Chapter 2 study Guide for ACG 2021 These are some terms and steps to memorize for the test You can use this review to help you answer the review problems Make sure to also review questions in the text book and the target packet Classified Balance sheet Chapter 2 Current Assets Cash A R Prepaid expenses Supplies Inventory Current Liabilities A P Unearned Revenue N P that will be due in one year Long term Assets PP E Long term Liabilities N P due after 1 year Formulas WORKING CAPITAL Current assets Current Liabilities CURRENT RATIO Current assets Current Liabilities Inventory Chapter 5 Perpetual Inventory In a perpetual inventory System COGS expense is recognized and inventory account is continuously being updated when sales occur Two Journal entries are used to record 1 Records revenue Cash or A R x Revenue x 2 Records expense COGS expense x Inventory x Sales and Purchase Discounts Sales discounts are treated like a conra account Sales Discounts can be expressed like this 10 20 n 40 The 10 represents a 10 discount The 20 represents that this discount will count only if paid within 20 days n represents the net amount 40 represents that the sale must be paid within 40 days All in all you will only receive the discount if you pay within 20 days The amount due for the sale is due in 40 days Transportation of Goods FOB shipping point The Buyer is responsible for shipping costs FOB shipping Destination The Seller is responsible for shipping cost Net Purchases and Net Sales Purchaser Purchase price Shipping FOB shipping point Purchase returns Purchase Discounts Net Purchases Seller Sales Sales returns Sales Discounts Net Sales Multi step Income Statement This is a basic example Sales COGS Gross Margin Operating activities anything apart of day to day operations Operating income other revenues and gains other expenses and losses Income before taxes taxes NET INCOME Accounting for inventories Chapter 6 3 ways to calculate inventory 1 LIFO The last goods in are the first goods out Ending inventory for LIFO the fist units purchased 2 FIFO The first units that were purchased are the first units sold Ending inventory for FIFO the last units purchased 3 Weighted Average Cost COGS is determined by finding the average of the inventory cost of all goods Cost per unit Total cost of goods available Total units available for sale Specific Identification Method The actual physical flow of goods Each item is tracked and the COGS are assigned to each individual unit of inventory Accounting for Accounts Receivable Chapter 8 Occurs when customer is unable to pay the company what they Bad debt expense owe Two methods for accounting 1 Direct write off method This method recognized the expense when the accounts receivable is deemed uncollectable this method violated the matching principle 2 Allowance method When you predict an amount that will be deemed uncollectable this is known as the Allowance for doubtful accounts Net realizable Value Total Accounts Receivable Allowance for Doubtful Accounts Write off of the default accounts has an overall NE on the Income statement and balance sheet Allowance for DA will be debited Accounts receivable will be credited Depreciation Chapter 9 3 methods of depreciation 1 Straightline depreciation 2 Double declining Balance Annual depreciation Cost Salvage value Useful life Depreciation Bookvalue x 2 useful life 3 Units of Production Depreciation Expense cost residual Value x activity for period Useful life in units
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