Introduction

Welcome to our comprehensive study guide for Accounting 100 Exam 2! In this guide, we will cover key concepts and topics that you need to know to ace your exam. We have gathered information from various sources to provide you with a well-rounded understanding of the subject matter. Let's dive in!

Accounts Receivable Turnover: Assessing Liquidity of Receivables

One important topic that you will encounter in Exam 2 is accounts receivable turnover. It is a measure of how quickly a company collects payment from its customers. The formula to calculate accounts receivable turnover is (credit sales) / (average net accounts receivable).

During the exam, you may be asked to assess the liquidity of receivables based on the accounts receivable turnover ratio. A higher ratio indicates that a company is collecting payments more efficiently, while a lower ratio may suggest potential issues with collecting payments in a timely manner.

Allowance Method: Accounting for Uncollectible Accounts

Another important concept to understand is the allowance method for uncollectible accounts. Companies set aside an allowance for doubtful accounts to anticipate potential losses from customers who may not be able to pay their debts. The allowance is based on estimates and historical data.

At the end of each accounting period, companies should assess the balance of the allowance for doubtful accounts and adjust it accordingly. This adjustment ensures that the financial statements reflect a realistic estimation of potential losses from uncollectible accounts.

Adjusted Trial Balance and Closing Entries

When preparing financial statements, companies need to bring all accounts up to date on an accrual basis. This process is done through adjusting entries, which are made at the end of an accounting period. Adjusted trial balance shows the financial condition of the enterprise at the end of the period.

After preparing the financial statements, companies need to close the temporary accounts to zero in order to start the next period with a clean slate. This process is known as closing entries. It involves transferring the net income or net loss to an owner's equity account and reducing the balance of nominal accounts to zero.

Depreciation and Contra Asset Accounts

Depreciation is an important concept in accounting, especially when dealing with depreciable assets. Book value refers to the difference between a depreciable asset's cost and its related accumulated depreciation. The book value provides insights into the remaining value of the asset after accounting for its depreciation.

Contra asset accounts are used to offset the balance of an asset account on the balance sheet. They represent reductions in the value of specific assets and provide a more accurate representation of the company's financial position.

Conclusion

We hope this study guide has provided you with a solid understanding of the key topics you need to know for Accounting 100 Exam 2. Remember to review the material thoroughly and practice solving related problems. Good luck with your exam!