Chapter 2 study Guide for ACG 2021These 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 2Current Assets - Cash- A/R- Prepaid expenses- Supplies- InventoryCurrent 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 yearFormulasWORKING CAPITAL= Current assets-Current LiabilitiesCURRENT RATIO= Current assets/Current Liabilities Inventory Chapter 5Perpetual InventoryIn a perpetual inventory System, COGS expense is recognized and inventory account is continuously being updated when sales occur. Two Journal entries are used to record1) Records revenue Cash or A/R x Revenue x2) Records expense COGS expense xInventory xSales and Purchase Discounts Sales discounts are treated like a conra-accountSales 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 GoodsFOB 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-COGSGross Margin-Operating activities( anything apart of day to day operations)Operating income+other revenues and gains-other expenses and lossesIncome before taxes-taxes NET INCOMEAccounting for inventories Chapter 63 ways to calculate inventory1) LIFO- The last goods in are the first goods out.Ending inventory for LIFO –the fist units purchased2) 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 saleSpecific 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 Bad debt expense- Occurs when customer is unable to pay the company what they 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 AccountsWrite 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 creditedDepreciation Chapter 93 methods of depreciation1) Straightline depreciationAnnual depreciation= Cost - Salvage value / Useful life 2)Double declining BalanceDepreciation = Bookvalue x 2/useful life3)Units of ProductionDepreciation Expense = (cost – residual Value) x activity for periodUseful life in
View Full Document
Unlocking...