Financial Accounting Study Guide: Merchandising, Inventory, Receivables, and Cash Controls

{"type":"doc","content":[{"type":"heading","attrs":{"textAlign":null,"level":3},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Q1. What are the attributes of merchandisers?"}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Background"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Topic: Merchandising Operations"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"This question tests your understanding of the characteristics and operations of businesses that sell goods (merchandisers), as opposed to service companies."}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Terms:"}]},{"type":"bulletList","content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Merchandisers: Businesses that buy and sell goods."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Inventory: Goods held for sale."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Sales Revenue: Income from selling goods."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Step-by-Step Guidance"}]},{"type":"orderedList","attrs":{"start":1,"type":null},"content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Identify what distinguishes merchandisers from service companies (hint: inventory)."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"List typical activities merchandisers engage in, such as purchasing inventory and selling goods."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Consider the financial statements: What unique accounts do merchandisers use?"}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Try solving on your own before revealing the answer!"}]},{"type":"collapsible","content":[{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Final Answer:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Merchandisers are businesses that buy goods for resale. Their key attributes include holding inventory, recording sales revenue from selling goods, and having accounts such as \"Inventory,\" \"Cost of Goods Sold,\" and \"Sales Revenue\" on their financial statements."}]}]},{"type":"heading","attrs":{"textAlign":null,"level":3},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Q2. How do you record purchases and understand purchasing terms?"}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Background"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Topic: Inventory Purchases and Purchasing Terms"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"This question tests your knowledge of how to record inventory purchases and interpret common purchasing terms (like discounts, returns, and allowances)."}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Terms:"}]},{"type":"bulletList","content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Purchase Discounts: Reductions in price for early payment."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Purchase Returns and Allowances: Adjustments for returned or defective goods."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Inventory: Asset account for goods purchased for resale."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Step-by-Step Guidance"}]},{"type":"orderedList","attrs":{"start":1,"type":null},"content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Review the purchasing terms (e.g., 2/10, n/30) and what they mean for payment timing and discounts."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Understand how to record a purchase of inventory: Debit \"Inventory,\" credit \"Accounts Payable.\""}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Consider how to record purchase discounts, returns, and allowances in the accounting records."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Try solving on your own before revealing the answer!"}]},{"type":"collapsible","content":[{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Final Answer:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Purchases are recorded by debiting \"Inventory\" and crediting \"Accounts Payable.\" Purchasing terms like 2/10, n/30 mean a 2% discount is available if paid within 10 days; otherwise, the net amount is due in 30 days. Purchase discounts, returns, and allowances are recorded as reductions to the inventory cost."}]}]},{"type":"heading","attrs":{"textAlign":null,"level":3},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Q3. What are sales returns and allowances?"}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Background"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Topic: Sales Returns and Allowances"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"This question tests your understanding of how companies account for goods returned by customers or price reductions given after a sale."}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Terms:"}]},{"type":"bulletList","content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Sales Returns: Goods returned by customers."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Sales Allowances: Price reductions given after a sale."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Contra-revenue account: An account that reduces total sales revenue."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Step-by-Step Guidance"}]},{"type":"orderedList","attrs":{"start":1,"type":null},"content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Identify the accounts used to record sales returns and allowances (hint: contra-revenue accounts)."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Understand how these transactions affect net sales and revenue recognition."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Consider the impact on inventory and accounts receivable."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Try solving on your own before revealing the answer!"}]},{"type":"collapsible","content":[{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Final Answer:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Sales returns and allowances are contra-revenue accounts that reduce total sales revenue. They are used to record goods returned by customers or price reductions after a sale, affecting net sales and potentially inventory and receivables."}]}]},{"type":"heading","attrs":{"textAlign":null,"level":3},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Q4. How do you calculate gross profit percentage?"}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Background"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Topic: Gross Profit Percentage"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"This question tests your ability to calculate the profitability of sales after accounting for the cost of goods sold."}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Formula:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"inlineMath","attrs":{"latex":"\\text{Gross Profit Percentage} = \\frac{\\text{Gross Profit}}{\\text{Net Sales}} \\times 100"}}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Terms:"}]},{"type":"bulletList","content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Gross Profit: Net sales minus cost of goods sold."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Net Sales: Total sales minus sales returns and allowances."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Step-by-Step Guidance"}]},{"type":"orderedList","attrs":{"start":1,"type":null},"content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Calculate gross profit: "},{"type":"inlineMath","attrs":{"latex":"\\text{Gross Profit} = \\text{Net Sales} - \\text{Cost of Goods Sold}"}}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Plug gross profit and net sales into the formula for gross profit percentage."