Term
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Definition
| Beginning inventory + purchases = goods available for sale. - ending inventory = COGS. this only is needed under periodic system. |
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Term
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Definition
| beginning inventory + purchases |
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Term
| characteristsics of perpetual inventory system |
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Definition
| debit and credit inventory. when making a sale, you do an extra entry moving inventory to COGS. |
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Term
| characteristics of periodic inventory system. |
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Definition
| debit and credit purchases. only update 'inventory' account at end of period by a physical count. end of pd. entry moves stuff from 'purchases' and 'beginning inv' to 'inv' and 'cogs', following the age old cogs logic. no extra entry when making sale. |
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Term
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Definition
| costs are lower, so income is higher. |
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Term
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Definition
| costs are higher, income (and tax) lower. not allowed by IFRS. many companies use it for tax etc but something else internally. the difference between the two is called lifo reserve. |
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Term
| what if inventory count comes up short of records? what is debited, what is credited? |
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Definition
dr inventory over and short 200 (like an expense)
cr inventory 200 |
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Term
| if ending inventory is understated, what else is affected? |
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Definition
you seem to have made less money. income statement - COGS overstated, net income understated.
balance sheet - inventory understated, RE understated, current assets understated. |
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Term
| purchase discounts under the Gross method. what is debited, what is credited? |
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Definition
| straightforward - ignore discount until you actually claim it. then, while writing down a/p, you write down cash and chalk up a discount (Cr). |
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Term
| purchase discounts under the Net method. what is debited, what is credited? |
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Definition
| assume you're getting the discount until you don't. Dr purchases and A/P a discounted number. then if you miss out on the discount, you not only close A/P and Cr cash, you also Dr 'discount lost'. |
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Term
| which assumption leads to the same inventory and cogs under both perpetual and periodic systems? |
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Definition
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Term
| lifo reserve... what is debited, what is credited? |
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Definition
diff between lifo and the company's real internal system. at period end,
dr. COGS 200
Cr. allowance to reduce inventory to lifo 200 |
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Term
| loan/note with 0 interest. |
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Definition
| find PV, that is the current carrying value. aka the cash upfront. divide into the face amount to get the factor, then lookup on table to get interest rate. company records N/R at PV. do amortization with 0$ payments using the implied rate you found. |
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Term
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Definition
| find PV of principal and PV of interest using the market rate. record N/P at PV. amortize using market rate to find total interest revenue. |
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Term
| effective interest note amortization (columns) |
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Definition
| 1. cash recieved 2. int. revenue 3. discount amortized 4. carrying amount |
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Term
| the entry recording a land sale in exchange for a note |
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Definition
dr. n/r 20k (present value of note)
cr. land 14k (original cost)
cr. gain on sale 6k (difference) |
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Term
| determine and record impairment on a long term note receivable. |
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Definition
difference between carried value and pv of what you'll recieve = impairment loss. if it's 25k,
dr. bad debt exp 25k
cr. allowance for doubtful accts 25k |
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Term
| what can and can't be in a statement of RE? |
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Definition
the only things that can be in:
beginning RE
correction for prior pd.
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retained earnings, adjusted
add: net income
less: cash dividends
and share dividends
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retained earnings, end |
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Term
| if you buy some inventory on account but forget to record it as a purchase (so it doesn't make it into inventory), what else is affected? |
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Definition
inc. stmt- purchases understated, ending inv understated
balance sheet - inv understated, a/p understated.
cogs, net income, and RE are not affected. |
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Term
given:
opening balance 20k
purchases 200k
freight in 20k
less purchase returns 5k
- - -
cogs 200k
what's the ending inventory?? |
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Definition
| need to find goods available for sale, by adding stuff up, then find difference between that and cogs. |
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Term
| income statement approach to receivables |
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Definition
| percentage of (net credit) sales -> uncollectible. this approach ignores existing balance. |
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Term
| balance sheet approach to receivables |
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Definition
| percentage of receivables -> uncollectible. must take account of existing balance. |
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Term
| direct write-off method for uncollectibles. what is debited, what is credited? |
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Definition
no allowance. you just write things off from a/r to bad debt expense when you learn of the problem. so you only show actual losses. this is not considered appropriate.
