ACCT 202 Exam 3- Chapter 5,6,8,12

A retailer is a merchandising company that purchases and sells directly to consumers.

A wholesaler is a merchandising company that sells to retailers.

Perpetual and periodic systems.

Beginning inventory + cost of goods purchased= cost of goods available for sale

Walmart

Manufactoring companies create the product themselves.

Time it takes to get product from seller and then sell the product. No regulations on how short the cycle can be.

Merchandising company

Companies keep detailed records of each inventory purchase and sale. Continuously shows inventory that should be on hand

The perpetual inventory system determine cost of goods sold each time a sale occurs

yes

companies do not keep detailed inventory records of the goods on hand throughout the period.

cost of goods sold are determined at the end of the accounting period.

An adjusting entry to record ending inventory.

When the company receives goods from the seller

Ownership of goods passes to the buyer when the public carrier ACCEPTS goods from the seller.

The buyer

Ownership of goods remains with the seller until goods reach the buyer.

The seller

Considered part of cost of inventory(merchandise). Debit(increase) to inventory

Operating expense to the seller. Increase Freight-Out Expense.

contra expense, credit

contra expense, credit

A purchase discount is something a company gets from paying early.

A purchase return and allowance is something that the buyer returns because they don’t want it anymore.

Transactions in which the seller either accepts goods back from the purchaser (return) or grants a reduction in the purchase price (an allowance) so that the buyer will keep the goods

a cash discount claimed by a buyer for prompt payment of a balance due

a reduction given by a seller for prompt payment of a credit sale

expense

Accounts Receivable

Sales Revenue

COGS

Inventory

contra-revenue, debit

conta-revenue, debit

To keep of inventory. There is a problem with their supplier. The company should find a new supplier.

Cash

Sales Discount

Accounts Receivable

Multiple step income statement highlights componets of net income (gross profit)

Net sales- COGS

Beginning Inventory + Cost of Goods Purchased= Cost of Goods Available for Sale

Ending Inventory- Cost of Goods Available for Sale= COGS

Beginning inventory+purchases- purchase returns and allowances- purchase discounts + freight-in= Cost of goods purchased

Beginning inventory + Cost of Goods purchased - Ending inventory = Cost of Goods Sold

Opearting expenses and COGS

purchase of invenotry and sales lengthen the cycle.

The total cost of merchandise sold during the period

expenses that are unrelated to the company’s main line of operations

interest expense, loss on sale of equipment, and income tax expense

Inventory is owned by the company

Inventory is available for sale (finished goods)

Raw materals

Work-in process

Finished goods

To check the accurary of their records

To determine how much was lost due to theft and damage

Determine inventory on hand on the balance sheet date

Determine cost of goods sold for the period

Check accruacy of perpetual inventory records

Determine amount of inventory lost due to wasted raw materials, shoplifting, employee theft

Once the item ships, the buyer owns it

once the item is received by the buyer

goods held for sale by one party although ownership of goods is retained by another party

Allocates the cost of goods available for sale on the basis of weighed-average unit cost.

Assumes the earliest goods purchase are the first to be sold. Sell the oldest units first. Cost of oldest units are recognized first. Ex: one listed on the bottom (Nov 27) will be sold before Jan 1.

Assumes the latest goods purchased are the first to be sold. Costs of the latest goods purchased are the first to be recognized in determining COGS. Ex: Jan 1 will be sold before Nov. 27th of the previous year

LIFO

FIFO

FIFO

Cost of goods sold available for sale/ total units available for sale= weighed-average cost

Units on hands times weighed-average cost

Net income is lower with inflation

Very small inventory, understate current cost

Cost of allocated ending inventory will approximate current cost

1. Cost of Goods Sold

2. Gross profit

3. Net income

1. Ending inventory

2. Total current assets

3. Total assets

4. Owner’s capital (due to the incorrect net income being added to the capital account)

Ending inventory amount on balance sheet approximates current replacement costs

Creates “illusory profits” during times of high inflation

Matches current costs against current revenues on income statement

Ending inventory amount on income statement may be substantially different from current replacement cost

Easy to understand, yields the same answer whether prices start at $1 and increase to $2 or start at $2 and decrease to $1

Ending inventory amount on income statement may not represent current replacement cost

1. Accounts Receivable

2. Notes Receivable

3. Other Receivables

Interest receivable, income tax receivable, trade receivables

Once you do the service

at the point of sale

Charging receivables balance to Bad Debt Expense at time receivable from a particular company is determined to be uncollectible

Estimates uncollectible accounts at the end of the period

allowance method

1. Direct write-off method

2. Allowance method

Expense account to record losses from extending credit

net amount a company expects to receive in cash from receivables.

Accounts receivable (net)

accounts receivable - allowance for doubful accounts= cash realizable value

1. Estimate uncollectible accounts receivable. Estimate expenses against revenues in the same accounting period in which they record revenues

2. Debit estimated uncollectibles of Bad Debt Expense, credit Allowance for Doubtful Accounts through an adjusting entry

Contra-asset, credit

Write off accounts. Debit actual uncollectibles to Allowance for Doubtful Accounts. Credit Accounts Receivable

Match estimated expense against revenues in the same accounting period in which they record revenues

Grant credit in exchange for a formal credit instrument know as promissory note

1. Determining the maturity date

2. Computing interest

3. Recognizing notes receivable

4. Valuing notes receivable

5. Disposing notes receivable

on demand, on a stated date, end of a stated period of time

Face value times annual interest rate times time in terms of 1 yr

Face value

record at net receivable value

can be held at maturity date

“On demand I promise to pay”

On a specific date they will pay the note

At the end of a stated period the note will be paid

1. Entity’s ability to generate future cash flows

2. Entity’s ability to pay dividends and meet obligations

3. Reason for difference between net income and net cash provided(used) by operating activites

4. Cash investing and financing transactions during the period

1. Operating activites

2. Investing activities

3. Financing activites

day to day operations

long-term assets (PP & E)

issuing common stock, long-term liabilities (loans)

Exchanging common stock for current assets

Conversion of bonds for common stock

Exchange of plant assets

Direct issuance of debt to purchase assets

From sale of goods/services, interest received and dividends, received