# Shared Flashcard Set

## Details

Accounting Chapters 6 & 7
Depreciation methods and Inventory info
43
Accounting
03/24/2009

Term
 Available for sale=
Definition
 beginning inventory + purchases
Term
 Average Means
Definition
 beginning balance + ending balance / 2
Term
 Cost of goods sold formula =
Definition
 beginning inventory + inventory purchases - ending inventory
Term
 Income statement
Definition
 Sales revenue is based on sale price of inventory soldCost of goods sold is based on the cost of inventory soldGross profit (gorss margin) is sales revenue less cost of goods sold
Term
 Balance Sheet item:
Definition
 inventory on the balance sheet is based on cost
Term
 Periodic system:
Definition
 Does not keep a record of all goods bought and soldInventory is counted at least once a yearUsed for inexpensive goods
Term
 Perpetual system:
Definition
 Does not keep a record of all goods bought and soldinventory is counted  at least once a yearused for inexpensive goods
Term
 Inventory =
Definition
 number of units of inventory on hand x cost per unit of inventory
Term
 Cost of goods sold=
Definition
 number of units of inventory sold x cost per unit of inventory
Term
 FIFO
Definition
 first in first out
Term
 LIFO
Definition
 last in first out
Term
 Methods for determining per unit inventory cost:
Definition
 Specific unit costaverage costFIFOLIFO
Term
 Average cost per unit:
Definition
 cost of goods available / number of units available
Term
 LIFO: when COGS is highest, gross profit is______
Definition
 lowest
Term
 FIFO:COGS is lowest, gross profit is _____.
Definition
 highest
Term
 Higher cost of goods sold =
Definition
 lower net income = lower income taxes
Term
 Consistency Principle:
Definition
 Same accounting principles as period to periodaccounting changes must be disclosed
Term
 Disclosure principle:
Definition
 enough info must be presented in order for stakeholders to make informed decisionsrelevant, reliable, and comparable info
Term
 Accounting conservatism:
Definition
 anticipate or disclose all likely losses, but gains are not reported until they occurAssets are recorded at lowest reasonable amountLiabilities are recorded at highest reasonable amount
Term
 Inventory is reported at lowest value with:
Definition
 historical cost or market (replacement cost)
Term
 Inventory is reported at highest value when:
Definition
 record an increase in cost of goods soldrecrod the reduction in inventory
Term
 Gross profit percentage=
Definition
 gross profit / net sales revenue
Term
 Inventory turnover=
Definition
 cost of goods sold / average inventory
Term
 Gross profit=
Definition
 profit indicator
Term
 LIFO always sells the ______ items and works from the _________ to the __________.
Definition
 newest items and works from the bottom to the top
Term
 FIFO always sells the oldest items ________, and works from the _____ to the _________.
Definition
 first and works from the top to the bottom.
Term
 Purchase formula:
Definition
 Determine separate market value for each assetCalculate total market value of all assets purchasedDivide each asset's total market value by total market valueMultiply percent calculated in #3 for each asset by total cash paid for the assetAllocate result of #4 to that asset
Term
 Depreciation is
Definition
 physical wear and tear of an assetie: carObsolescenseie: computer
Term
 Contra Asset:
Definition
 Accumulated depreciation** Does not mean setting aside cash to replace assets as they wear out
Term
 Contra Asset Account
Definition
 Normal balance opposite from account, credit balance to asset accountPaired with a normal asset accountReduction in usefulnessbook value of asset
Term
 Estimating depreciation expense:
Definition
 costest. useful lifeest. residual value
Term
 Depreciation methods:
Definition
 straight lineunits of productiondouble declining balance
Term
 Recording Entries:Depreciation
Definition
 Debit depreciation expensecredit accumulated depreciation
Term
 Recording entries:Depletion
Definition
 Debit depletion expenseCredit accumulated depletion
Term
 Recording Entries:Amortization
Definition
 Debit amortization expenseCredit intangible asset
Term
 Straight line depreciation per year
Definition
 cost - residual value / useful life in years
Term
 Units of production=
Definition
 cost - residual value / useful life in units of production
Term
 Double declining balance=
Definition
 1 / useful life years x 2
Term
 Annual depreciation expense=
Definition
 1 / useful life years x 2 x book value
Term
 Errors:Beginning inventory is understated:
Definition
 -            +
Term
 Errors:Ending inventory is understated:
Definition
 +     -
Term
 Errors:Beginning inventory is overstated:
Definition
 +           -
Term
 Errors:Ending inventory is overstated:
Definition
 -           +
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