Financial Accounting CLEP Exam with verified || || || || || ||
detailed answers ||
What always increases as net income increases? - ✔✔Equity
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Assume there are 365 days in a year. What is the number of days' inventory on hand for a firm
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with cost of goods sold of $750,000 and average inventory of $150,000 ? - ✔✔73
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-750,000/150,000=5
365/5=73
During the current year, accounts receivable increased form $27,000 to $41,000, and sales were
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$225,000. Based on this information, how much cash did the company collect from its customers
|| || || || || || || || || || || || || || ||
during the year? - ✔✔$211,000
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-41,000-27,000=14,000
225,000-14,000=211,000
Accounts Receivable - ✔✔Amounts to be received in the future due to the sale of goods or
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services
Accounts Receivable Turnover - ✔✔A measure of the liquidity of accounts receivable, computed
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by||
-net credit sales/average net accounts receivable.
|| || || || ||
-how quickly a firm collects cash on its credit sales
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Income statement - ✔✔A financial statement that reports a company's revenues and expenses and
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resulting net income or net loss for a specific period of time.
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,The income statement is designed to measure - ✔✔The results of business operations
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bank reconciliation - ✔✔The process of comparing the bank's account balance with the
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company's balance, and explaining the differences to make them agree. || || || || || || || || ||
A company prepares a bank reconciliation in order to... - ✔✔determine the correct amount of the
|| || || || || || || || || || || || || || || ||
cash balance ||
FIFO - ✔✔inventory accounting in which the oldest items (those first acquired) are assumed to be
|| || || || || || || || || || || || || || ||
the first sold; creates a higher ending inventory and lower cost of goods sold, higher gross profit
|| || || || || || || || || || || || || || || || || ||
and higher taxable income.
|| || ||
-First in, First out || || ||
LIFO - ✔✔inventory accounting in which the most recently acquired items are assumed to be the
|| || || || || || || || || || || || || || || ||
first sold; method is supposed to create the lowest ending inventory in a period of rising prices.
|| || || || || || || || || || || || || || || || ||
Also create a lower taxable income, lower gross profit.
|| || || || || || || ||
-Last in, First out || || ||
An inventory valuation method such as FIFO or LIFO affects... - ✔✔Both the income statement
|| || || || || || || || || || || || || || ||
and the balance sheet
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balance sheet - ✔✔A financial statement that reports assets, liabilities, and owner's equity on a
|| || || || || || || || || || || || || || ||
specific date. ||
A liability for dividends exists: - ✔✔date of declaration
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Assets are classified as intangible under what conditions? - ✔✔They have no physical substance
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Profitability - ✔✔the rate of return the firm makes on its invested capital || || || || || || || || || || || ||
, Liquidity - ✔✔the ease with which an asset can be converted into the economy's medium of
|| || || || || || || || || || || || || || || ||
exchange
Solvency - ✔✔The ability of a company to pay interest as it comes due and to repay the balance
|| || || || || || || || || || || || || || || || || || ||
of debt due at its maturity.
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Cash Flow - ✔✔the total amount of money being transferred into and out of a business, especially
|| || || || || || || || || || || || || || || ||
as affecting liquidity.
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Reliability - ✔✔consistency of measurement || || || ||
Return on assets helps users of financial statements evaluate which of the following? -
|| || || || || || || || || || || || || ||
✔✔Profitability
What impact does collecting a receivable have? - ✔✔Total assets and net income are not affected
|| || || || || || || || || || || || || || ||
collecting receivables - ✔✔Accounts receivable is the balance of money due to a firm for goods
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or services delivered or used but not yet paid for by customers.
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Statement of Retained Earnings - ✔✔reports how the company's retained earnings balance
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changed from the beginning to the end of the period
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Balance sheet - ✔✔A financial statement that reports assets, liabilities, and owner's equity on a
|| || || || || || || || || || || || || || ||
specific date. ||
statement of changes in owner's equity - ✔✔summarizes changes in the owner's capital account
|| || || || || || || || || || || || || ||
as a result of business transactions that occur during the period
|| || || || || || || || || ||
Statement of cash flows - ✔✔A financial statement that includes classifications for operating,
|| || || || || || || || || || || || ||
financing, and investing activities of a business entity for a period of time
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detailed answers ||
What always increases as net income increases? - ✔✔Equity
|| || || || || || || ||
Assume there are 365 days in a year. What is the number of days' inventory on hand for a firm
|| || || || || || || || || || || || || || || || || || || ||
with cost of goods sold of $750,000 and average inventory of $150,000 ? - ✔✔73
|| || || || || || || || || || || || || ||
-750,000/150,000=5
365/5=73
During the current year, accounts receivable increased form $27,000 to $41,000, and sales were
|| || || || || || || || || || || || || ||
$225,000. Based on this information, how much cash did the company collect from its customers
|| || || || || || || || || || || || || || ||
during the year? - ✔✔$211,000
|| || || ||
-41,000-27,000=14,000
225,000-14,000=211,000
Accounts Receivable - ✔✔Amounts to be received in the future due to the sale of goods or
|| || || || || || || || || || || || || || || || ||
services
Accounts Receivable Turnover - ✔✔A measure of the liquidity of accounts receivable, computed
|| || || || || || || || || || || || ||
by||
-net credit sales/average net accounts receivable.
