Unit 2 Financial accounting

When merchandise that was sold is returned, a credit to sales returns and allowances is made.

The choice of an inventory costing method has no significant impact on the financial statements.

There are three internal control objectives and they are to safeguard the company's reputation, ensure accurate financial reports, and ensure compliance with applicable laws.

FIFO is the inventory costing method that follows the physical flow of the goods.

The three inventory costing methods will normally each yield different amounts of net income.

President's salaries, depreciation of office furniture, and office supplies are

Generally accepted accounting principles do not normally allow the use of the direct write-off method of accounting for uncollectible accounts.

Separating the responsibilities for purchasing, receiving, and paying for equipment is an example of the control procedure: separating operations, custody of assets, and accounting.

Sarbanes-Oxley's purpose is to maintain public confidence and trust in the financial reporting of companies.

The Sarbanes-Oxley Act applies only to companies whose stock is traded on public exchanges.

The number of days' sales in receivables

Of the two methods of accounting for uncollectible receivables, the allowance method provides in advance for uncollectible receivables.

Both Accounts Receivable and Notes Receivable represent claims that are expected to be collected in cash.

Receivables not currently collectible are reported in the investments section of the balance sheet.

Under a periodic inventory system, closing entries will include

The most important differences between a service business and a retail business are reflected in their operating cycles and financial statements.

Service businesses provide services for income, while a merchandising business sells merchandise.

The average cost method will always yield results between FIFO and LIFO.

Under a periodic inventory system, the cost of merchandise on hand at the end of the year is determined by a physical count of the inventory.

If payment is due by the end of the month in which the sale is made, the invoice terms are expressed as n/30.

No allowance account is used with the direct write-off method.

Small companies can use either the direct write-off method or the allowance method.

Under the periodic inventory system, the journal entry to record the cost of merchandise sold at the point of sale will include which of the following? A None of these choices are correct. B Cost of Merchandise Sold C Purchases D Inventory

Inventory shrinkage is recorded when

The accounts receivable turnover measures

Freight in is the amount paid by the company to deliver merchandise sold to a customer.

Current assets are usually listed in order

Generally, the revenue account for a merchandising business is entitled

In a perpetual inventory system, the Merchandise Inventory account is only used to reflect the beginning inventory.

When companies sell their receivables to other companies, the transaction is called factoring.

Internal control is enhanced by separating the control of a transaction from the record-keeping function.

Cost of merchandise sold is the amount that the merchandising company pays for the merchandise it intends to sell.

When using the FIFO inventory costing method, the most recent costs are assigned to the cost of merchandise sold.

GAAP requires companies with a large amount of receivables to use the allowance method.

Expenses that are incurred directly or entirely in connection with the sale of merchandise are classified as

The control environment in an internal control structure is the overall attitude of management and employees about the importance of internal control.

The direct write-off method records bad debt expense in the year the specific account receivable is determined to be uncollectible.