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36 Cards in this Set
- Front
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the merchandise that generates sales revenue usually the largest current asset of a retailer and part of the largest expense on the income statement (cost of goods sold) |
Merchandise Inventory |
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the current net realizable value |
market value |
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Takes a physical count of unsold merchandise at the end of the reporting period. Users of this method don't know their ending inventory until it has been counted. At tat time Cost of Goods Sold can be calculated as follows: Beginning Inventory+Purchases and any Freight-In Costs-Ending Inventory. ►relatively inexpensive ►effective for low cost products that move rapidly ►planning an control is more difficult |
Periodic Method |
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Maintains continuous records of quantity inventory on hand by tracking purchases and sales amounts for each product. This system continuously keeps a record of the quantity on hand (ending inventory) by taking the beginning balances and adding quantities purchased and subtracting quantities sold. ►improve planning and control ►more costly |
Perpetual Method |
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the cost of the unit is the cost for that specific unit This works well when dealing with large items that are easily separable and identifiable. |
Specific Identification |
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oldest costs assigned to cost of goods sold, most recent costs assigned to ending inventory a lot of companies sell their products this way |
First In - First Out (FIFO) |
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oldest costs assigned to ending inventory, most recent costs assigned to cost of goods sold |
Last In - Last Out (LIFO) |
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cost of goods available for sale divided evenly over the number of units available for sale costs are assigned proportionately between cost of goods sold and ending inventory |
Weighted Average |
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Weighted Average Formula.... |
Cost of Goods Available for Sale / # of Units Available for Sale |
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What cost flow assumption do most companies pick? Why? |
LIFO Because their taxes will be lower IRS allows it if it is also used on the balance sheet |
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It does not matter which cost flow assumption is picked, but companies must be ____________. |
Consistant |
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There may be situations when you need to ___________ the ending inventory, because you cannot count it (ex: when a fire destroys it) |
Estimate |
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To estimate ending inventory, use a historical estimate of the _____________________________ to estimate the cost of goods sold. |
Gross Margin % |
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Formula for estimating the ending inventory? |
Beginning Inventory + Purchases = COGA COGA -COGS (estimated) = EI (estimated) |
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How do you find the estimated COGS? |
current sales x COGS percentage
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Cost of Goods Sold Percentage and Historical Gross Profit Percentage = ____________________ |
100% of Sales |
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What are errors that could occur in inventory calculations? |
Inventory could be omitted or double counted. |
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If an error is found, would a company have to restate the years affected by the error to the correct amounts before making an annual report? |
YES |
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Any of these non current assets: ►have a useful life greater than 1 year or the operating cycle ►are used in the operation of the business rather than intended for resale |
Long Term Assets |
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Have physical substance. Known as "Property, Plant, and Equipment", "Plant Assets", or "Fixed Assets". What happens to them on the income statement? Give examples. |
Tangible Assets They are all depreciated. Examples: building, computer, copier, furniture, vehicles, land |
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Have no physical substance. Their value to the company is based on rights or other advantages. What happens to them on the income statement? Give examples. |
Intangible Assets They are amortized over the shorter of the asset's useful life or 40 years, using the straight line method EXCEPT goodwill. Examples: patents, copyrights, trademarks, trade names, franchises and goodwill |
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Physical substances that can be taken from the land and used in the production process What happens to them on the income statement? Give examples. |
Natural Resources They are depleted based on estimates of the total quantity available and the quantity used. Examples: timber, gravel, oil, coal, metals |
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What is each asset's useful life? 1) patents 2) copyrights 3) trademarks 4) goodwill |
1) 20 years 2) life of the artist + 75 years 3) 20 years BUT it is renewable 4) unidentifiable |
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all costs to get the asset to us and ready to use they are reported on the balance sheet using historical cost (should include all cost incurred to bring the asset to its location and prepare it for its intended use) |
Acquisition Costs of Long Term Assets |
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additions to assets, improvements and major repairs which prolong the asset life or increase its efficiency they increase the cost of long ter assets on the balance sheet and reduce accumulated depreciation |
Capital Expenditures |
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ordinary repairs and maintenance these do not get reported on the balance sheet but are instead expensed on the income statement |
Revenue Expenditures |
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What are the three depreciation methods? |
►Straight Line ►Units of Production ►Double Declining Balance |
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the amount of cost value minus salvage value |
depreciable cost |
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Allocates the cost evenly over the asset's estimated useful life. Used by most corporations for financial statement purposes. |
Straight Line Depreciation Method |
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Straight Line Depreciation Method Formula |
Cost-Resolved (depreciable amount) / Estimated Useful Life (in time periods) |
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Allocates the cost evenly per unit produced. Also used to find depletion. |
Units of Production Depreciation Method |
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Units of Production Depreciation Method Formula |
Cost - Residual Amount / Estimated Useful Life (in units) |
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Allocates the cost in an accelerated way (twice the speed of straight line over the estimated useful life) |
Double Declining Balance Depreciation Method |
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Double Declining Balance Depreciation Method Formula |
(cost - accumulated depreciation) x (2 / estimated useful life) |
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If the proceeds exceed the carrying value of the asset at the time of disposal
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Gain |
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If he carrying value of the asset at the time of disposal exceeds the proceeds |
Loss |