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Set up the calculation, but do not compute the final percentage yet."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Try solving on your own before revealing the answer!"}]},{"type":"collapsible","content":[{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Final Answer:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Gross profit percentage is calculated as "},{"type":"inlineMath","attrs":{"latex":"\\frac{\\text{Gross Profit}}{\\text{Net Sales}} \\times 100"}},{"type":"text","text":". For example, if gross profit is $20,000 and net sales are $100,000, the gross profit percentage is 20%."}]}]},{"type":"heading","attrs":{"textAlign":null,"level":3},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Q5. How do you account for the purchase of inventory with terms?"}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Background"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Topic: Inventory Purchases and Payment Terms"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"This question tests your understanding of how to record inventory purchases and apply payment terms (such as discounts for early payment)."}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Terms:"}]},{"type":"bulletList","content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Inventory: Asset account for goods purchased for resale."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Accounts Payable: Liability for purchases made on credit."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Purchase Discounts: Reductions for early payment."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Step-by-Step Guidance"}]},{"type":"orderedList","attrs":{"start":1,"type":null},"content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Record the initial purchase: Debit \"Inventory,\" credit \"Accounts Payable.\""}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Apply payment terms (e.g., 2/10, n/30) if payment is made within the discount period."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Record the payment and any discount taken."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Try solving on your own before revealing the answer!"}]},{"type":"collapsible","content":[{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Final Answer:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"When inventory is purchased with terms, record the purchase as a debit to \"Inventory\" and a credit to \"Accounts Payable.\" If payment is made within the discount period, record the discount as a reduction to \"Inventory\" or in a \"Purchase Discounts\" account."}]}]},{"type":"heading","attrs":{"textAlign":null,"level":3},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Q6. What are typical controls for inventory?"}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Background"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Topic: Internal Controls for Inventory"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"This question tests your knowledge of procedures and policies used to safeguard inventory and ensure accurate records."}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Terms:"}]},{"type":"bulletList","content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Physical Counts: Periodic counting of inventory."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Segregation of Duties: Separating responsibilities for purchasing, receiving, and recording inventory."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Inventory Records: Maintaining accurate records of inventory movements."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Step-by-Step Guidance"}]},{"type":"orderedList","attrs":{"start":1,"type":null},"content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"List common internal controls, such as physical counts and segregation of duties."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Explain how these controls help prevent theft and errors."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Consider the role of inventory records and reconciliations."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Try solving on your own before revealing the answer!"}]},{"type":"collapsible","content":[{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Final Answer:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Typical inventory controls include physical counts, segregation of duties, maintaining accurate inventory records, and regular reconciliations. These controls help prevent theft, fraud, and errors."}]}]},{"type":"heading","attrs":{"textAlign":null,"level":3},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Q7. How do you apply specific identification as a cost flow method?"}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Background"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Topic: Inventory Cost Flow Methods"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"This question tests your understanding of the specific identification method, where each item sold and remaining in inventory is tracked individually."}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Terms:"}]},{"type":"bulletList","content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Specific Identification: Assigns actual cost to each item sold."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Cost of Goods Sold: Cost assigned to items sold."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Inventory: Cost assigned to items remaining."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Step-by-Step Guidance"}]},{"type":"orderedList","attrs":{"start":1,"type":null},"content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Identify which items were sold and their actual purchase cost."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Assign the actual cost to cost of goods sold for each item sold."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Assign the actual cost to inventory for items remaining."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Try solving on your own before revealing the answer!"}]},{"type":"collapsible","content":[{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Final Answer:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Specific identification assigns the actual cost of each item to cost of goods sold or inventory, based on which items were sold or remain. This method is used for unique, high-value items."}]}]},{"type":"heading","attrs":{"textAlign":null,"level":3},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Q8. How do you apply last-in, first-out (LIFO) as a cost flow method?"}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Background"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Topic: Inventory Cost Flow Methods"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"This question tests your understanding of the LIFO method, where the most recently purchased items are considered sold first."}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Terms:"}]},{"type":"bulletList","content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"LIFO: Last-In, First-Out cost flow assumption."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Cost of Goods Sold: Cost assigned to most recent purchases."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Inventory: Cost assigned to oldest purchases."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Step-by-Step Guidance"}]},{"type":"orderedList","attrs":{"start":1,"type":null},"content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"List the inventory purchases chronologically."