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ACC101.Sardone

Accounting

QuestionAnswer
FOB Destination Freight terms indicating that the seller places the goods free on board to the buyer's place of business, and he seller pays the freight.
FOB Shipping point Freight terms indicating that the seller places goods free on board the carrier, and the buyer pays the freight costs.
Gross profit The excess of net sales over the cost of goods sold.
Gross Proft rate Gross Profit expressed as a percentage, by dividing the amount of gross profit by net sales.
Income from operations Income from a company's principal operating activity; determined by subtracting cost of goods sold and operating expenses from net sales.
Net sales Sales less sales returns and allowances and less sales discounts.
Periodic inventory system an inventory system under which the company does not keep detailed inventory records throughout the the accounting period but determines the cost of goods sold at the end of the acct period.
Perpetual inventory system an inventory system under which the company keeps detailed records of the cost of each inventory purchase and sale and the records continuously shows the inventory that should be on hand.
Sales Discount A reduction given by a seller for prompt payment of a credit sale.
Credit Memo Authorization to allow a return
Freight out expense account used for shipping costs (seller)
Cost principle States that companies should record assets at their cost.
Economic entity assumption Requires that the activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities.
Monetary unit assumption States that companies include in the accounting records only transaction data that can be expressed in terms of money.
Matching principle Requires that companies match expenses with revenues (in the same period).
Revenue recognition principle Requires that companies recognise revenue in the accounting period in which it is earned. Exceptions Exist: Installment basis and % of completion method
Installment basis exception to the revenue recognition principle The unearned income is deferred and then recognized to income when cash is collected.[1] For example, if a company collected 45% of total product price, it can recognize 45% of total profit on that product.
% of completion method as an exception to the revenue recognition principle revenues, costs, and gross profit can be recognized each period based upon the progress of construction. ex: if during the year, 25% of the building was completed, the builder can recognize 25% of the expected total profit on the contract
Time period assumption States that the economic life of a business can be divided into equal, artificial time periods so that the performance of the business can be analyzed.
Conservatism This concept dictates that when in doubt, choose the method that will be least likely to overstate net income and assets.
Going-concern assumption States that the company will continue in operation for the foreseeable future.
Materiality principle States that if an item (ie: transaction) would not make a difference in decision making, a company does not have to follow GAAP in reporting it.
Full disclosure Requires that companies disclose all circumstances and events that would make a difference to financial statement users.
Bookkeeping (ch 1) usually involves only the recording of economic events.
Accounting (ch 1) involves the process of identifying, recording, and communicating economic events.
Internal users (ch 1) individuals inside a company who plan, organize, and run the business.
managerial accounting (ch 1) provides internal reports to help users make decisions about their companies
external users (ch 1) individuals and users outside a company who want financial info about the company.(investors, creditors)
financial accounting (ch 1) provides economic and financial info for investors, creditors, and other external users.
Created by: hkkfahy
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