dr bad debt exp
cr allowance for doubtful |
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Term
| allowance method for uncollectibles. what is debited, what is credited? |
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Definition
uses allowance for doubtful accounts instead of direct write-offs.
dr bad debt exp
cr allowance for doubtful |
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Term
| writing off a bad debt under allowance method after everything's been tried. |
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Definition
dr. allowance 500
cr. a/r 500 |
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Term
| entries made when a previously written-off acct is collected. |
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Definition
dr. a/r 50
cr. allowance for doubtful 50
(to reverse)
cash 50
a/r 50
(collection) |
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Term
| what are cash equivalents? |
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Definition
a postdated check -only if maturing in next 2 mos.
petty cash &c.
short term investments maturing within 3 mos.
bank overdrafts ONLY IF offset against other accounts in same bank. |
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Term
| explain secured borrowing and step 1 of entries. |
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Definition
assigning a/r to another company while receiving cash. initial entry:
dr. cash 9500
dr. finance charge 500
cr. note payable 10000 |
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Term
| step 2 of secured borrowing, when accounts are collected. |
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Definition
dr. cash 20000
cr. a/r 20000 |
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Term
| step 3 of secured borrowing. pay off at end. |
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Definition
dr. int expense 10000
dr. note payable 10000
cr. cash 20000 |
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Term
where on balance sheet?
'goods sold on installment basis' |
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Definition
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Term
where on balance sheet?
'goods out on consignment at another store' |
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Definition
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Term
where on balance sheet?
'goods we sold, that we've signed an agreement to repurchase' |
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Definition
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Term
where on balance sheet?
'goods sold where large returns are predictable' |
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Definition
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Term
where on balance sheet?
'goods sold f.o.b. shipping point, that are in transit' |
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Definition
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Term
where on financial statements?
interest costs incurred for inventories we routinely manufacture |
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Definition
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Term
where on balance sheet?
mat'ls on hand, not yet placed into production? |
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Definition
| inventory. (raw materials to be precise) |
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Term
where on balance sheet?
raw materials that have started production but not finished |
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Definition
| inventory, WIP to be precise |
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Term
where on balance sheet?
factory supplies |
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Definition
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Term
where on financial statements?
goods held on consignment from another company |
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Definition
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Term
| what do you do with net sales and gross profit to get cogs? |
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Definition
| subtract gross profit from net sales |
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Term
| if buying something with a TRADE discount, where does that show up in entries? how does it effect 3/20 n/30 discounts? |
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Definition
| immediately deducted from total number before any entries. you have to take the new 3% discount off of the DISCOUNTED number. |
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Term
| under perpetual system, when we finally claim a discount for paying within a certain window, what is debited, what is credited? |
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Definition
dr. a/p 8000
cr. inventory 100 (not 'discount')
cr. cash 7900 |
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Term
| under periodic fifo, having made sales and purchases, what does an end-of-month entry look like? |
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Definition
dr. inventory xx (from purchases)
dr. cogs xx (from inventory)
cr. purchases xx (empty purchases)
cr. inventory xx (empty previous pd balance into COGS) |
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Term
| list the categories of an income statement in order |
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Definition
sales
cogs
----gross profit
operating expenses
-----operating income
other income and exp (such as investment revenue, interest income or expense)
-----income before tax
tax
----income from cont. ops
discont. ops
-----net income
per share
-cont ops
-loss
---net inc per share |
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Term
| if your car has a 10% residual value and a 5% depreciation, how do you figure the amount to take off for depreciation? |
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Definition
| first take off the residual value. then from the remaining amount, take off the 5% yearly. |
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Term
| when making closing entries, what is the entry for a dividend? |
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Definition
dr. retained earnings (after income summary already closed!)
cr. dividends |
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Term
| when making closing entries, how are the entries broken up? |
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Definition
| all the positives in one entry, all the negatives in one entry. so sales returns is in the same entry with selling and admin expenses. finally, close income summary to RE before doing dividend. |
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