accounting final

SELLING OF MERCHANDISE INVENTORY

1. accounts receivable-debit sales revenue-credit (to record sale of merchandise inventory on account) 2. cogs-debit merchandise inventory-credit (to record cost of goods sold) 3. sales return- debit accounts receivable-credit (to record sales return) 4. merchandise inventory-debit cogs-credit (to record cost of returned goods) 5. cash-debit sales discount-debit accounts receivable -credit (net revenue= AR1-AR2) (to record cash collect)

components of internal control

1. environment 2. control procedure 3. rule assessment 4. information system 5. monitor of controls

what is the order that financial statements are prepared in?

1. income statement 2. statement of retained earnings 3. balance sheet

entries to close the temporary accounts

1. revenue (service revenue -debit, income summary-credit) to close revenue 2. expenses (income summary-debit, expenses credit) to close expenses 3. income summary ( income summary-debit, retained earnings-credit) to close income summary 4. dividends (retained earnings-debit, dividends-credit) to close dividends

under a perpetual inventory system, what are the four inventory costing methods?

1. specific identification 2. fifo (first in, first out) 3. lifo (last in, first out) 4. weighted-average

list the steps of the accounting cycle

1. start with beginning account balances 2. analyze the transactions as they occur and prepare accounting equation 3. record the transactions in the form of journal entries to the books of accounts 4. summaries the transactions by preparing the T-accounts 5. compute the unadjusted balances in each account and prepare the unadjusted trial balance 6. journalize and post adjusting entries 7. prepare the adjusted trial balance 8. prepare the financial statements 9. journalize and post the closing entries 10. prepare the post-closing trial balance

gross profit ratio

=(gross profit/sales) x 100%

cost of goods sold

=beginning inventory+purchase- ending inventory

net cost of purchase

=purchase price- purchase returns -disocounts + freight inventory

net sales

=total sales- sales returns -discount allowed

what documents are financial statements prepared from?

The financial statements are prepared from the ADJUSTED TRIAL BALANCE or worksheet

merchandiser

a business, 2 types- wholesalers and retailers

Current liabilities examples

accounts payable, salaries payable, interest payable, unlearning revenue,

return of inventory entry BUYING

accounts payable-debit merchandise inventory-credit (to record return of inventory)

discount received entry BUYING

accounts payable-debit (AP1-AP2) cash-credit (netpayble + discount rule) merchandize inventory-credit (discount) (to record final cash payment after discounts)

depreciation expense

allocated cost of an accent over its useful life all assets (except land) will go down,

long-term investments

bonds, stocks,notes held by a company

Current asset examples

cash, accounts receivable, office supplies, inventory, prepaid expenses

what is the closing process

closing the books (or the closing process) consists of journalizing and posting the closing entries in order to get the accounts ready for the next period. The closing process zeros out all revenue accounts and all expense accounts in order to measure each period's net income separately from all other periods. The closing process also zeros out the dividends account. In addition, the closing process updates the Retained Earnings account balance for net income or loss during the period and any dividends paid to the stockholders

what principle states that businesses should use the same accounting methods and procedures from period to period?

consistency principle

periodic

conventional system of record keeping, count everything, update periodically

what is the limitation of internal control?

cost

merchandising

doing business, buying and selling

inventory shrinkage

due to theft, damage, or error

Plant asset examples

equipment, land, building

wholesalers

example: sams club, costco

Operating expenses

expenses that are INCURRED in doing day-to-day business

net income

gross profit-operating expenses

internal auditor

hired, work for company directly, monitor internal control

what is a classified balance sheet

in a classified balance sheet, each asset and each liability is classified into specific categories. Assets are classified as current, long-term, plant, and intangible. Liabilities are classified as current or long term

long term assets examples

land, building, furniture, equipment ***also called fixed assets***

what does liquidity mean?

liquidity measures how quickly and easily an account can be converted to cash, because cash is the most liquid asset

how is inventory turnover calculated? and what does it measure?

measures how rapidly merchandise inventory is sold during a period (the number of times a company ells its average level of merchandise inventory during a period) inventory turnover= cost of goods sold/ average merchandise inventory average merchandise inventory= (beginning merchandise inventory+ending merchandise inventory)/2

how is days' sales in inventory calculated and what does it measure?

measures the average number of days merchandise inventory is held by a company days' sales in inventory= 365 days/inventory turnover

freight charges entry BUYING

merchandise inventory -debit cash-credit (to record transportation costs)

purchase of inventory entry BUYING

merchandise inventory-debit accounts payable-credit (to record purchase off inventory on accounts)

perpetual

modern system, update daily, everything recorded, less chance of theft

long-term liabilities examples

mortgage payable, notes payable, anything longer than 1 year

accumulated depreciated

negative asset

external auditor

not directly employed by company, outside accounting

what types of accounts are listed on the post-closing trial balance?

only assets, liabilities, and stockholders' equity accounts including the common stock and retained earnings accounts (permanent accounts)

intangible assets

patents, copyrights, trademarks

what does the disclosure principle require

requires that a company must report enough information in its financial statements for outsiders to make knowledgeable decisions about the company

what are temporary accounts. Are they closed in the closing process?

temporary accounts (aka nominal accounts) are accounts that relate to a particular accounting period and are closed at the end of that period. All temporary accounts are CLOSED

what does balance sheet report?

the balance sheet reports Assets, Liabilities, and Stockholders' equity as at the last day of the period

what is the current ratio and how is it calculated?

the current ration measures a company's ability to pay its current liabilities with its current assets. current ratio= total current assets/ total current liabilites

Why are financial statements prepared in a specific order?

the financial statements are prepared in a specific order because net income from the income statement is used on the statements of retained earning to determine ending retained earnings. Ending retained earnings is then transferred to the balance sheet to determine total stockholders' equity.

What does the income statement report

the income statement reports revenues and expenses and calculates Net Income or Net Loss for the time period

what are permanent accounts? are they closed in the closing process?

the permanent accounts (aka real accounts) are the assets, liabilities, common stock, and retained earning. All permanent accounts are NOT CLOSED. The balances are carried forward into the next time periods. All accounts on the balance sheet are permanent accounts

What does the statement of retained earnings show?

the statement of retained earnings show how retained earnings changed during the time period due to net income (or net loss) and dividends

gross profit

total sales-total cost

retailers

walmart