Exam 2 Study Guide

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Author:
atcannon
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243068
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Exam 2 Study Guide
Updated:
2013-11-13 23:44:10
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Accounting 301
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Chapters 6,7
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  1. Cash to Accrual
    Account Receivable
    • Account determines net sales on account
    • Changes in account
    • increases add to cash
    • decreases subtract from cash

    • Cash method does not account for increases in this account but it is sales for the period
    • Cash method counts the money received for this account as a sale but it is already counted
  2. Cash to Accrual
    Unearned Revenue
    • Account gives amount received for revenues not earned
    • Changes in account
    • increases subtract from cash
    • decreases add to cash

    Cash method accounts for increases in this account as revenue but it has not been earned. A decrease in this account is the revenue being earned.
  3. Cash to Accrual
    Revenue Receivables(Rent)
    • Account gives amount of revenue earned but money owed to company.
    • Changes in account
    • increases add to cash
    • decreases subtract from cash

    Cash method does not account for revenue earned for this account but should be counted as revenue. The cash method counts the money received for this account as revenue but it is already counted
  4. Account Payable
    • Account gives the amount for purchases made on account
    • Changes in account
    • increases add to cash
    • decreases subtract from cash

    Cash method does not account for increases in this account because the purchases are for credit. Cash method considers payments for this account as additional purchases but it's already counted
  5. Cash to Accrual
    Prepaid Expenses
    • Account gives the amount of payments for expenses not yet incurred
    • Changes in account
    • increases subtract from cash
    • decreases add to cash

    Cash method considers money paid to this account as expense but the expense has not occurred yet. Decreases in this account is the expense being incurred so it needs to be accounted then
  6. Cash to Accrual
    Accrued Expenses (payable)
    • Account gives amount that needs to be payed for expenses incurred.
    • Changes in account
    • increases add to cash
    • decreases subtract from cash

    Cash method does not account for increases to this account because no payment is made but the expense has been incurred. payments for this account is recognized as expense under cash but it is already counted
  7. Future value of $
    • PV * Factor = FV
    • lump sum
  8. Present value of $
    • FV * Factore = PV
    • lump sum
  9. Annuity
    equal periodic installments
  10. Future value of Annuity
    Installment * Factor= FV

    If payments are end of the period it is an ordinary annuity
  11. Present Value of Annuity
    Installment * Factor = PV

    payments at the end of period
  12. Future value of Annuity Due
    Installment * Factor = FV

    payments at the beginning of the period
  13. Present value of Annuity Due
    Installment * Factor = PV
  14. Petty Cash
    • Impress system-set standard balance
    • Money taken out, Receipts put in
    • Money & Receipts should equal balance deposit
  15. Bank Reconciliation
    • To correct balance
    • "Adjust" balance to arrive at the actual cash owned on that date
  16. Balance per Bank
    (bank rec)
    • Cash balance bank
    • +Deposits in Transit
    • - Outstanding Checks
    • +/- Errors
    • =Adjusted Bank Balance
  17. Balance per book-general ledger
    (bank rec)
    • Cash balance books
    • + Interest earned on account
    • +Collections made by the bank
    • -NSF (Non=Sufficient Funds) Check
    • -Service Charges
    • +/- Errors
    • =Adjusted Book Balance
  18. Unadjusted Bank to Book
    (bank rec)
    • Bank Balance
    • +Deposits in Transits
    • -Outstanding Checks
    • +Service Charge
    • -Bank Collections
    • +NSF Checks
    • +/- Errors
    • =Book Balance
  19. Bad Debt
    Direct Method
    • Bad Debt Exp.
    •      Acct. Rec.

    violates matching principle-not GAAP
  20. Bad Debt
    Allowance Method
    • Bad Debt Exp.
    •      Allowance for D.A
    • Allowance for D.A.
    •       Acct. Rec.

    follows matching principle-GAAP
  21. Net Realizable Value
    • The amount of credit balances that is estimated to be collected
    • Acct. Rec.
    • -Allowance for D.A.
    • =Net Realizable Value
  22. Allowance Method
    Income Statement Approach
    • Adjust Bad Debt Expenses to a desired balance
    • Estimated by a percentage of sales
  23. Allowance Method
    Balance Sheet Approach
    • Adjust Allowance account to desired balance
    • take into consideration the amount already in the account
    • balance in the account will be estimated to be a certain amount
  24. Allowance Account-debit balance
    Account estimate was short so adjust to compensate for the bad estimate as well as the balance necessary for the account
  25. Recovery of Account Written Off
    Direct Method-write off, reinstate, collect
    • write off
    • Bad Debt Exp./Acct. Rec.
    • reinstate
    • Acct. Rec. /Bad Debt Exp.
    • collect
    • Cash/ Acct. Rec.
  26. Recovery of Account Written Off
    Allowance Method-write off, reinstate, collect
    • write-off
    • Allowance / Acct. Rec.
    • reinstate
    • Acct. Rec. / Allowance
    • collect
    • Cash / Acct. Rec.
  27. Sales Discounts