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Identify the quantity sold and assign the cost of the most recent purchases to cost of goods sold."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Assign the cost of the oldest purchases to ending inventory."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Try solving on your own before revealing the answer!"}]},{"type":"collapsible","content":[{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Final Answer:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"LIFO assigns the cost of the most recently purchased items to cost of goods sold, and the cost of the oldest items to ending inventory. This can result in lower reported profits during periods of rising prices."}]}]},{"type":"heading","attrs":{"textAlign":null,"level":3},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Q9. How do you apply weighted average as a cost flow method?"}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Background"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Topic: Inventory Cost Flow Methods"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"This question tests your understanding of the weighted average method, where the average cost of all units is used for both cost of goods sold and ending inventory."}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Formula:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"inlineMath","attrs":{"latex":"\\text{Weighted Average Cost per Unit} = \\frac{\\text{Total Cost of Goods Available for Sale}}{\\text{Total Units Available for Sale}}"}}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Terms:"}]},{"type":"bulletList","content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Weighted Average: Average cost per unit."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Cost of Goods Sold: Units sold times average cost."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Inventory: Units remaining times average cost."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Step-by-Step Guidance"}]},{"type":"orderedList","attrs":{"start":1,"type":null},"content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Calculate total cost and total units available for sale."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Compute weighted average cost per unit."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Apply the average cost to units sold and units remaining."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Try solving on your own before revealing the answer!"}]},{"type":"collapsible","content":[{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Final Answer:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Weighted average cost per unit is calculated by dividing total cost by total units. This average is used for both cost of goods sold and ending inventory."}]}]},{"type":"heading","attrs":{"textAlign":null,"level":3},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Q10. How do you calculate inventory turnover ratio?"}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Background"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Topic: Inventory Turnover Ratio"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"This question tests your ability to measure how efficiently inventory is managed and sold."}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Formula:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"inlineMath","attrs":{"latex":"\\text{Inventory Turnover Ratio} = \\frac{\\text{Cost of Goods Sold}}{\\text{Average Inventory}}"}}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Terms:"}]},{"type":"bulletList","content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Cost of Goods Sold: Total cost of inventory sold during the period."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Average Inventory: "},{"type":"inlineMath","attrs":{"latex":"(\\text{Beginning Inventory} + \\text{Ending Inventory}) / 2"}}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Step-by-Step Guidance"}]},{"type":"orderedList","attrs":{"start":1,"type":null},"content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Calculate average inventory for the period."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Plug cost of goods sold and average inventory into the formula."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Set up the calculation, but do not compute the final ratio yet."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Try solving on your own before revealing the answer!"}]},{"type":"collapsible","content":[{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Final Answer:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Inventory turnover ratio is calculated as "},{"type":"inlineMath","attrs":{"latex":"\\frac{\\text{Cost of Goods Sold}}{\\text{Average Inventory}}"}},{"type":"text","text":". This ratio shows how many times inventory is sold and replaced during a period."}]}]},{"type":"heading","attrs":{"textAlign":null,"level":3},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Q11. What is the prevalence of fraud?"}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Background"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Topic: Fraud in Accounting"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"This question tests your understanding of how common fraud is in business and the importance of internal controls."}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Terms:"}]},{"type":"bulletList","content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Fraud: Intentional misrepresentation or theft."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Internal Controls: Procedures to prevent and detect fraud."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Step-by-Step Guidance"}]},{"type":"orderedList","attrs":{"start":1,"type":null},"content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Consider statistics and studies on business fraud."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Understand why fraud occurs and how it can be prevented."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Think about the role of internal controls in reducing fraud risk."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Try solving on your own before revealing the answer!"}]},{"type":"collapsible","content":[{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Final Answer:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Fraud is a significant risk in business, with studies showing it is common. Internal controls are essential to prevent and detect fraud."}]}]},{"type":"heading","attrs":{"textAlign":null,"level":3},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Q12. What are controls over cash receipts?"}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Background"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Topic: Internal Controls for Cash Receipts"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"This question tests your knowledge of procedures to safeguard cash received by a business."}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Terms:"}]},{"type":"bulletList","content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Cash Receipts: Money received from customers."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Segregation of Duties: Separating responsibilities for receiving, recording, and depositing cash."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Bank Reconciliation: Matching cash records to bank statements."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Step-by-Step Guidance"}]},{"type":"orderedList","attrs":{"start":1,"type":null},"content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"List common controls, such as immediate deposit and segregation of duties."