Wiley P2 Sec-A Flashcard

How are revenues related to current assets? Revenues are related to current assets through the sales process. When inventory is sold, the sale is recorded on account and inventory is reduced. Debit: Accounts Receivable XXX Credit: Sales XXX Debit: Cost of Sales XXX Credit: Inventory XXX The dollar amount of sales minus cost of sales will create gross profit. Assets will increase by the same amount as gross profit. 2 FC.uations.FC002_1709 In regards to exchange rates, what's the difference between a direct quote and an indirect quote? A direct quote states the number of units of the domestic currency that can be converted into one unit of a foreign currency, whereas an indirect quote states the number of units of the foreign currency that can be converted into one unit of the domestic currency. 3 FC..FC003_1709 How does inflation impact key ratios? As revenues and expenses increase over time during periods of inflation, ratios such as return on assets can show increases that are not necessarily due to the firm performing better, but rather because income is higher due to inflation.