financial accounting exam 2

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  1. Accounts recievable
    The amount of cash owed to the company by its customers from the sale of products or services on account.
  2. Aging method
    Using a higher percentage for "old" accounts than for "new" accounts when estimating uncollectible accounts.
  3. Allowance for uncollectible accounts
    Contra asset representing the amount of accounts receivable that we do not expect to collect.
  4. Allowance method
    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.
  5. Average collection period
    Approximate number of days the average accounts receivable balance is outstanding. it equals 365 divided by the receivables turnover ratio.
  6. bad debt expense
    The amount of the adjustment to the allowance for uncollectible accounts, representing the cost of estimated future bad debts charged to the current period.
  7. contra revenue account
    An account with a balance that is opposite, or "contra," to that of it's related revenue account.
  8. credit sales
    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.
  9. direct write-off method
    Recording bad debt expense at the time we know the account is uncollectible.
  10. Net accounts receivable
    The difference between total accounts receivable and the allowance for uncollectible accounts.
  11. Net realizable value
    The amount of cash the firm expects to collect.
  12. Net revenues
    A company's total revenues less any discounts, returns, and allowances.
  13. Notes receivable
    Formal credit arrangements evidenced by a written debt instrument, or note.
  14. Percentage-of-receivables method
    Method of estimating uncollectible accounts based on the percentage of accounts.
  15. Receivables turnover ratio
    number of times during a year that the average accounts receivable is collected. (aka. Net credit sales/avg accounts receivable)
  16. sales allowance
    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.
  17. Sales discount
    Reduction in the amount to be paid by a credit customer if payment on account is made within a specified period of time.
  18. Sales return
    Reduction in the amount to be paid by a credit customer if payment on account is made within a specified period of time.
  19. Trade discount
    Reduction in the listed price of a product or service.
  20. Uncollectible accounts
    Customers' accounts that no longer are considered collectible.
  21. Average days in inventory
    365/inventory turnover ratio
  22. cost of goods sold
    cost of inventory that was sold during the period.
  23. Finished goods
    Inventory items for which the manufacturing process is complete.
  24. First in first out method (FIFO)
    First units purchased are the first ones sold
  25. Freight-in
    Cost to transport the inventory to the company, which is included as part of inventory cost.
  26. Freight-out
    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.
  27. Gross profit
    The difference between sales revenue and cost of goods sold.
  28. Gross profit ratio
    Gross profit/net sales
  29. Income before income taxes
    Operating income plus non-operating revenues less non-operating expenses
  30. Inventory
    Items a company intends for sale to customers.
  31. Inventory turnover ratio
    Cost of goods sold/average inventory
  32. Last-in, first-out method (LIFO)
    Last units purchased are the first ones sold
  33. LIFO adjustment
    An adjustment used to convert a company's own inventory records maintained on a FIFO basis to a LIFO basis for preparing financial statements.
  34. LIFO conformity rule
    IRS rule requiring a company that uses LIFO for tax reporting to also use LIFO for financial reporting.
  35. Lower-of-cost-or-market (LCM) method
    Method where companies report inventory in the balance sheet at the lower of cost or market value, where market value equals replacement cost.
  36. Multiple-step income statement
    An income statement that reports multiple levels of income
  37. Net income
    Difference between all revenues and expenses in the period
  38. Operating income
    Profitability from normal operations that equals gross profit less operating expenses.
  39. Periodic inventory system
    Inventory system that periodically adjusts for purchases and sales of inventory at the end of the reporting period based on a physical count.
  40. Perpetual inventory system
    Inventory that maintains a continual record of inventory purchased and sold.
  41. Raw materials
    Components that will become part of the finished product but have not yet been used in production.
  42. Replacement cost
    The cost to replace an inventory item in it's identical form.
  43. Specific identification method
    Inventory costing method that matches or identifies each unit of inventory with it's actual cost.
  44. Weighted-average cost method
    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.
  45. Work-in-process
    Products that have started the production process but are not yet complete at the end of the period.
  46. Accelerated depreciation method
    Allocates a higher depreciation in the earlier years of the asset's life and lower depreciation in the later years.
  47. Accumulated depreciation
    A contra asset account representing the total depreciation taken to date.
