Accounting Exam One Study Set
Terms
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- Gross Profit
- Cost of goods sold - sales
- Product Costs
- Direct Materials + Direct Labor + Factory Overhead Cost
- Conversion Cost
- Factory Overhead Costs + Direct Labor
- Cash Sales
- Affect both the income statement and the balance sheet. Sales are increased on the income statement and the balance sheet.
- Sales on Account
- Similar to that for cash cash sales, excepts ACCOUNTS RECEIVABLE IS INCREASED INSTEAD OF CASH. When the customer pays the amount, accounts receivable is decreased and cash is increased.
- Sales Discounts
- Reduce the sellers' revenue. Receipt of cash on account for which a sales discount is taken is recorded by INCREASING CASH AND SALES DISCOUNTS and DECREASING ACCOUNTS RECEIVABLE
- 2/10, n/30
- Sales discount shorthand telling those who purchased this shipment on credit, that if they pay for this in full within ten days, then they will receive a 2% discount, n/30 means that the net amount is due within thirty days
- Credit Memorandum
- If return or defect occurs within a shipment for goods purchased on credit, then the seller will issue this, informing the customer and indicating the amount the seller is decreasing the customer's accounts receivable for the return or allowance.
- Sales Returns and Allowances
- Seller would record a return of merchandise sold on account and in turn apply that number to a raise in merchandise inventory.
- FOB Shipping Point
- Freight terms in which the buyer pays the transportation costs from the shipping point to the final destination.
- FOB Destination
- Freight terms in which the seller pays the transportation costs from the shipping point to the final destination.
- Job Order Cost System (Manufacuring)
- Provides a separate record for the cost of each quantity of a product that passes through the factory. A particular quantity of a product is termed a job. Accumulates manufacturing costs. Four Stages: Materials inventory, Work in progress inventory, finished goods inventory, and finally cost of goods sold
- Materials Inventory
- First stage of Job Order Cost System of Manufacturing, in this, costs of direct and indirect materials that have not yet entered the manufacturing process.
- Work in Progress Inventory
- Second stage of Job Order Cost System of Manufacturing, in which consists of direct materials cost, direct labor costs, and factory overhead costs that have entered the manufacturing process but are associate with the products that have not yet been completed.
- Finished Goods Inventory
- Thrid stage of Job Order Cost System of Manufacturing, comprised of finished jobs that have not been sold. Upon sale, the manufacturer records the cost of the sale as cost of goods sold.
- Cost Allocation
- The process of assigning factory overhead costs to a cost object, such as a job.
- Activity Base
- The measure used to allocate factory overhead costs. The estimated activity base should be a measure that reflects the consumption or use of factory overhead costs.
- Overapplied Factory Overhead
- When the amount applied exceeds the actual costs incurred. The factory overhead account then has a negative balance.
- Underapplied Factory Overhead
- When the amount applied is less than the actual costs incurred. The factory overhead account then has a positive balance.
- Period Costs
- Expenses that are used in generating revenue during the current period and are not involved in the manufacturing process.
- Deferrals
- Created by recording a transaction in a way that delays or defers the recognition of its expense or revenue.
- Deferred Expenses (Prepaid Expenses)
- Items that initially were recorded as assets but are expected to become expenses over time or through the normal operations of the business. Examples: prepaid insurance supplies, prepaid advertising, school tuition paid upfront, and prepaid interest.
- Deferred Revenues (Unearned Revenues)
- Items that initially were recorded as liabilities but are expected to become revenues over time or through the normal operation of the business. Example: A school receiveing tuition in full before attendance, and magazine subscriptions received in advance by a publisher.
- Accruals
- Created when a revenue or expense has not been recorded at the end of the accounting period. Normally the result of revenue being earned or an expense being incurred before any cash is received or paid. For example, employees can earn wages before the end of the year but not be paid until after the year-end period because
- Accrual (Wages example)
- At the end of the accounting period, the company owes the employees for their wages on Monday and Tuesday that will be paid on the following Friday. At the end of the accounting period, the company has incurred these wages, but they have not yet been recorded or paid, thus the amount of the wages for Monday and Tuesday is an accrual.
- Accrued Expenses (Accrued Liabilities)
- Expenses that have been incurred but have not been recorded in the accounts. An example of this is accrued interest on notes payable at the end of the pay period. Also, accrued utility expenses and taxes. IE, THEY LET YOU USE ALL THE POWER, THEN CHARGE YOU FOR IT.
- Accrued Revenues (Accrued Assets)
- Revenues that have been earned but have not been recorded in the accounts. An example is the fee for services that an attorney has provided but has not billed to the client at the end of the period.
- Balance Sheet
- Current Assets(cash, accounts receivable, prepaid insurance, supplies). Fixed assets(office equipment, less accummulated depreciation, land). Current Liabilites(accounts payable, wages payable, notes payable, unearned revenue) Long-term Liabiliaties, Stockholders' Equity(capital stock, retained earnings).
- Income Statement
- Revenue - Expenses = Net Income/Loss
- Statement of Retained Earnings
- Net Income/Loss, and how much is reinvested into the company, and how much is paid out into dividends.
- Assets
- Resources owned by company, appears on balance sheet, cash, accounts receivable, inventories, prepaid expenses, property plant, and equipment (intangibles too).
- Liabilities
- The right of a creditor that represents a legal obligation to repay an amount borrowed according to terms of the borrowing agreement 1. Balance sheet 2. Accounts Payable, accrued liabilites, notes and other debt, income taxes.
- Equity
- The rights of stockholders 1)Balance Sheet 2)Capital Stock, retained earnings
- Capital Stock
- Types of stock a corporation may issue, located on the balance sheet under liabilites.
- Retained Earnings
- Net income retained in a corportation 1)Balance sheet under liabilities (a summary of the changes in the retained earnings in a corporation for a specific period of time.
- Dividends
- Distributions of the earnings of a corporation to stockholders 1)Retained Earnings Statement and 2)Cashflow Statement
- Revenue
- The increase in assets from selling products or services to customers 1)Income statement Sales
- Expenses
- Costs used to earn revenues 1)Income statement 2)Cost of sales, selling and administrative, other expenses, interest, income taxes.
- Cash flows from Financing activites
- Obtaining funds to begin and operate a business. Done in the form of borrowing capital, and issuing shares of ownership in their company (stock); this incurs liability; some examples of which are:::Accountes payable, bonds payable, interest payble, notes payable,
- Investing Activites
- Involve the selection and management of long term resources that will be used to develop, produce, and sell goods and services. Involve assets: Owned resources that are available for use in the future. Both tangible(land), or intangible, or intangible(rights to a patent). Another major asset is the right of a company to payment from customers, known as accounts receivable. Also includes prepaid expenses.
- Operating Activities
- When the business sells merchandise or services to a customer, this is the right to collect. Revenue is the increase in assets form selling products or services. Costs used to earn revenue are called expenses. Net Income, net loss. Revenues - expenses = net income or net loss.
- Horizontal Financial Statement Analysis
- A method of analyzing financial performance that computes the percentage of increases and decreases in related items in comparative financial statements.