What is the formula for net purchases?

Purchases-Purchase Returns-Purchase Discounts+freight in

When we write off an account using the allowance method, which accounts do we debit/credit in the journal entry?

Credit Allowance for Uncollectible Accounts, Debit AR

How do we calculate interest?

Principal amount * # months/12 * interest rate

What does it mean if there's a debit balance in the Allowance for Uncollectible Accounts?

More accounts previously ended up being uncollectible than we planned for

What's the difference between direct write-offs and allowance for uncollectible accounts?

Direct you write off as you go, allowance you budget amounts ahead of time.

What does the implicit interest rate measure?

The essential interest rate you pay by forgoing the sales discount

What is "aging" of accounts receivable/why do we do it?

We prepare aging schedules to break down AR in different categories of risk

How prepared do you feel for this test?

I am going to get 90% or higher ☺☺

Does a business want to experience higher AR turnover or lower AR turnover? Why?

Higher AR turnover because that means they're getting paid faster

What is the equation for COGS?

Beginning Inventory+Net Purchase-Ending Inventory

What does it mean if an amount is deemed immaterial?

It's basically not a big deal in comparison to the rest of our sales/AR

What does AR turnover measure?

How many times a company is paid for their receivables in a year

In what situation might we reverse a write-off?

A customer we had previously written off decided to pay us.

Is it ever okay to have more accounts debited in a single journal entry than you have credited? Or vice versa?

there can b multiple accts debited & only 1 credited as long as amnts match

How do we reverse a write off? Note*AFUA = alllowance for uncollectible accounts

Debit AR, Credit AFUA then separate journal entry to Debit Cash, Credit AR

What does it mean if a gain/loss is "unrealized"?

It reflects a change in value that we haven't physically incurred, There is no finite, liquid cash increase/decrease, because we didn't sell

studbud

Carrington's Test 2 Review

30 termsStudBud Administration43 plays

Here's an additional tool to help you study for test 2! Good luck!