    Gross Method-sale, collect early, collect late
    • sale revenue is total sale price
    • sale
    • Acct. Rec. / Sales Rev.
    • collect early
    • Cash, Sales Disc. / Acct. Rec.
    • collect late
    • Cash / Acct Rec.
  28. Sales Discounts

    Net Method-sale, collect early, collect late
    • sale revenue is sale - discount to start
    • sale
    • Acct. Rec. / Sales Rev.
    • collect early
    • Cash / Acct. Rec.
    • collect late
    • Cash / Sales Disc. Forfeited Acct Rec.
  29. Pledging
    Use Acct Rec. as collateral to obtain borrowed funds. Footnote disclosure
  30. Specific Assignment
    • Use Acct. Rec. to obtain borrowed funds. Creating a seperate account so that as funds are collected from the receivables the debt gets paid
    • Borrow:
    • cash, finance charges / notes payable
    • Re-classify
    • Acct. Rec. Assigned / Acct. Rec.
  31. Factoring
    Sell Acct. Rec. for cash less a fee. Factor now controls Acct. Rec. and will collect from customers. Factor assumes risk of uncollectibles if sold "without recourse"
  32. Notes Receivable-journal entry
    Notes Receivable / Cash or Revenue
  33. Notes Receivable
    Future lump sum
    • Calculate Present value
    • Difference between maturity value and present value is the discount
  34. Amortization-straight line method
    • Discount/time frame of notes= interest revenue to record each period
    • Journal entry
    • Discount / Interest Revenue
  35. Amortization-Effective method
    PV of note * effective interest rate =interest revenue to record each period
  36. Note Receivable
    Future lump sum & Annuity
    • Calculate Present Value of lump sum and annuity
    • Remember that for installments record and subtract from total Interest Revenue to get the Discount account adjustment
  37. Raw Material
    • Beginning Balance
    • +(d)Raw Material Purchased
    • - (c)Raw Materials Used
    • =Ending Balance

    transfer raw materials used to work-in-process
  38. Work-in-process
    • Beginning Balance
    • +(d) Raw Material Used
    • +(d) Direct Labor
    • +(d) Direct Overhead
    • - (c) Cost of Goods Manufactured
    • =Ending Balance

    transfer cost of goods manufactured to finished goods
  39. Finished Goods
    • Beginning Balance
    • +(debit)Cost of Goods Manufactured
    • -(credit)Cost of Goods Sold
    • =Ending Balance
  40. Perpetual Bookkeeping
    Sales & Returns journal entry
    • sale
    • Acct. Rec. / Sales Revenue
    • CGS / Inventory

    • sale return
    • Sales Return / Acct. Rec.
    • Inventory / CGS
  41. Perpetual Bookkeeping
    Purchases & Returns journal entry
    • purchase
    • Inventory / Acct. Payable
    • purchase return
    • Acct. Payable / Inventory
  42. Perpetual Bookkeeping
    Basics
    • adjustments made right away to CGS and Inventory Accounts for sales
    • adjustments made right away to Inventory account and Acct. Payable for purchases
    • Physical count done at end of year and adjustment is made if balance is off
  43. Periodic Bookkeeping
    Sales & Returns journal entry
    • sale
    • Acct. Rec. / Sales Revenue
    • sales return
    • Sales Return / Acct. Rec.
  44. Periodic Bookkeeping
    Purchases and Returns journal entry
    • purchase
    • Purchase / Acct. Payable &
    • Freight-In / Acct. Payable
  45. Consigned Goods
    Owned by consignor; held by consignee
  46. Goods in transit:
    FOB shipping
    The buyer pays the freight and owns the inventory during transit
  47. Goods in transit:
    FOB Destination
    The seller pays the freight and owns the inventory during transit
  48. Inventory Costing
    Specific ID
    actual cost used; no assumptions
  49. Fifo
    first goods purchased are first goods sold
  50. Lifo
    lost goods purchased are first goods sold
  51. average cost
    (weighted, moving)
    • record cost based on the average
    • $ Goods Available for sale / Units available for sale
  52. Inventory Errors
    • BI
    • + P
    • -EI
    • =CGS(-)
    • GP
    • NI
    • RE
  53. Dollar Value LIFO
    • based on a layer system
    • adjust by the base year (1st layer)
    • EI value / CPI = EI adjusted for inflation
    • campare EI to previous year. If increased add layer if decrease subtract layer.
  54. Lower of Cost or Market
    • choosing between the lower amounts to account for inventory
    • for market choose the lowest of: replacement cost, ceiling, floor
    • compare the lowest of market to cost and choose the lowest between cost and market
  55. Basket Purchase
    • determine cash paid
    • allocate cash paid to various items
    • once percentage is determined use it to determine what amount was to each item

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