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ECOA 181 Exam 2 Rev
ECOA 181 Exam 2 Review Sheet
| Question | Answer |
|---|---|
| What is the purpose of closing entries? | To prepare the general ledger accounts to start accumulating accounting activity for the next period. |
| Identify and describe temporary and permanent accounts. | Temporary accounts-accumulate information for a time period, like income statement and dividend accounts. Permanent accounts-relate to future periods like balance sheet accounts. |
| What is the post closing trial balance and what is its purpose? | Post-closing trial balance lists permanent accounts and their balances after journalizing and posting of closing entries. The purpose is to prove the equality of the permanent account balances carried forward into the next accounting period. |
| Describe the accounting cycle. | Analyze, journalize, post to ledger, trial balance, journalize and post adjusting entries, adjusted trial balance, financial statements, journalize and post closing entries, and post closing trial balance. |
| Compare and contrast correcting and adjusting journal entries. | Correting entries are avoidable which minimizes the likelihood of errors occuring and if the error is found, you can correct it immediately. While Adjusting entries are a required part of the acct'g cycle and are prepared just before financial statements. |
| What is a classified balance sheet and why is it useful? | Presents a snapshot of a company's financial position at a point in time.To improve users' understanding of a company's financial position, similar assets and similar liabilities are grouped together on the balance sheet. |
| Identify the different classifications in a classified balance sheet. | Assets- Current assets, long-term investments, property, plant and equipment, intangible assets. Liabilities and stockholder's equity- Current liabilities, long-term liabilities, and stockholders' equity. |
| Define and describe operating cycle. | The Operating Cycle of a business is the length of time between the cash outflow on purchased material and cash inflow from the sale of goods. |
| Identify and explain the differences in periodic and perpetual inventory systems. | Perpetual-inventory and cost of goods sold accounts continuously updated for each purchase/sale. Periodic-cost of goods sold and ending inventory determined at the end of an accounting period only. |
| Identify and define shipping costs as FOB shipping point and FOB destination. | Free on board shipping. Free to seller. Buyer pays. Free on Board Destination. Free to the buyer. Seller is paying. |
| Distinguish between a multi-step and single step income statement. | Single step; (Revenues-Expenses=Net income) Multi-step; Several steps involved in calculating net income. Distinguishes operating income from non operating income. |
| Differentiate between operating and non-operating expenses. | Operating expenses are the expenses incurred in the process of earning sales revenue. Nonoperating expenses are expenses incurred that is not part of the company's main line of operations. |
| Explain the computation and the importance of gross profit and the gross profit rate. | Gross profit: Net sales-Cost of goods sold=Gross profit. Gross profit rate: Gross Profit/ Net Sales=Gross Profit Rate Gross profit expresses a more qualitative relationship between net sales and gross profit. |
| Identify and define the different classifications of inventory: merchandise inventory, raw materials, work in process and finished goods. | Merchandise inveotry-inventory purchased for resale to customers. Finished goods-product that is ready for sale to customers. Work in process- product that has been started in the manufacturing process but not completed. Raw materials-inputstothemanpr |
| Describe the steps in determining inventory quatities. | 1)Take physical inventory of goods on hand. 2) Determining the ownership of goods. |
| How are goods in transit treated in a physical count of inventory? | FOB Shipping point and FOB Destination. FOB Shipping- buyer pays freight-title transfers at shipping point. FOB Destination-seller pays freight-title transfers at destination point. |
| What are consigned goods and how are they treated in a physical count of inventory? | Exclude other entity inventory held in your warehouse, including your inventory held at another entity. |
| What is the purpose of financial statement analysis? | To evaluate three characteristics of an economic entity: Liquidity, Profitability, and Solvency. |
| Identify and define the three bases of comparison: Intracompany, Industry and Intercompany. | Intra-company-compare a company to itself overtime, an entity's performance financial position improving or declining.Industry-how is a company performing relative to other companies in the same industry.Inter-company-compare a company to one othercompany |
| Identify and describe the three basic tools of analysis: horizontal, vertical and ratio. | Horizontal-look at financial items across time (2 time periods) (CY-PY)/PY)=%Change Vertical-look at financial items withing one year, each BS items is divided by total assets, each income statement item is divided by net sales. Ratio-relationship |
Created by:
klaroco924
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