MBA 500 Accounting Exam 2: Ch 5

  1. The average time needed for a firm to convert an amount invested in inventory back to cash.
    Operating Cycle
  2. For most firms, the ____ is measured as the average number of days to produce and sell inventory plus the average number of days to collect accounts receivable.
    operating cycle
  3. What are short term investments readily convertible into cash with  a minimal risk of price change due to interest rate movements?
    cash equivalents
  4. ___ includes money on hand in change funds, petty cash funds, undeposited receipts (including currency, checks, money orders, and bank drafts), and any funds immediately available to the firm in its bank accounts?
  5. Policies and procedures designed to provide reasonable assurance that objectives are achieved with respect to
    1. the effectiveness and efficiency of the operations of the organization,
    2. the reliability of the organization's financial reporting,
    3. the organization's compliance with applicable laws and regulations?
    internal control system
  6. What are a series of checks and balances ensuring that more than one person is involved in a transaction from beginning to end?
    Financial controls
  7. ____ are frequently included in policy and procedure manuals and are reflected in management reviews of reports or operations and activities.
    Administrative controls
  8. What is the process which you do for your own checking account, involves bringing into agreement the account balance reported by the bank on the bank statement with the account balance in the ledger.
    bank reconciliation
  9. The operating cycle of a ____company ordinarily is longer than that of a ___company.
    • merchandising company
    • service company
  10. List where cash receipts come from.
    • cash sales
    • collections on account from customers
    • receipt of interest, rent, and dividends
    • investments by owners
    • bank loans
    • proceeds from the sale of non current assets
  11. Ways to have internal control over cash.
    • require daily deposits
    • make all payments by check
    • promptly reconcile bank statements
  12. A bank deposit that has been recorded in the entity's cash account but that does not appear on the bank statement because the bank received the deposit after the date of the statement.
    deposit in transit
  13. A check that has been recorded as a cash disbursement by the entity but that has not yet been processed by the bank.
    outstanding checks
  14. The fee charged by a bank for maintaining the entity's checking account.
    bank service charge
  15. A check returned by the maker's bank because there were not enough funds in the account to cover the check.
    NSF (not sufficient funds) check
  16. Made by either the firm or the bank, are detected in what may be a trial-and-error process if the book balance and bank balance do not reconcile after timing differences have been recognized.
  17. Reconciliation procedures for adjustments to the bank balance.
    • + deposit in transit
    • - outstanding checks
    • + - Bank errors
  18. Reconciliation procedures for adjustments to the book balance.
    • + Notes collected by the bank
    • - NSF (bounced) checks
    • - Check printing or other service charges
    • +- Company errors
  19. What are the amounts owed by customers that result from the sale of goods and services?
    Accounts Receivable
  20. Claims for which formal instruments of credit are issued as proof of debt
    note receivable
  21. “Nontrade” (interest, loans to officers, advances to employees, and income taxes refundable).
    Other receivables
  22. What is the amount expected to be received from customers in settlement of their obligations?
    net realizable value
  23. What are the three accounting issues with account receivables?
    • 1. Recognizing account receivable
    • 2. Valuing accounts receivable
    • 3. Disposing of account receivable
  24. An adjustment that results in an asset being reported at a net realizable value that is less than cost.
    Valuation adjustment
  25. The balance of the ledger account of an asset, liability, or owners' equity account. Sometimes referred to as a book value.
    carrying value
  26. ____ account is considered a contra asset because it is reported as a subtraction from an asset in the balance sheet.
    Allowance for Bad Debts
  27. The allowance for bad debts account is a ____account.
    valuation account
  28. What do the abbreviated credit terms 2/10, n30 mean?
    • The 2/10 refers to the discount terms, 2% discount if paid in the first 10 days of sale.
    • The n30 means that the full amount of the invoice is due within 30 days.
  29. Promissory notes may be used:
    • 1.when individuals and companies lend or borrow money,
    • 2.when amount of transaction and credit period exceed normal limits, or
    • settlement of accounts receivable.
  30. Face Value of Note x Annual Interest Rate x Time in terms of one Year = _______
  31. The_________ provides a continuous record of Merchandise Inventory and Cost of Goods Sold.Flow of CostsFlow Costs
    perpetual inventory system
  32. What are some features of the periodic system for inventory?
    • 1.Purchases of merchandise increase Purchases.
    • 2.Ending Inventory determined by physical count.
    • 3.Calculation of Cost of Goods Sold
  33. What are the 4 principal alternative cost-flow assumptions?
    • 1. specific identification
    • 2. weighted average
    • 3. First-in, first-out (FIFO)
    • 4. Last-in, first-out (LIFO)
  34. An actual physical flow costing method in which items still in inventory are specifically costed to arrive at the total cost of the ending inventory.
    specific identification method
  35. The inventory cost-flow assumption that is based on an average of the cost of beginning inventory plus the cost of purchases during the year, weighted by the quantity of items at east cost.
    weighted average
  36. The inventory cost-flow assumption that th first costs in to inventory are the first costs out to cost of goods sold.
  37. The inventory cost-flow assumption that the last cost in to inventory are the first costs out to cost of goods sold.
  38. Short term marketable securities is an _____.
  39. What are the two bases used for allowance method?
    percentage of sales and percentage of receivables
  40. Allowance method that emphasizes on income statement relationships.
    percentage of sales
  41. Allowance method that emphasizes on balance sheet relationships.
    percentage of receivables
  42. A count of the inventory on hand is made periodically and the cost of the inventory on hand, based on the cost flow assumption being used, is determined and subtracted from the sum of the beginning inventory and purchases to determine the cost of goods sold
    periodic inventory system
  43. If costs are increasing, the items acquired first were cheaper. This decreases the cost of goods sold (COGS) under ___ and increases profit. The income tax is larger. Value of unsold inventory is also higher.
  44. Under the LIFO cost-flow assumption, when the number of units sold during the period exceeds the number of units purchased or made, at least some of the costs assigned to the LIFO beginning inventory are transferred to cost of goods sold. As a result, outdated costs are matched with current revenues and inventory profits occur.
    LIFO liquidation
Card Set
MBA 500 Accounting Exam 2: Ch 5
Chapter 5