1. CDs
2. legally restricted compensating balances
3. restricted cash funds

• minimum balance must be maintained by firm in relation to borrowing
• increases effective interest rate and reduces risk to lender

GAAP: treated as liabilities

IFRS: subtracted from cash

1. occurs when checks honored by bank exceed balance in account
2. may be offset against other cash accounts w/ same banks but not other banks
3. if can't offset=liability

1. comparison of bank to cash balance
2. identify errors
3. establishes correct ending cash balance
4. provides adjusting entry info
5. helps reduce cash theft by employees

1. bank to book
2. book to bank
3. bank and book to true balance

1. add deposits in transit
2. add cash on hand
3. subtract outstanding checks
4. add/subtract errors by bank

5 adjustments to book balance

1. add interest earned
2. add note collected
3. subtract service charges
4. subtract NSF checks 
5. add/subtract firm's errors

1. trade discounts (quantity)
2. cash discounts (sales)
3. sales returns and allowances
4. non-collectible accounts

1. gross method
2. net method

• records receivables net of trade and sales discounts by assuming all discounts will be taken advantage of 
• if not taken advantage of, credit sales discount forfeited later

D- Sales discounts

C- allowance for sales discounts

1. probable future benefit
2. measurable revenue
3. measurable cost
4. significant risk and reward of ownership is transferred
5. managerial involvement is not retained

1. records bad debt expense only when a specific account receivable is considered uncollectible and is written off
2. can only be used if a firm is unable to estimate uncollectibe accounts receivable reliably

1. overvalues AR on BS
2. company recognizes revenue and bad debt expense in different years

(not considered in accordance with GAAP unless there is no basis for estimating bad debts)

1. may be materially different in its effect on FSs
2. simple and practical to use

D- bad debt expense

C- accounts receivable

D- cash

C- bad debts recovered

1. required by GAAP if uncollectible accounts are probable and estimable
2. records estimate of bad debt expense at end of each year in an adjusting entry

1. allows companies to value AR @ NRV on BS
2. allows companies to recognize revenues and expenses from credit sales in the same accounting year

D- bad debt expense

C- allowance for doubtful accounts

D- allowance for doubtful accounts

C- accounts receivable

D- AR

C- allowance for doubtful accounts

D- Cash

C- AR

1. income statement approach
2. balance sheet approach
3. combination approach

1. company can estimate bad debt expense as a % of credit sales
2. no consideration is given to existing balance in allowance account
3. primary objective = matching 
4. bad debt expense=% X Item

1. bad debt expense = difference between existing balance in allowance account and needed balance in allowance account
2. allowance for uncollectible account using aging method= (amounts x estimated uncollectible %)
3. allowance for uncollectible accounts w/ out using aging method= beginning balance - writeoffs + adjusting journal entry + collections on previous write-off

1. transferred assets have been isolated from the transferor
2. transferee is freee to pledge or exchange the assets
3. transferor doesn't maintain effective control over assets transferred

• usually accounted for as a sale
• factor bears cost of uncollectible accounts but transferror bears cost of sales adjustments such as discounts
• D- Cash, Receivable from factor, loss from sale of receivables C- AR
• D- Sales Returns and Allowances C- Receivable from factor

• transferor bears all liability
• LOAN D- Cash, loss on sale of receivables C- AR, recourse liability
• SALE D- cash, discount on factor L C- factor L

D- allowance for doubtful accounts C- AR

(as payments are made to factor, factor liability decreases and discount is offset by interest expense)

1. borrowers assign rights to specific accounts as collateral for a loan and reclassifies as "AR assigned"
2. loan and receivables remain on borrowers BS

1. title remains w/ originator
2. receivables not reclassified

• GAAP requires receivable be written down to either PV of future cash flows expected to be collected using original interest rate, or market value (whichever is more determinable)
• D- bad debt expense C- Allowance for decline in note value
• interest revenue is recognized under either interest method, cost method, or other

1. finished goods
2. WIP
3. raw materials

1. freight
2. insurance in transit to seller
3. taxes paid on acquisition
4. material handling costs
5. packaging costs
6. (purchase discounts)
7. (purchase returns and allowances)

1. interest on purchase or construction
2. promotional costs (advertising)

1. direct materials
2. fixed overhead
3. direct labor
4. variable overhead

• subject to estimation errors
• if actual production is less than production budgeted for the denominator, then less fixed overhead will be applied to project than actually incurred (extra is expensed)

1. beginning inventory is reflected in merchandise inventory all year and doesn't change
2. less expensive to administer than perpetual
3. inventory account never used to record purchases

D- purchases (closed to EI and COGS at year-end)

