Rearranges messages by a special process
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What is a Bank Reconciliation?
The document that explains all the differences between a companys cash records and bank figures
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Seperation of duties is an important internal control of what 2 things?
Cash Receipts and Cash Payments
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The person who has custody of an asset should NOT......
Also account for the asset
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What are Firewalls?
Security measure that prohibits nonmembers from viewing information on the network
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What is operational efficiency?
Part of internal control that insures resources are not wasted
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Bad debts are the same as _____ & _____
Doubtful accounts & Uncollectable accounts
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When recording Credit/Debit card sales using the net method
Cash Received = Sales -Fee assesed by company
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What is wrong with the direct writ-off method of accounting for uncollectables?
- Overstates assets
- Doesnt match expenses agains revenue well
- Doesnt set up allowance for uncollectables
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What are some differences between Accounts receivable and Notes receivable?
NR includes interest charges while AR doesnt
AR are current assets while NR can be both current & long term
NR are more formal accounts than AR
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When you see a "2/10" or an "n/30" in a purchase discount, what does that mean?
2/10 means a 2% discount (2 outta 10)
n/30 means the full amount is due in 30 days
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In FOB Shipping point
- The buyer owns inventory when shipped
- (Pays freight charges)
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In FOB Destination
- Buyer owns inventory when goods arrive
- (Seller pays fright charges)
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What is the formula for Net Sales?
- Sales made
- (minus)
- Sales Returns & Allowances
- (minus)
- Sales Discounts
- (equals)
- Net Sales
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What is the formula for Gross Profit/Margin?
- Net Sales
- (minus)
- Cost of Goods Sold
- (equals)
- Gross Profit
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What is the Consistancy Principle?
Use the same accounting methods from period to period
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What is the Disclosure principle?
Report enough information for outsiders to make decisions
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What is the Materiality principle?
Follow accounting rules for significant items
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What is the Conservatism principle?
Exercise caution in financial reporting
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