financial accounting exam 2.txt

The amount of cash owed to the company by its customers from the sale of products or services on account.

Using a higher percentage for "old" accounts than for "new" accounts when estimating uncollectible accounts.

Contra asset representing the amount of accounts receivable that we do not expect to collect.

Recording an adjustment at the end of each period to allow for the possibility of future uncollectible accounts. The adjustment has the effects of reducing assets and increasing expenses.

Approximate number of days the average accounts receivable balance is outstanding. it equals 365 divided by the receivables turnover ratio.

The amount of the adjustment to the allowance for uncollectible accounts, representing the cost of estimated future bad debts charged to the current period.

An account with a balance that is opposite, or "contra," to that of it's related revenue account.

Transfer of products and services to a customer today while bearing the risk of collecting payment from that customer in the future. Also known as sales on account or services on account.

Recording bad debt expense at the time we know the account is uncollectible.

The difference between total accounts receivable and the allowance for uncollectible accounts.

The amount of cash the firm expects to collect.

A company's total revenues less any discounts, returns, and allowances.

Formal credit arrangements evidenced by a written debt instrument, or note.

Method of estimating uncollectible accounts based on the percentage of accounts.

number of times during a year that the average accounts receivable is collected. (aka. Net credit sales/avg accounts receivable)

Seller reduces the customer's balance owed or provides at least a partial refund because of some deficiency in the company's product or service.

Reduction in the amount to be paid by a credit customer if payment on account is made within a specified period of time.

Reduction in the amount to be paid by a credit customer if payment on account is made within a specified period of time.

Reduction in the listed price of a product or service.

Customers' accounts that no longer are considered collectible.

365/inventory turnover ratio

cost of inventory that was sold during the period.

Inventory items for which the manufacturing process is complete.

First units purchased are the first ones sold

Cost to transport the inventory to the company, which is included as part of inventory cost.

Cost of freight shipments to customers, which is included in the income statement either as part of cost of goods sold or as a selling expense.

The difference between sales revenue and cost of goods sold.

Gross profit/net sales

Operating income plus non-operating revenues less non-operating expenses

Items a company intends for sale to customers.

Cost of goods sold/average inventory

Last units purchased are the first ones sold

An adjustment used to convert a company's own inventory records maintained on a FIFO basis to a LIFO basis for preparing financial statements.

IRS rule requiring a company that uses LIFO for tax reporting to also use LIFO for financial reporting.

Method where companies report inventory in the balance sheet at the lower of cost or market value, where market value equals replacement cost.

An income statement that reports multiple levels of income

Difference between all revenues and expenses in the period

Profitability from normal operations that equals gross profit less operating expenses.

Inventory system that periodically adjusts for purchases and sales of inventory at the end of the reporting period based on a physical count.

Inventory that maintains a continual record of inventory purchased and sold.

Components that will become part of the finished product but have not yet been used in production.

The cost to replace an inventory item in it's identical form.

Inventory costing method that matches or identifies each unit of inventory with it's actual cost.

Inventory costing method that assumes both cost of goods sold and ending inventory consist of a random mixture of all the goods available for sale.

Products that have started the production process but are not yet complete at the end of the period.

Allocates a higher depreciation in the earlier years of the asset's life and lower depreciation in the later years.

A contra asset account representing the total depreciation taken to date.

Allocates an asset's cost based on its use.

Occurs when a new major component is added to an existing asset.

Allocation of the cost of an intangible asset over its service life.

Net sales/ average total assets

Purchase of more than one asset at the same time for one purchase price.

Recording all losses in one year to make a bad year even worse.

Equal to the original cost of the asset minus the current balance in accumulated depreciation.

Record an expenditure as an asset

Interest costs recorded as assets rather than interest expense.

An exclusive right of protection given to the creator of a published work such as a song, film, painting etc.

An accelerated depreciation method that records more depreciation in earlier years and less in later years.

Allocation of the cost of a natural resource over it's service life.

Allocation of the cost of a tangible asset over its service life.

Local outlets that pay for the exclusive right to use the franchiser company's name and to sell its products within a specified geographical area.

The value of a company as a whole, over and above the value of its identifiable net assets. Goodwill equals the purchase price less the fair value of net assets acquired.

Occurs when the future cash flows (future benefits) generated for a long-term asset fall below its book value (cost minus accumulated depreciation)

The cost of replacing a major component of an asset.

Long-term assets that lack physical substance, and whose existence is often based on a legal contract.

Improvements to land such as paving, lighting, and landscaping that, unlike land itself, are subject to depreciation.

Large enough to influence a decision.

Assets like oil, natural gas, and timber that we can physically use up or deplete.

An exclusive right to manufacture a product or to use a process.

net income/net sales

Expenses that maintain a given level of benefits in the period incurred.

The amount a company expects to receive from selling the asset at the end of its service life; also referred to as salvage value.

Net income/average total assets

How long the company expects to receive benefits from the asset before disposing of it.

Allocates an equal amount of depreciation to each year of the asset's service life.

A word, slogan, or symbol that distinctively identifies a company, product or service.

Cash, current investments, and accounts receivable divided by current liabilities; measures the availability of liquid current assets to pay current liabilities.

Borrowing from another company rather than from a bank.

Uncertain situations that can result in a gain or loss for a company.

An existing uncertain situation that might result in a gain.

An existing uncertain situation that might result in a loss.

Debts that, in most cases are due within one year.

Debt that will be paid within the next year

Current assets divided by current liabilities

An agreement between a borrower and a lender that requires that certain minimum financial measures be met or the lender can recall the debt.

Based on the federal insurance contribution act; tax withheld from employees' paychecks and matched to employers for social security and medicare.

Additional employee benefits paid for by the employer

A present responsibility to sacrifice assets in the future due to a transaction or other event that happened in the past.

An informal agreement that permits a company to borrow up to a prearranged limit without having to follow formal loan procedures and prepare paperwork.

Having sufficient cash (or other assets convertible to cash in a relatively short time) to pay current maturing debts.

Written promises to repay amounts borrowed plus interest.

Includes only cash, current investments, and accounts receiveable

Sales tax collected from customers by the seller, representing current liabilities payable to the government.

A liability account used to record cash received in advance of the sale or service.

A tax to cover federal and state unemployment costs paid by the employer on behalf of its employees.

The difference between current assets and current liabilities.