C- AP

D- merchandise inventory (ending), purchase R&A, purchase discounts, COGS

C- merchandise inventory (beginning), purchases, transported in

used to assign a value to COGS and EI

1. specific I.D.
2. Weighted average
3. FIFO
4. LIFO

• good for large items of less quantity
• not cost effective for most firms and allows manipulation of earnings

• implies periodic system
• weighted average cost per unit = COgA4S/#of units A4S

1. use of inventory account instead of purchases and adjustments such as R&A and discounts
2. recording of COGS at sale rather than at period end

1. implies perpetual
2. instead of single weighted average cost per unit, company computes a new weighted-average cost per unit after each purcahse of inventory
3. when merchandise is sold the current moving average is multiplied by # of units sold to determine amount of COGS entry
4. in period of increased prices, this method results in lower COGS than weighted-average

1. each sale costed w/ most recent purchase available preceeding sale
2. in year of increasing prices, perpetual yields lower COGS because it uses earlier purchases

1. flow out of costs is same as physical flow of goods
2. balance sheet is more accurate, income statement is less accurate
3. usually chosen to maximize net income

1. matching of revenue/expense is ideal (IS is accurate)
2. balance sheet is not very acccurate
3. chosen to minimize tax expense

1. When number of unit purchased or produced is < units sold
2. must go into previous period layers until units sold is exhausted
3. results from poor planning or lack of supply
4. eliminates income tax benefit

1. reduces effect of the liquidation problem
2. allows internal use of FIFO
3. reduces clerical cost

= ending inventory in current-year dollars

ending inventory in base-year dollars

1. Convert FIFO ending inventory to ending inventory at base-year cost (price level at beginning of first year using LIFO)
2. Compute change in inventory in base-year cost    (=EI in base-year $ - BI in base-year $)
3. Compute the current layer at current year costs (=current year layer @ base year cost X conversion index)
4. compute EI under DV LIFO (=BI DV Lifo + Current-year layer at current-year cost)

• middle of replacement cost, net realizable value and net realizable value-net profit margin
• generally replacement cost
• if replacement cost is within floor-ceiling range, RC=market.  If >, market = ceiling, if <, floor=market

1. determine market
2. compare to cost and value inventory at lower of the two

1. individual item basis
2. category basis
3. allowance method

1. direct- holding loss included in COGS
2. allowance- holding loss separately IDed in contra-inventory

when dealing with used, damaged, or repossessed inventory

it is appropriate to value inventory @ replacement cost of NRV

• if established used market exists, company will use RC
• if no established market, inventory will be valued at NRV

1. gross margin method
2. relative sales value method

1. can only be used to estimate, can't be used for financial reporting
2. estimates COGS from sales using a percentage based on historical data. EI can then be inferred from BI, COGS and purchases
3. to use company must have a consistant gross margin percentage

=(sales-cogs)

sales

=(sales-cogs)

cogs

1. margin on cost is always > margin on sales
2. goal is to use one of the two formulas to determine cost/sales
3. the cost/sales ratio is used to determine cogs

1. gross margin % + cost/sales = 1
2. BI+PURCH=EI+COGS so...
3. BI+PURCH=EI+(cost/sales)sales

1. used by retailers to estimate ending inventory at cost
2. used for internal decisions and for financial reporting purposes

COGS for retail inventory method = 

• net sum of addition markups less additional markups cancelled
• added only to retail column before computing cost/retail ratio

• net difference between markdowns and markdown cancellations
• subtracted from retail column before computing cost/retail ratio

1. FIFO- C/R excludes BI from numerator and denominator and measures C/R ration for current preiod purchases
2. FIFO LCM- C/R excludes BI from top and bottom and also excludes markdowns from cost ratio, which make denominator bigger
3. Average- includes BI and purchases
4. Average LCM-excludes markdowns from denominator

1. DV LIFO applied to inventory @ retail to find current-period layer measure in current retail dollars
2. FIFO retail method cost/retail ratio is applied to thie retail layer yielding increase in cost at current prices. this price layer is then added to BI at DV LIFO cost to yield EI @DV LIFO cost

• loss is required to be footnoted as a contingent liability
• loss not accrued in the accounts because loss is not probable

• loss is accrued because its probable and estimable
• inventory, when acquired, is recorded at MV 
• loss=MV-contract $
• if contract not executed as of BS date then entry needed (D- loss on purch committment C- liability on purch committment)
• recoveries can result in gains to extent of previous loss

1. lower of cost or NRV
2. reversal of write-down is allowed
3. LIFO prohibited
4. Cost flow assumption does mirror physical flow