|| || || || ||
-how quickly a firm collects cash on its credit sales
|| || || || || || || || ||
Income statement - ✔✔A financial statement that reports a company's revenues and expenses and
|| || || || || || || || || || || || || ||
resulting net income or net loss for a specific period of time.
|| || || || || || || || || || ||
,The income statement is designed to measure - ✔✔The results of business operations
|| || || || || || || || || || || ||
bank reconciliation - ✔✔The process of comparing the bank's account balance with the
|| || || || || || || || || || || || ||
company's balance, and explaining the differences to make them agree. || || || || || || || || ||
A company prepares a bank reconciliation in order to... - ✔✔determine the correct amount of the
|| || || || || || || || || || || || || || || ||
cash balance ||
FIFO - ✔✔inventory accounting in which the oldest items (those first acquired) are assumed to be
|| || || || || || || || || || || || || || ||
the first sold; creates a higher ending inventory and lower cost of goods sold, higher gross profit
|| || || || || || || || || || || || || || || || || ||
and higher taxable income.
|| || ||
-First in, First out || || ||
LIFO - ✔✔inventory accounting in which the most recently acquired items are assumed to be the
|| || || || || || || || || || || || || || || ||
first sold; method is supposed to create the lowest ending inventory in a period of rising prices.
|| || || || || || || || || || || || || || || || ||
Also create a lower taxable income, lower gross profit.
|| || || || || || || ||
-Last in, First out || || ||
An inventory valuation method such as FIFO or LIFO affects... - ✔✔Both the income statement
|| || || || || || || || || || || || || || ||
and the balance sheet
|| || ||
balance sheet - ✔✔A financial statement that reports assets, liabilities, and owner's equity on a
|| || || || || || || || || || || || || || ||
specific date. ||
A liability for dividends exists: - ✔✔date of declaration
|| || || || || || || ||
Assets are classified as intangible under what conditions? - ✔✔They have no physical substance
|| || || || || || || || || || || || ||
Profitability - ✔✔the rate of return the firm makes on its invested capital || || || || || || || || || || || ||
, Liquidity - ✔✔the ease with which an asset can be converted into the economy's medium of
|| || || || || || || || || || || || || || || ||
exchange
Solvency - ✔✔The ability of a company to pay interest as it comes due and to repay the balance
|| || || || || || || || || || || || || || || || || || ||
of debt due at its maturity.
|| || || || ||
Cash Flow - ✔✔the total amount of money being transferred into and out of a business, especially
|| || || || || || || || || || || || || || || ||
as affecting liquidity.
|| || ||
Reliability - ✔✔consistency of measurement || || || ||
Return on assets helps users of financial statements evaluate which of the following? -
|| || || || || || || || || || || || || ||
✔✔Profitability
What impact does collecting a receivable have? - ✔✔Total assets and net income are not affected
|| || || || || || || || || || || || || || ||
collecting receivables - ✔✔Accounts receivable is the balance of money due to a firm for goods
|| || || || || || || || || || || || || || || ||
or services delivered or used but not yet paid for by customers.
|| || || || || || || || || || ||
Statement of Retained Earnings - ✔✔reports how the company's retained earnings balance
|| || || || || || || || || || || ||
changed from the beginning to the end of the period
|| || || || || || || || ||
Balance sheet - ✔✔A financial statement that reports assets, liabilities, and owner's equity on a
|| || || || || || || || || || || || || || ||
specific date. ||
statement of changes in owner's equity - ✔✔summarizes changes in the owner's capital account
|| || || || || || || || || || || || || ||
as a result of business transactions that occur during the period
|| || || || || || || || || ||
Statement of cash flows - ✔✔A financial statement that includes classifications for operating,
|| || || || || || || || || || || || ||
financing, and investing activities of a business entity for a period of time
|| || || || || || || || || || || ||
