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.