don't mind brandon's accounting study set (yes your favorite person brandon) UPDATE 10/30: Brandon has successfully completed the accounting exam and thanks ms. frenda for her love and generosity of letting this user use her quizlet. and he will be back.
perpetual inventory system (asset)
A system that involves counting and selling inventory from the use of barcodes, scanners, and computers Means we always know what our inventory balance + cost of goods sold bal. are at any instant
periodic inventory system
An inventory system in which a company does not maintain detailed records of goods on hand throughout the period and determines the cost of goods sold only at the end of an accounting period by counting them
Accounting Principals
Consistency, Disclosure, Materiality, Conservatism
Current Ratio
Current Assets/Current Liabilites
How to Journal A Cash Discount For A Purchase
Debit Accounts Payable TOTAL AMOUNT WITHOUT DISCOUNT, Credit Cash AMOUNT WITH DISCOUNT, and Credit Merchandise Inventory for whatever amount of discount is
How to Journal A Return of Merchandise
Debit Accounts Payable and Credit Merchandise Inventory
How to Journal COGS when making a sale
Debit COGS and Credit Merchandise Inventory
How to Journal A Sale
Debit Cash and Credit Sales Revenue
How to Journal A Purchase
Debit Merchandise Inventory and Credit Accounts Payable
Which method of inventory yields the most profit on the income statement in an inflationary environment?
FIFO
Which method shows the higher amount of assets on the balance sheet in an inflationary environment?
FIFO
Freight Terms
FOB Shipping Point and FOB Destination
FOB Shipping Point
Freight terms indicating that ownership of goods passes to the buyer when the public carrier accepts the goods from the seller Buyer pays shipping
FOB destination
Freight terms indicating that ownership of goods remains with the seller until the goods reach the buyer. Free shipping for the buyer
Why would a company choose the LIFO method in an inflationary environment?
Less taxes
Conservatism
Report realistic figures and never overstate assets or net income -Anticipate no gains, but record probable losses -If in doubt, record an asset at the lowest reasonable amount and a liability at the highest reasonable amount -If in doubt, record an expense rather than an asset
Income Statement formula (first)
Revenues - Expenses = Net Income
Merchandiser's Income Statement
Step 1: Sales Revenue - Cost of Goods Sold = Gross Profit/Margin Step 2: Subtract Selling Expenses and Administrative Expenses = Operating Profit Step 3: Add or Subtract Other Revenue/Expenses (Interest) Step 4: Subtract Tax expense = Net Income
operating expenses
Supplies, Depreciation, and Wages
Accounting Cycle
Transaction Docs ---> Journal----> Posting -----> Ledger ----> Trial Balance ----> Adjustments ----> Financial Statements ----> Closing Entries ----> Post closing trial balance
Materiality Concept
a company must perform strictly proper accounting only for items that are significant. Information is significant (material) when it would cause someone to change a decision
permanent accounts
accounts used to accumulate information from one year to the next (include assets, common stock, liabilities, and retained earnings)
COGS equation
beginning inventory + purchases - ending inventory
Disclosure Principle
businesses should report enough info for outsides (investors and creditors) to make knowledgeable decisions about the company
current assets
cash and other assets expected to be exchanged for cash or consumed within a year
COGS
cost of goods sold
Specific Unit Cost
exact cost of each unit
FIFO
first in, first out
Gross Profit Percentage
gross profit/net sales revenue
closing entries
journal entries used to prepare temporary accounts for a new fiscal period
LIFO
last in first out
Current liabilities
liabilities due within a short time, usually within a year
n/30 or net 30
no discount is offered; full payment is due within 30 days
Inventory Systems
perpetual and periodic
End Balance
physical inventory left (units x cost)
What accounts are closing entries?
revenues, expenses, and dividends
Consistency Principle
use of the same accounting principles and methods from year to year within a company
Multi-Step Income Statement
1. Calculate Gross Profit 2. Calculate Operating Profit 3. Other revenue/expenses (including interest) 4. Taxes - calculate net income Gets Gross Profit %
How to Close Entries on A Journal
1. Close Revenues to Income Summary 2. Close expense to Income Summary, (At this point, balance of Income summary is net income or net loss) 3. Close Income Summary to Retained Earnings 4. Close Dividends to Retained Earnings
2/10
2% cash discount if paid in 10 days
EPS
= Net Income / Common Shares of Stock
lower of cost or market
A basis whereby inventory is stated at the lower of either its cost or its market value as determined by current replacement cost.
Merchandise Business
A business that buys goods @ wholesale and sells them @ retail
Balance Sheet
A financial statement that reports assets, liabilities, and stock holder's equity on a specific date.