RETL 261 1st Edition Exam 2 Study Guide Lectures 9 16 Lecture 9 September 24 Accounting Cycle Worksheet Posting General Journal Ledgers Trial Balance Adjusting Process Financial Statements Closing Process Worksheet Helps with year end processing Accountants tool helps get the job done 11 column spreadsheet o 1 column for account titles o 5 sets of debit and credit columns Pgs 140 143 Lecture 10 September 26 Closing Process Set of journal entries everything in accounting is done through journal entries Only recorded at year end Close out bring to zero all temporary accounts o Temporary accounts nominal accounts Zero out 4 different types of accounts o Revenues o Expenses o Income summary only used for closing o Owner s withdrawals Pgs 144 146 Closing Entries 1 Close out bring to zero all revenue accounts revenue accounts have credit balance so you do the opposite Post Closing Trial Balance Debit each revenue account Credit Income Summary for total revenue 2 Close out bring to zero all expense accounts expense accounts have debit balance so you do the opposite Credit each expense account Debit Income Summary for total expenses 3 Close out bring to zero Income summary to owner s capital Income Summary D C 1 Revenue 2 Expenses Net Loss Net Income Balance Capital D C Net Income Debit Income Summary Credit Owner s Capital Net Loss Debit Owner s Capital Credit Income Summary Net Income NetLoss 4 Close out bring to zero the owner s withdrawals withdrawals have credit balance so you do the opposite Debit Owner s Capital Credit Owner s Withdrawals Lecture 11 October 1 Selling Inventory you don t make yourself o Buys inventory make it up sell for a profit o Ex Department stores book stores shoe stores etc Merchandise Inventory Current Asset Sold to customers inventory Used for running business Plant Asset o Ex purchased equipment Merchandise Inventory Debit Credit Tracks Inventory cost Take out discounts Returns Freight Charges Classic Balance Sheet Balance Sheets are o Assets o Liabilities o Owner s Equity o A L OE Classic Balance Sheet provides more information details about the company Categories of Assets Current assets converted to cash or used up in one year Most Liquid o Liquid assets are easy to convert into cash o Anything prepaid Long term Investments stocks bonds of other companies unused land Plant Assets Fixed Assets land you are using building equipment vehicles Intangible Assets don t have physical properties rights to do things Categories of Liabilities Current Liabilities things you owe in next 12 months o Ex Accounts Payable ALWAYS always revolving Long term Liabilities things you owe in long term more than 12 months Owner s Equity Owner s Capital Ending Balance Lecture 12 October 3 Two ways of keeping up with inventory o Periodic inventory system o Perpetual inventory system Most companies now use this Cash discounts offered by seller to entice buyer to pay quickly Terms 2 10 n 30 2 discount off invoice price if buyer pays in 10 days net pay due in 30 days 1 15 n EOM 1 discount off invoice price if buyer pays in 15 days net pay due by end of month 3 10 EOM n 60 3 discount off invoice price if buyer pays within 10 days of the end of the month net pay due in 60 days 1 EOM n 60 1 discount off invoice price if buyer pays by end of the month net pay due in 30 days Cash Discounts Invoice October 3 Terms 2 10 n 30 1 15 n EOM 3 10 EOM n 60 1 EOM n 60 When Discount Ends October 13 October 18 November 10 October 31 June 12 Purchased 8000 of inventory terms 1 10 n 60 Merchandise Inventory 8000 Accounts Payable 8000 June 22 8000 8000 X 01 80 80 discount 7920 cash paid Accounts Payable Cash Merchandise Inventory 8000 7920 80 Lecture 13 October 8 Freight Transportation Charges FOB destination FOB Free on Board seller pays freight charges FOB shipping point buyer purchaser pays freight charges transfer point of ownership ownership is sellers until gets into buyer s hand Seller pays o Debit freight expense delivery expense Buyer pays o Debit Merchandise Inventory buyer sees it as additional cost Increase cost of inventory of buying inventory Financial Statements for a Merchandise Business Balance Sheet o Assets Liabilities Owner s Equity Merchandise Inventory current asset Statement of Owner s Equity o No changes from a service business Income Statement Sales Revenue sales discounts sales returns and allowances net sales what to expect to collect for certain sales period cost of goods sold gross profit margin how much make on just sale of inventory expenses operating income loss other revenues expenses in class will only be interest or dividends net income loss Lecture 14 October 10 Gross Profit Rate gross profit margin net sales cost of goods sold Net sales Pg 210 5 Gross margin ratio rate net sales CGS Net sales 675000 459000 216000 32 32 675000 675000 Inventory Evaluation Methods o Specific identification o First in first out FIFO o Last in last out LIFO o Weighted Average In inflationary periods FIFO gives highest net income LIFO gives lowest net income Lecture 15 October 15 Periodic Inventory System Only at end of period do count how much is sold lef vs Perpetual Inventory System continuously updating inventory Beg Inventory Jan 10 Purchased Jan 25 Purchased 5 25 10 26 4 28 Sold 3 items on Jan 20 Periodic ignore dates FIFO 3 x 25 75 CGS LIFO 3 x 28 84 CGS Perpetual pay attention to dates FIFO 3 x 25 75 CGS LIFO 3 x 26 78 CGS Lecture 16 October 22 Estimating Ending Inventory Interim financial statements monthly and quarterly statements o Ofen estimated Claim for lost inventory Gross Profit Method of Estimating Ending Inventory page 255 1 100 Gross Profit Rate Cost of goods sold rate 2 Net Sales x CGS CGS 3 Total Cost of Inventory CGS in E I in