  48. Activity-based method
    Allocates an asset's cost based on its use.
  49. Addition
    Occurs when a new major component is added to an existing asset.
  50. Amortization
    Allocation of the cost of an intangible asset over its service life.
  51. Asset turnover
    Net sales/ average total assets
  52. Basket purchase
    Purchase of more than one asset at the same time for one purchase price.
  53. Big bath
    Recording all losses in one year to make a bad year even worse.
  54. Book value
    Equal to the original cost of the asset minus the current balance in accumulated depreciation.
  55. capitalize
    Record an expenditure as an asset
  56. Capitalized interest
    Interest costs recorded as assets rather than interest expense.
  57. Copyright
    An exclusive right of protection given to the creator of a published work such as a song, film, painting etc.
  58. Declining-balance method
    An accelerated depreciation method that records more depreciation in earlier years and less in later years.
  59. Depletion
    Allocation of the cost of a natural resource over it's service life.
  60. Depreciation
    Allocation of the cost of a tangible asset over its service life.
  61. Franchise
    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.
  62. Goodwill
    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.
  63. Impairment
    Occurs when the future cash flows (future benefits) generated for a long-term asset fall below its book value (cost minus accumulated depreciation)
  64. Improvement
    The cost of replacing a major component of an asset.
  65. Intangible assets
    Long-term assets that lack physical substance, and whose existence is often based on a legal contract.
  66. Land improvements
    Improvements to land such as paving, lighting, and landscaping that, unlike land itself, are subject to depreciation.
  67. Material
    Large enough to influence a decision.
  68. Natural resources
    Assets like oil, natural gas, and timber that we can physically use up or deplete.
  69. Patent
    An exclusive right to manufacture a product or to use a process.
  70. Profit margin
    net income/net sales
  71. Repairs and maintenence
    Expenses that maintain a given level of benefits in the period incurred.
  72. Residual value
    The amount a company expects to receive from selling the asset at the end of its service life; also referred to as salvage value.
  73. Return on assets
    Net income/average total assets
  74. Service life
    How long the company expects to receive benefits from the asset before disposing of it.
  75. Straight line method
    Allocates an equal amount of depreciation to each year of the asset's service life.
  76. trademark
    A word, slogan, or symbol that distinctively identifies a company, product or service.
  77. Acid-test ratio
    Cash, current investments, and accounts receivable divided by current liabilities; measures the availability of liquid current assets to pay current liabilities.
  78. Commercial paper
    Borrowing from another company rather than from a bank.
  79. Contingencies
    Uncertain situations that can result in a gain or loss for a company.
  80. Contingent gain
    An existing uncertain situation that might result in a gain.
  81. Contingent liability
    An existing uncertain situation that might result in a loss.
  82. Current liabilities
    Debts that, in most cases are due within one year.
  83. Current portion of long term debt
    Debt that will be paid within the next year
  84. Current ratio
    Current assets divided by current liabilities
  85. Debt covenant
    An agreement between a borrower and a lender that requires that certain minimum financial measures be met or the lender can recall the debt.
  86. FICA taxes
    Based on the federal insurance contribution act; tax withheld from employees' paychecks and matched to employers for social security and medicare.
  87. Fringe benefits
    Additional employee benefits paid for by the employer
  88. Liability
    A present responsibility to sacrifice assets in the future due to a transaction or other event that happened in the past.
  89. Line of credit
    An informal agreement that permits a company to borrow up to a prearranged limit without having to follow formal loan procedures and prepare paperwork.
  90. Liquidity
    Having sufficient cash (or other assets convertible to cash in a relatively short time) to pay current maturing debts.
  91. Notes payable
    Written promises to repay amounts borrowed plus interest.
  92. Quick assets
    Includes only cash, current investments, and accounts receiveable
  93. Sales tax payable
    Sales tax collected from customers by the seller, representing current liabilities payable to the government.
  94. Unearned revenue
    A liability account used to record cash received in advance of the sale or service.
  95. Unemployment taxes
    A tax to cover federal and state unemployment costs paid by the employer on behalf of its employees.
  96. Working capital
    The difference between current assets and current liabilities.
Card Set:
financial accounting exam 2
2013-04-04 00:53:58
financial accounting exam

chapters 5-8
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