Quiz 3 - Chapters 5 & 6
Which of the following contributes to the importance of properly determining the cost of inventory and the cost of goods sold?
Cost of goods sold may be the largest expense on some companies' income statement; Inventory may be the largest asset on some companies' balance sheets
The cost of goods not yet sold is recorded in the Blank______ account, whereas the cost of goods that are sold to customers is recorded in Blank______.
Inventory; Cost of Goods Sold
What type of companies recognize revenues when they sell inventory to customers?
Merchandising and Manufacturing companies
costs that are recognized in work in process for a manufacturing company
Raw materials Direct labor Overhead
inventory is recorded in financial statements as...
a current asset in the balance sheet
Writing off a customer's account as uncollectible reduces the balance of
accounts receivable and allowance for uncollectible accounts
net income
all revenues - all expenses
Work in process
an account found in the balance sheet of a manufacturing company. accounts for the cost of raw materials, direct labor, and indirect manufacturing costs
cost of goods is recorded in financial statements as...
an expense in the income statement
total inventory available for sale
beginning inventory + purchases during the year
Accounts Receivable
cash owed to the company by its customers from sales or services on account
merchandising companies
companies that serve as intermediaries between manufacturers and end users (selling products that someone else manufactured)
perpetual inventory system
continual record of inventory
retailers and manufacturers (not service industry) must account for
cost of goods sold and inventory
recording credit sales
debit accounts receivable, credit service revenue
allowance method
debit bad debt expense, credit allowance for uncollectible accounts
recording sales discount
debit cash, debit sales account, credit accounts receivable
recording a sales allowance
debit sales allowance, credit accounts receivable
How is cost of goods sold classified in the financial statements?
expense
When inventory is sold, the cost of inventory is recognized as a(n)
expense or COGS
operating income
gross profit - operating expenses
Raw materials inventory
includes the cost of components that will become part of the finished product, but have not yet been used in production
ending inventory
inventory not sold
cost of goods sold
inventory sold
manufacturing companies
produce the inventories they sell
finished goods inventory
the cost of fully assembled but unshipped inventory at the end of the reporting period
wholesalers
resell inventory to retail companies or to professional users
sales allowance
return is credited
Which inventory method or cost flow assumption most closely resembles the actual physical flow of goods?
FIFO
definition of inventory includes
Materials used currently in the production of goods to be sold Items held for resale Items currently in production for future sale
writing off accounts receivable journal entry
debit allowance for uncollectible accounts, credit accounts receivable
gross profit
net revenues - COGS
income before income taxes
operating income + non operating revenues - nonoperating expenses
trade discounts
reduction in list price of a product or service
Work in process inventory
refers to the product that have been started in the production process but are not yet completed at the end of the period
retailers
sell inventory to end users
aging of accounts receivable method
tends to be more accurate
Credit Sales
transfer products and services to a customer today and expect to collect cash in the future
the direct write off method is used when
uncollectible accounts are not anticipated or are immaterial
ending inventory
units not sold x cost per unit
COGS (cost of goods)
units sold x cost per unit
When the direct write-off method is used, an entry for bad debt expense is required
when the account receivable is determined to be uncollectible.