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Explain how these controls help prevent theft and errors."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Consider the importance of bank reconciliations."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Try solving on your own before revealing the answer!"}]},{"type":"collapsible","content":[{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Final Answer:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Controls over cash receipts include immediate deposit, segregation of duties, and regular bank reconciliations to prevent theft and errors."}]}]},{"type":"heading","attrs":{"textAlign":null,"level":3},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Q13. What are controls over cash payments?"}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Background"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Topic: Internal Controls for Cash Payments"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"This question tests your knowledge of procedures to safeguard cash disbursed by a business."}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Terms:"}]},{"type":"bulletList","content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Cash Payments: Money paid out by the business."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Authorization: Approval required for payments."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Segregation of Duties: Separating responsibilities for authorizing, recording, and making payments."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Step-by-Step Guidance"}]},{"type":"orderedList","attrs":{"start":1,"type":null},"content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"List common controls, such as requiring authorization and using checks."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Explain how segregation of duties helps prevent fraud."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Consider the importance of documentation and reconciliations."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Try solving on your own before revealing the answer!"}]},{"type":"collapsible","content":[{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Final Answer:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Controls over cash payments include requiring authorization, using checks, segregation of duties, and maintaining proper documentation."}]}]},{"type":"heading","attrs":{"textAlign":null,"level":3},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Q14. How do you calculate the cash ratio?"}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Background"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Topic: Cash Ratio"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"This question tests your ability to measure a company's liquidity using the cash ratio."}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Formula:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"inlineMath","attrs":{"latex":"\\text{Cash Ratio} = \\frac{\\text{Cash} + \\text{Cash Equivalents}}{\\text{Current Liabilities}}"}}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Terms:"}]},{"type":"bulletList","content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Cash: Money on hand and in bank accounts."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Cash Equivalents: Short-term investments easily converted to cash."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Current Liabilities: Obligations due within one year."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Step-by-Step Guidance"}]},{"type":"orderedList","attrs":{"start":1,"type":null},"content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Identify cash, cash equivalents, and current liabilities from the balance sheet."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Plug these values into the cash ratio formula."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Set up the calculation, but do not compute the final ratio yet."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Try solving on your own before revealing the answer!"}]},{"type":"collapsible","content":[{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Final Answer:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Cash ratio is calculated as "},{"type":"inlineMath","attrs":{"latex":"\\frac{\\text{Cash} + \\text{Cash Equivalents}}{\\text{Current Liabilities}}"}},{"type":"text","text":". It measures a company's ability to pay short-term obligations with cash and equivalents."}]}]},{"type":"heading","attrs":{"textAlign":null,"level":3},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Q15. How do you replenish petty cash?"}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Background"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Topic: Petty Cash Fund"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"This question tests your understanding of how to account for petty cash expenditures and replenish the fund."}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Terms:"}]},{"type":"bulletList","content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Petty Cash: Small cash fund for minor expenses."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Replenishment: Adding cash to restore the fund to its original amount."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Expense Accounts: Accounts used to record petty cash expenditures."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Step-by-Step Guidance"}]},{"type":"orderedList","attrs":{"start":1,"type":null},"content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Review petty cash vouchers and receipts to determine total expenses."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Record expenses in the appropriate accounts."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Replenish the fund by writing a check for the amount spent."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Try solving on your own before revealing the answer!"}]},{"type":"collapsible","content":[{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Final Answer:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"To replenish petty cash, record the expenses and write a check to restore the fund to its original amount. The check is debited to expense accounts and credited to cash."}]}]},{"type":"heading","attrs":{"textAlign":null,"level":3},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Q16. What can create a receivable?"}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Background"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Topic: Accounts Receivable"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"This question tests your understanding of transactions that result in a receivable for a business."}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Terms:"}]},{"type":"bulletList","content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Receivable: Amount owed to the business."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Sales on Credit: Selling goods or services without immediate payment."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Loans: Money lent to others."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Step-by-Step Guidance"}]},{"type":"orderedList","attrs":{"start":1,"type":null},"content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Identify transactions that result in money owed to the business (e.g., sales on credit, loans)."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Consider other sources, such as interest or advances."