EXAM 3 - ACC

The structure of a multiple-step Income statement: what is gross profit, operating income?

A multiple-step income statement reports multiple levels of profitability. - Gross profit equals net revenues (or net sales) minus cost of goods sold. - Operating income equals gross profit minus operating expenses. Income before income taxes equals operating income plus nonoperating revenues and minus nonoperating expenses. -Net income equals all revenues minus all expenses.

The relation of inventory and COGS:

Beginning Inventory + Purchase = COGS + Ending Inventory (very important!)

What is cost of goods sold (COGS)?

Cost of goods sold is the carrying value of goods sold during a particular period. - reported in income statement

What is FIFO, LIFO, Weighted Average Cost method and specific identification method

FIFO: First In, First Out (FIFO) is an accounting method in which assets purchased or acquired first are disposed of first.

is Inventory a current or long-term assets?

Inventory is a current asset reported in the balance sheet

When cost is rising, which method (FIFO, LIFO or Weighted average) results in highest COGS?

LIFO

What is LIFO

Last in, first out (LIFO) is a method used to account for inventory. Under LIFO, the costs of the most recent products purchased (or produced) are the first to be expensed. -ONLY IN US

What is the characteristic of operating income?

Operating income measures how much of your business's profit comes from business operations. Operating income is your gross income minus operating expenses.

Which accounts are included in operating income, and which accounts are included in non-operating income.

Operating: Non Operating:

What kind of account is COGS?

expense in the Income Statement

Which method results in highest balance of ending inventory?

fifo

What is inventory?

•includes items a company intends for sale to customers in the ordinary course of business. - Inventory also includes items that are not yet finished products. - Generally reported as a current asset in the balance sheet