Flashcards30 cardsFPractice quizPHost liveL

Questions 30

Answers

1
What is the formula for net purchases?
Purchases-Returns
Purchases-freight cost
Purchases - Purchase Returns + Purchase Discounts - freight in
Purchases-Purchase Returns-Purchase Discounts+freight in
2
Which step is not involved in a bank reconciliation when reconciling the cash balance per our bank statement?
Add outstanding checks
Make sure bank balance ends matching company balance
Subtract outstanding checks
Add deposits in transit to existing bank balance
3
Formula to calculate gross profit margin?
Net AR/COGS
COGS/Revenue + Net Income
Gross Profit+Net AR/Ending Inventory+COGS
Gross Profit/Net Revenue
4
Which of these terms is not describing the same thing as the others?
Freight In
F.O.B. Shipping Point
F.O.B. Destination
F.O.B. Origin
5
How do you calculate AR days outstanding?
365+AR Turnover/# of periods
It's the number of days in the accounting period (i.e. 1 financial quarter)
365/AR Turnover
AR Turnover/365
6
When we write off an account using the allowance method, which accounts do we debit/credit in the journal entry?
Debit Uncollectible Expense, Credit Cash
Debit AR, Credit Allowance for Uncollectible Accounts
Credit Allowance for Uncollectible Accounts, Debit AR
Debit Cash, Credit Allowance for Uncollectible Accounts
7
How do we calculate interest?
Principal amount * # months/12 * interest rate
interest rate/12*principal*months
Principal amount * # of months * interest rate
Principal amount/12*months*interest rate
8
Which of the following is an example of a contra revenue account?
Interest Expense
Accounts Payable
Sales Discounts
Purchase Returns and Allowances
9
How do you calculate AR turnover?
Net credit sales/net AR
Beginning AR+ending AR - Accounts Payable/2
Ending AR/Sales
Beginning AR-ending AR/# of periods
10
Which of the following is NOT a cash equivalent?
checks
notes receivable
10$ bill
funds on deposit
11
What do we do with gains?
Debit them
Credit them
Add them to Revenue
Nothing until we "realize" them
12
What does it mean if there's a debit balance in the Allowance for Uncollectible Accounts?
More accounts previously ended up being uncollectible than we planned for
We plan to write off $1000 in bad debt this period
We wrote off less than we'd planned for
That can't ever happen.
13
What account do we use if we have 80$ more than we should in our petty cash fund?
Cash Extra
Cash Gain
Cash Over
Cash Found
14
What is the equation for gross profit?
net revenue-cogs+net purchaes
net revenue-cogs
net purchases-cogs+beginning inventory
beginning inventory+ending inventory/2
15
What's the difference between direct write-offs and allowance for uncollectible accounts?
Direct you write off as you go, allowance you budget amounts ahead of time.
Allowance method is used for immaterial amounts
Allowance you write off as you go, direct you budget amounts ahead of time
direct write-offs done by an executive,allowance method done by accountants
16
What does the implicit interest rate measure?
The interest rate on a company's loans
The essential interest rate you pay by forgoing the sales discount
What interest rate a company charges to its debtors on notes receivable
It's a measure tht shows how a company's intrst rate compares to the market
17
What is "aging" of accounts receivable/why do we do it?
We don't age AR, this is a trick question
We prepare aging schedules to break down AR in different categories of risk
The different AR aging categories represent the ages of the buyers
Aging of AR helps us plan for direct write offs
18
Which of the following steps is not involved when performing a bank reconciliation on the company's side?
Subtract NSF checks
Add interest to existing balance.
Add NSF checks
Make sure end balance matches what the bank balance shows
19
How prepared do you feel for this test?
I am doomed for hard failure.
I figure I'll probably get a B
I am going to get 90% or higher ☺☺
I just want to pass
20
Does a business want to experience higher AR turnover or lower AR turnover? Why?
Higher because that way they're increasing the length of their cash cycle
Lower because they need time to do the calculations for uncollectibles
Lower because that way they're decreasing the length of their cash cycle
Higher AR turnover because that means they're getting paid faster
21
What is the equation for COGS?
Beginning Inventory+Net Purchase-Ending Inventory
Beginning Inventory+Freight In+Ending Inventory-Sales Returns & Allowances
Sum of all expenses
Beginning Inventory+Ending Inventory/2
22
What account do we use if our petty cash fun is missing 10$?
Cash Missing
Cash Unaccountable
Cash Loss
Cash short
23
What does it mean if an amount is deemed immaterial?
It's basically not a big deal in comparison to the rest of our sales/AR
It can't be touched, it's tied up in a patent or a nontangible asset
It makes up the majority of our AR
It's too hard to calculate exactly so we just make an educated guess
24
Which of the following is NOT a way we can speed up our cash flow?
Get a loan
Pay our creditors faster
Offer sales discounts
Pay our creditors slower
25
What does AR turnover measure?
How likely the business is to turn over their capital to their creditors
How many times a company is paid for their receivables in a year
The financial health of the company
How many times a company pays off their debts in a year
26
In what situation might we reverse a write-off?
A customer we had previously written off took us to small claims court
A customer we had previously written off decided to pay us.
To make our accounting financial statements look better + raise stock price
Enough time has passed that the write-off doesn't matter anymore
27
Is it ever okay to have more accounts debited in a single journal entry than you have credited? Or vice versa?
there can b multiple accts debited & only 1 credited as long as amnts match
You can have more debit accounts than credit accounts, but not vice versa
No! Debits must equal credits!
You can have more creidt accounts than debit accounts, but not vice versa
28
How do we reverse a write off? Note*AFUA = alllowance for uncollectible accounts
Debit Cash, Credit AR
Debit AR, Credit AFUA then separate journal entry to Debit Cash, Credit AR
Debit Cash, Credit AR, then second journal entry to Debit AR, Credit AFUA
We can't. Once you write an amount off, you're done.
29
What does it mean if a gain/loss is "unrealized"?
It means that the bank doesn't know we've incurred it
It means we don't know we've incurred it
It reflects a change in value that we haven't physically incurred
There is no finite, liquid cash increase/decrease, because we didn't sell
30
Freight in =
Neither, it's its own thing
FOB Shipping Point
FOB Destination

Carrington's Test 2 Review Flashcards | StudBud