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Think about how these are recorded in the accounting records."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Try solving on your own before revealing the answer!"}]},{"type":"collapsible","content":[{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Final Answer:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Receivables are created by sales on credit, loans to others, advances, and interest earned but not yet received."}]}]},{"type":"heading","attrs":{"textAlign":null,"level":3},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Q17. How do you account for bad debt using percentage of sales?"}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Background"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Topic: Bad Debt Expense - Percentage of Sales Method"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"This question tests your ability to estimate and record bad debt expense based on a percentage of credit sales."}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Formula:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"inlineMath","attrs":{"latex":"\\text{Bad Debt Expense} = \\text{Credit Sales} \\times \\text{Estimated Percentage}"}}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Terms:"}]},{"type":"bulletList","content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Bad Debt Expense: Estimated uncollectible accounts."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Percentage of Sales: Method for estimating bad debts."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Step-by-Step Guidance"}]},{"type":"orderedList","attrs":{"start":1,"type":null},"content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Identify total credit sales for the period."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Determine the estimated percentage of uncollectible accounts."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Multiply credit sales by the estimated percentage to estimate bad debt expense."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Try solving on your own before revealing the answer!"}]},{"type":"collapsible","content":[{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Final Answer:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Bad debt expense is calculated as credit sales times the estimated percentage. For example, if credit sales are $100,000 and the estimate is 2%, bad debt expense is $2,000."}]}]},{"type":"heading","attrs":{"textAlign":null,"level":3},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Q18. How do you calculate bad debt expense using percentage of receivables?"}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Background"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Topic: Bad Debt Expense - Percentage of Receivables Method"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"This question tests your ability to estimate bad debt expense based on accounts receivable."}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Formula:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"inlineMath","attrs":{"latex":"\\text{Bad Debt Expense} = \\text{Accounts Receivable} \\times \\text{Estimated Percentage}"}}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Terms:"}]},{"type":"bulletList","content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Accounts Receivable: Amount owed by customers."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Estimated Percentage: Percentage expected to be uncollectible."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Step-by-Step Guidance"}]},{"type":"orderedList","attrs":{"start":1,"type":null},"content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Identify total accounts receivable at period end."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Determine the estimated percentage of uncollectible accounts."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Multiply accounts receivable by the estimated percentage to estimate bad debt expense."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Try solving on your own before revealing the answer!"}]},{"type":"collapsible","content":[{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Final Answer:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Bad debt expense is calculated as accounts receivable times the estimated percentage. For example, if receivables are $50,000 and the estimate is 4%, bad debt expense is $2,000."}]}]},{"type":"heading","attrs":{"textAlign":null,"level":3},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Q19. How do you calculate accounts receivable turnover ratio?"}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Background"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Topic: Accounts Receivable Turnover Ratio"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"This question tests your ability to measure how efficiently a company collects its receivables."}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Formula:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"inlineMath","attrs":{"latex":"\\text{Accounts Receivable Turnover Ratio} = \\frac{\\text{Credit Sales}}{\\text{Average Accounts Receivable}}"}}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Terms:"}]},{"type":"bulletList","content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Credit Sales: Sales made on credit."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Average Accounts Receivable: "},{"type":"inlineMath","attrs":{"latex":"(\\text{Beginning Receivables} + \\text{Ending Receivables}) / 2"}}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Step-by-Step Guidance"}]},{"type":"orderedList","attrs":{"start":1,"type":null},"content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Calculate average accounts receivable for the period."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Plug credit sales and average receivables into the formula."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Set up the calculation, but do not compute the final ratio yet."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Try solving on your own before revealing the answer!"}]},{"type":"collapsible","content":[{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Final Answer:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Accounts receivable turnover ratio is calculated as "},{"type":"inlineMath","attrs":{"latex":"\\frac{\\text{Credit Sales}}{\\text{Average Accounts Receivable}}"}},{"type":"text","text":". This ratio shows how many times receivables are collected during a period."}]}]},{"type":"heading","attrs":{"textAlign":null,"level":3},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Q20. How do you calculate days in accounts receivable?"}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Background"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Topic: Days in Accounts Receivable"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"This question tests your ability to measure the average number of days it takes to collect receivables."}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Formula:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"inlineMath","attrs":{"latex":"\\text{Days in Accounts Receivable} = \\frac{\\text{Average Accounts Receivable}}{\\text{Credit Sales}} \\times 365"}}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Terms:"}]},{"type":"bulletList","content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Average Accounts Receivable: "},{"type":"inlineMath","attrs":{"latex":"(\\text{Beginning Receivables} + \\text{Ending Receivables}) / 2"}}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Credit Sales: Sales made on credit."