ACCT 200 1st Edition Exam 2 Study Guide Lectures 11 14 Lecture 11 Sales discount incentive to pay quickly 2 10 n 30 means customer receives 2 discount if they pay within 10 days no discount if over 10 days still must be within 30 days Sales discount contra revenue account debit balance reduces revenues Write off means the company is never going to receive the money Balance of uncollectible accounts means either overestimated last period still waiting on some accounts receivable Acct receivable transactions Sales Sales return Sales discount Trade discount Collection from customer w out discount Receivables value on balances at true collectible value net realizable value Set up contra asset account allow for uncollectible accounts Lecture 12 Matching bad debt expense is recorded in same year as revenues H Jones company goes bankrupt so 1000 they owe will never get paid write off the account removes acct receivable and reduces allowance for uncollectable acct Allow for uncollectable acct Acct receivable 1000 1000 90 000 in acct receivable 5 uncollectable 90 000 05 4500 in allow acct as end balance E 5 18 Walmart begin acct receivable 1715 end acct receivable 2662 net credit sales 312 427 Find receivables turnover ratio Step 1 average 1715 2662 2 2188 5 Step 2 calculate turnover net credit sales average acct receivable 312 427 2188 5 142 759 times Step 3 average collection period 365 turnover 365 142 759 2 6 days Important notes Interest rates are always annual for this class don t forget to adjust calculations for interest based on how many months are included Know accrued interest slides 5 38 5 39 for exam Lecture 13 Cost of goods sold only expense that doesn t have the word expense Walmart buys pencils for 80 sells for 2 8 is cost of goods sold Specific identification won t have to do calculations just know definition FIFO best method LIFO good for tax purposes to save money 10 15 of companies use LIFO isn t allowed internationally Weighted Average Cost simplest If costs are rising LIFO lowest end inventory highest COGS lowest net income FIFO highest end inventory lowest COGS highest net income Weighted Average Cost in the middle for all Purchase transactions company is buying inventory to resell later to customers Buy inventory on acct terms 2 10 net 30 3000 3 1 Inventory 3000 Acct payable 3000 Look at purchase and 200 is damaged so we send it back 3 2 Acct payable 200 Inventory 200 Pay balance due and take discount balance due 3000 200 2800 2800 02 56 off amount due 3 8 Acct payable 2800 Cash 2744 Inventory 56 Why credit inventory for discount Inventory account before entry has 2800 in it pay 2744 for inventory so we want inventory account to match what we paid so we have to reduce inventory by 56 to get it to match Last piece of purchase side freight charges to get the purchase this will increase the cost of the inventory 3 2 Inventory amount of freight Cash acct payable amount of freight shipping costs Sell 5000 worth of items to Jones company cost of inventory was 2200 terms 2 10 net 30 This transaction has 2 parts sales and remove inventory COGS 3 1 Acct receivable 5000 Revenue 5000 Cost of Goods Sold 2200 Inventory 2200 3 8 customer pays and takes discount offered 5000 02 100 off balance owed Cash 4900 Sales Discount 100 Acct receivable 5000 Lecture 14 Freight in getting purchases always part of inventory freight out to customers always delivery expense Sell books for 300 cost is 2060 2000 40 discount 100 freight 5 15 Acct receivable 3000 Revenue 3000 COGS 2060 Inventory 2060 COGS Begin inventory purchase purchase returns purchase discount freight charges end inventory COGS Multi Step Income Statement Sales revenue 250 000 sales returns discounts 0 Net sales 250 000 COGS 180 000 Gross profit 70 000 Expenses Selling 50 000 Admin 30 000 General 40 000 Total expenses 120 000 Operating income gross profit total expenses 70 000 120 000 50 000 operating loss gain on land sale 100 000 interest income 0 interest expense 0 Income before taxes operating income 100 000 50 000 Income tax expense 20 000 Net income 30 000 Miscellaneous What is NOT included in operating expenses Gain loss on sale of e g land Interest income revenue Interest expense Non operating items income tax expense Inventory value changes example iPhone 4 value goes down when iPhone 5 comes out Take loss right away If inventory falls below cost change to market value Lecture 15 Test ch 5 7 ch 6 is like 2 chapters and will be treated as such on test Know multi step income statement net sales gross profit total operating expenses operating income income before taxes net income balance sheet net acct rec total current assets net long term assets total assets total current liabilities total liabilities total equity and total liabilities equity Goodwill Buy entire business equipment 100 patent 10 debts 7 cash 5 Worth 108 Pay 120 12 is goodwill Have to negotiate to find goodwill BE 7 3 Pay 14 million for all existing shares of stock of a company Fair value of assets 11 3 Fair value of debts 1 5 Price paid 14 Net value of assets 11 3 1 5 9 8 So goodwill is 14 9 8 4 2 millions BE 7 5 Annual maintenance on equipment expense Remodeling of offices capitalize and add to cost Improvement to shipping and receiving area improves productivity capitalize and add to cost Addition of security system capitalize as its own asset BE 7 7 Cost of equipment 35 000 Estimated salvage 5000 Useful life 10 years Purchased on Sept 1 2010 Give depreciation for 2010 and 2011 Annual depreciation 35 000 5000 10 cost salvage life 3000 per full year In 2010 only owned for 4 months so 3000 4 12 1000 2011 3000 2012 3000 Journal entry 12 31 10 depreciation expense 1000 accumulated depreciation 1000 Book value at 12 31 10 35 000 1000 34 000 12 31 11 depreciation expense 3000 accumulated depreciation 3000 Book value at 12 31 11 35 000 1000 3000 31 000 OR could think 34 000 prior year 3000 this year 31 000 Lecture 17 Cost of tangible asset all costs to get it ready for its intended use purchase price any one time costs sales tax customization testing installation Does NOT include annual costs for annual license or annual insurance Cost of intangible asset initial costs to purchase it plus legal defense costs ongoing costs once it is viable such as legal costs to get a patent through government channels Slide 29 key terms review Accumulated depreciation contra asset found on balance sheet listed with tangible assets and subtracted to get net value Book value