Accounting Test 2

Falling costs

1. FIFO gives the highest cost of goods sold—yielding the lowest gross profit and income. 2. LIFO gives the lowest cost of goods sold—yielding the highest gross profit and income.

Rising costs

1. FIFO reports the lowest cost of goods sold—yielding the highest gross profit and net income. 2. LIFO reports the highest cost of goods sold—yielding the lowest gross profit and net income. 3. Weighted average yields results between FIFO and LIFO.

Income Statement for Merchandiser order

1. Net Sales 2. COGS 3. Gross Profit 4. Expenses 5. Net Income

Multi-step income statement order

1. Net sales 2. COGS 3. Gross Profit 4. Operating expenses 5. Income from operating 6. Other Revenues and Expenses

Ending Inventory overstated... how affect gross profit, cogs, net income

COGS understated year 1, net income overstated year 1, COGS overstated year 2, net income understated year 2

Term when seller pays for shipping costs (Freight Out)

FOB (Free on Board) DESTINATION

Term when buyer pays for shipping costs (Freight In)

FOB Shipping PT

COGS

Revenue from selling merchandise is called sales, and the expense of buying and preparing merchandise is called cost of goods sold

Inventory Costing: ways we calculate the cost of the products

Specific ID, Weighted Average, FIFO, LIFO

weighted average cost flow assumption

Weighted average assumes costs flow at an average of the costs available

debit memorandum

When a buyer returns or takes an allowance on merchandise, the buyer issues a debit memorandum. This informs the seller of a debit made to the seller's account payable in the buyer's records.

credit memorandum

When a seller accepts returns or grants an allowance, the seller issues a credit memorandum. This informs the buyer of a credit made to the buyer's account in the seller's records.

invoice approval

a checklist of steps necessary for approving an invoice for recording and payment.

bank reconciliation

a report explaining any differences between the checking account balance in the depositor's records and the balance on the bank statement.

Sales Refund payable account only updated during

adjusting process

Merchandise inventory includes

amount recorded for merchandise inventory includes its purchase cost, shipping fees, taxes, and any other costs necessary to make it ready for sale.

voucher

an internal document (or file) used to accumulate information to control cash disbursements and to ensure that a transaction is properly recorded

shipping point

buyer pays for shipping costs and are included in buyer's inventory

wholesaler

buys products from manufacturers and sells them to retailers

retailer

buys products from manufacturers or wholesalers and sells them to consumers.

outstanding checks

checks written (or drawn) by the depositor, subtracted on the depositor's books, and sent to the payees but not yet received by the bank for payment at the bank statement date.

deposits in transit

deposits made and recorded in the depositor's books but not yet listed on the bank statement.

Merchandiser has four accounts to close

dividends, income summary, revenue, expense

ways LCM is applied

each individual item separately, major categories of items, to the whole of inventory

merchandiser

earns net income by buying and selling merchandise.

consigned goods

goods shipped by the owner (consignor) to the consignee. The consignor owns the goods and puts them in their inventory

Inventory systems

how we record the purchase and sale of products

purchase requisition

lists the merchandise requested to be purchased

damaged goods

not reported in inventory of not able to be sold. if they can b sold, sold at a lower price and included in inventory as net realizable value

merchandise

refers to products, also called goods, that a company buys to resell

sales is an ____ account and is reported on the ______

revenue, income statement

net realizable value

sales price minus the cost of making the sale

Discount period

time between the invoice date and a specified date on which the payment amount owed can be reduced because of early payment

what does it mean to understate ending inventory

understate current and total assets, understatement total equity, overstate COGS, understate net income

Perpetual

updates accounting records for each purchase and each sale

Periodic

updates accounting records for each purchase and each sale only at the end of the period