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Step-by-Step Guidance"}]},{"type":"orderedList","attrs":{"start":1,"type":null},"content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Calculate average accounts receivable for the period."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Plug average receivables and credit sales into the formula."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Set up the calculation, but do not compute the final number of days yet."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Try solving on your own before revealing the answer!"}]},{"type":"collapsible","content":[{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Final Answer:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Days in accounts receivable is calculated as "},{"type":"inlineMath","attrs":{"latex":"\\frac{\\text{Average Accounts Receivable}}{\\text{Credit Sales}} \\times 365"}},{"type":"text","text":". This shows the average number of days it takes to collect receivables."}]}]},{"type":"heading","attrs":{"textAlign":null,"level":3},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Q21. How do you prepare a merchandiser’s income statement?"}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Background"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Topic: Merchandiser’s Income Statement"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"This question tests your ability to prepare an income statement for a business that sells goods."}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Terms:"}]},{"type":"bulletList","content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Net Sales: Total sales minus returns and allowances."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Cost of Goods Sold: Cost of inventory sold."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Gross Profit: Net sales minus cost of goods sold."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Operating Expenses: Expenses incurred in running the business."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Net Income: Gross profit minus operating expenses."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Step-by-Step Guidance"}]},{"type":"orderedList","attrs":{"start":1,"type":null},"content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Start with net sales (sales minus returns and allowances)."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Subtract cost of goods sold to find gross profit."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Subtract operating expenses from gross profit to find net income."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Set up the statement, but do not compute the final net income yet."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Try solving on your own before revealing the answer!"}]},{"type":"collapsible","content":[{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Final Answer:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"A merchandiser’s income statement includes net sales, cost of goods sold, gross profit, operating expenses, and net income. Net income is calculated as gross profit minus operating expenses."}]}]},{"type":"heading","attrs":{"textAlign":null,"level":3},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Q22. How do you account for inventory using first-in, first-out (FIFO) cost flow?"}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Background"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Topic: FIFO Inventory Cost Flow"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"This question tests your ability to apply the FIFO method, where the oldest inventory is considered sold first."}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Terms:"}]},{"type":"bulletList","content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"FIFO: First-In, First-Out cost flow assumption."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Cost of Goods Sold: Cost assigned to oldest purchases."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Inventory: Cost assigned to most recent purchases."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Step-by-Step Guidance"}]},{"type":"orderedList","attrs":{"start":1,"type":null},"content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"List inventory purchases chronologically."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Identify the quantity sold and assign the cost of the oldest purchases to cost of goods sold."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Assign the cost of the most recent purchases to ending inventory."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Try solving on your own before revealing the answer!"}]},{"type":"collapsible","content":[{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Final Answer:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"FIFO assigns the cost of the oldest inventory to cost of goods sold and the cost of the most recent inventory to ending inventory."}]}]},{"type":"heading","attrs":{"textAlign":null,"level":3},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Q23. How do you prepare a bank reconciliation and the entries needed?"}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Background"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Topic: Bank Reconciliation"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"This question tests your ability to reconcile the company’s cash records with the bank statement and record necessary adjusting entries."}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Key Terms:"}]},{"type":"bulletList","content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Bank Reconciliation: Matching company records to bank statement."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Outstanding Checks: Checks written but not yet cleared."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Deposits in Transit: Deposits made but not yet recorded by the bank."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Adjusting Entries: Entries to correct cash records."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Step-by-Step Guidance"}]},{"type":"orderedList","attrs":{"start":1,"type":null},"content":[{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Compare the company’s cash records to the bank statement."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Identify outstanding checks and deposits in transit."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"List any bank fees, errors, or unrecorded transactions."}]}]},{"type":"listItem","content":[{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Prepare adjusting entries for items not yet recorded in the company’s books."}]}]}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"underline"}],"text":"Try solving on your own before revealing the answer!"}]},{"type":"collapsible","content":[{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Final Answer:"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Bank reconciliation involves matching company records to the bank statement, identifying outstanding items, and preparing adjusting entries for bank fees, errors, or unrecorded transactions."}]}]},{"type":"heading","attrs":{"textAlign":null,"level":3},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Q24. How do you account for bad debts, write-offs, and recoveries?"}]},{"type":"heading","attrs":{"textAlign":null,"level":4},"content":[{"type":"text","marks":[{"type":"bold"}],"text":"Background"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text":"Topic: Bad Debts, Write-Offs, and Recoveries"}]},{"type":"paragraph","attrs":{"textAlign":null},"content":[{"type":"text","text