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49 Cards in this Set
- Front
- Back
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Merchandiser |
Companies (either retailers or wholesalers) that purchase inventory in a finished conditions and hold it for resales without purchase |
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Merchandise inventory |
The inventory held by merchandisers |
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Retailers |
Merchandisers that sell directly to consumers Buffalo wild wings |
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Manufactueres |
Companies that buy and transform raw materials into a finished product which is then sold Mitsubishi Plant |
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Raw materials inventory |
All the parts used in the process of creating the final product |
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Working process |
When they are putting the parts together for the final product |
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Debit Working Process |
When the product is finished and you debit finished goods |
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Cost of goods sold Calcluations |
Beginning inventory + purchases = cost of goods available for sale - ending inventory = cost of goods sold
Beginning inventory + purchases - Ending inventory = cost of goods sold |
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Specific Identification Method |
Determines the cost of ending inventory and cost of goods sold based on the identification of the actual units sold and inventory |
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FIFO |
The earliest purchases are assumed to be the first sold, and the more recent purchases are in ending inventory Based on the assumption that costs move through inventory in an unbroken steam, with the costs entering and leaving the inventory |
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LIFO |
The most recent purchases are allocated to the cost of goods sold and the earliest purchases are allocated to inventory Except for companies that stockpile inventory this cost flow assumption rarely coincides with the actual physical flow of inventory |
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Average Cost Inventory |
Average cost method allocates the cost of goods available for sale between ending inventory and cost of goods sold based on a weighted average cost per unit |
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Acceptable methods of inventory costing |
Ending inventory x cost per unit = cost of ending inventory Units sold x cost per unit = cost of goods sold Specific identification, FIFO, LIFO, Average Cost |
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Highest inventory balance |
Rising purchase price - FIFO Falling Purchase price - LIFO |
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Highest cost of goods sold |
Rising purchase price - LIFO Falling purchase price - FIFO |
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Lower of Cost or Market Rule (LCM) |
Under LCM, if the market value (replacement cost) of a company's inventory is lower than its cost, the company reduces the amount recorded inventory to its market value Reduce price of iphone 5 when iphone 6 comes out |
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Under the perpetual Inventory system |
The inventory account is updated after each merchandise purchase and/or sale |
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Inventory turnover ratio |
Gross profit Ratio = Gross profit/ Net sales Inventory turnover ratio = Cost of goods sold / average inventory Average days to sell inventory = 365 / inventory turnover ratio |
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Intangible Assests |
Assets that do not have physical substance, they include patents, copyrights, trademarks, licenses, and goodwill Cannot physically touch them |
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Depreciation |
The process of allocating, in a systematic and rational manner, the cost of a tangible fixed asset to expense over the asset's usefullife |
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Information needed to calculate depreciation |
Cost of the fixed asset useful life (expected life) of the fixed asset Residual value (salvage value) of the fixed asset |
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Useful life |
The period of time over which the company anticipated deriving benefit from the use of the asset |
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Residual life |
amount of cash or trade in consideration that the company expects to receive when an asset is retired from service |
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Depreciable cost |
the cost of an asset minus its residual value |
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Property, plant and equipment |
often called fixed assets or plant assets. They include land, buildings, machines, and automobiles Tangible |
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Intangible assets |
do not have physical substance. they include patents, copyrights, trademarks, licenses and goodwill Cannot physically touch them |
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Natural Resources |
naturally occurring materials. They include timberlands and deposits such as coal, oil and gravel |
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What is included in Total cost of and asset |
The historical cost principle cash paid in exchange for asset, any other expenditure necessary to prepare the asset for use, fixed assets |
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Historical cost principle |
requires that a company record it fixed assets at the exchange price at the time the asset is purchase |
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Fixed assets |
can also be purchase by issuing debt, in this situation the asset is valued at a fair value of the liability on the date the asset is acquired |
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Straight line depreciation (definition) |
Most used IRS requires that you use this method Allocates an equal amount of an asset's cost to depreciation expense for each ear of the asset's useful life simple to apply and is based on a pattern of service potential decline that is reasonable for many fixed assets |
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Declining balance (Definition) |
An accelerated depreciation method that produces a declining amount of depreciation expense each period by multiplying the declining book value of an asset by a constant depreciation rate, Results in a larger amount of depreciation expense in early years of an asset's life relative to the straight line method Doesn't take salvage into consideration |
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Units of Production (Definition) |
Usage is typically gauged by a measure of productive capacity When the decline in an asset's service potential is proportional to the usage of the asset and asset usage can be measure |
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Double Declining Balance Rate |
Rate = (m) x straight line rate |
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Depletion |
The process of allocating the cost of natural resource to each period in which the resource is used Computed by using a procedure similar to units of production method of depreciation Process of depreciating natural resources |
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Current Liabilities |
Obligations that are expteceted to be retired with existing current assets or creation of new current liabilities Due within one year or one operating cycle whichever is longer |
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When do Contingent Liabilities get recorded? |
They are not recognized unless The event on which it is contingent is probable A reasonable estimate of the loss can be made Lawsuits filed against a business are classic example of contingent liability |
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Contingent Liabilites |
Measurement of the liabilities described so far was not affected by uncertainties about the amount, timing, or recipient of future asset outflows. Contingent liabilities include all of these |
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What type of account is affect when a landlord receives a security deposit form a tenant? |
Long term liability (customer deposits) |
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Long term liability (customer deposits) |
Recorded when customers make advance payments or security deposits that are not expected to be earned or returned soon enough to qualify as current liabilities |
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When merchandise is returned to the seller and the seller uses the perpetual inventory system what account decreases |
Account payable 500 Inventory 500 Inventory would decrease |
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How are assets that are classified as property plant and equipment reported on the balance sheet |
Cost $100,000 Sold $22,000 Accumulated Depreciation $80,000 Depreciation expense $5000
Depreciation expense 5000 Accumulated Depreciation 5000
Cash 22000 Accumulated Depreciation 85000 Gain on Disposal 7000 Equipment 100000 |
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Straight Line Rate (Equation) |
(Cost-Salvage Value) / # of years
Cost $50000 Estimate $5000 after 5 years
50000-5000 / 5 = 9000 = Annual Depreciation |
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Book Value |
Historical cost - Depreciation |
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Declining Balance (Equation) |
DB = (Book value x Declining balance rate) 20000 = 50000 x .4 Book value = 50000 - 20000 = 30000 Year 2 DB = 30000 x .4 = 12000 Book value = 30000-12000 = 18000 |
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Units of Production (Equation) |
UA =( (Cost - Salvage value) / Estimated units) x # of actual Units
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Wages Payable (Equation) |
Dec 31 Wages expense 7000 Wages Payable 7000
Jan 3 Wages Expense 3000 Wages Payable 7000 Cash 10000 |
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Interest Payable borrowed $100000 on oct 1st, 2013 at 10% interest due on oct 1 2014 |
Oct 1 2013 Cash 100000 Note Payable 100000
Dec 31 2013 Interest Expense 2500 Interest Payable 2500 (100000 x .10 x 3/12)
Oct 1 2014 Note Payable 100000 Interest Payable 7500 Interest Expense 2500 Cash 110000 |
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Warranty Payable 12 month warranty and 1 out of every 2000 get repaired. Average repair is $155, company sold 3,000,000 computers, $10,400 cash parts $8300 to dealer |
12-31-13 Warranty Expense 232500 Warranty Payable 232500 (3,000,000 / 2000) = 1500 x 155 = 232500
1/31/14 Warranty payable 18700 Cash 10400 parts inventory 8300 |
