Inventory, Payroll, Depreciation, And Related Concepts

Front 1

What are the two types of inventory methods?

Back 1

FIFO (first in first out) and LIFO (last in first out)

Front 2

Describe FIFO (first in first out) method of inventory:

Back 2

The first-in, first- out method is based on the idea that goods manufactured or purchased first should be sold first.

Due to the fact that costs flow out in the same order that they flow in, goods sold are valued at the oldest unit costs.

With the FIFO method the exact cost of a recently sold good is estimated instead of being tracked exactly.

Front 3

What is the impact of FIFO inventory method?

Back 3

The impact of FIFO is as follows:

• It produces an inventory value for the balance sheet that approximates current cost.

• The flow of costs is usually consistent with the usual physical flow of goods.

• It is systematic and objective, and not subject to manipulation.

• When inventory replacements costs are rising, FIFO companies report more income than LIFO companies.

• FIFO users pay more income taxes when prices rise.

Front 4

Describe LIFO (last out first out) method of inventory:

Back 4

LIFO (last-in, first-out method) is based on the concept that the latest unit acquisition cost should be matched with current sales revenue.

Under LIFO, the order of cost outflows recognized is the inverse of the order of cost inflows.

LIFO Benefits:

The LIFO method is preferred by many companies because it has the effect of reducing a company’s taxes, thus increasing cash flow.

The positive attributes of LIFO are only present during periods of economic inflation

Front 5

What is the impact of LIFO method of inventory?

Back 5

• Yields a lower ending inventory.

• Yields a higher cost of goods sold.

• Yields a lower gross profit.

• Yields a lower taxable income.

Front 6

There are several accounting concepts relating to payroll, and most occur as liabilities on the balance sheet. The largest is payroll expense. Name some other types of expenses related to payroll listed as liabilities on the balance sheet:

Back 6

Social Security and Medicare taxes, Federal and State taxes, Workers’
Compensation insurance premiums (all of these are required by law).

Hint 6

Some optional paycheck deductions may include: group insurance premium, and a pension plan cost from an employee’s paycheck and any other type of deduction a employee may choose by their discretion or by court order.

Front 7

What is the accounting measure that creates a financial relationship between the value of a physical object to its value as it wears out or becomes obsolete?

Back 7

Depreciation

Front 8

Name some types of items that may be included but not limited to in depreciation:

Back 8

buildings, equipment, fixtures, and furnishings

Front 9

Name the most common accounting method used in tracking depreciation:

Back 9

Straight-line Depreciation.

Straight-line means that an equal portion of the asset’s cost is allocated as a depreciation expense every period of the asset’s useful life.

Straight-line depreciation is calculated by using the following equation:

Depreciation = Cost of the asset / Estimated Useful Life

Hint 9

Thus depreciation is an estimate

Front 10

When a product is sold or an asset is disposed of at the end of its depreciation, an entry needs to be made for the partial year it was used what is this entry named?

Back 10

Disposal of Assets

Front 11

What are three scenarios of Disposal of Assets to consider?

Back 11

1) Disposal of asset occurs at end of depreciation-If a physical unit is disposed of at the end of its depreciation (even in the middle of an accounting period), its depreciation should be recorded (in partial if in mid-accounting period, in full if disposed of at the end of the accounting period). The general ledger entry of the asset will remain in the books while until the asset is disposed of, and a note will be added to the ledger to indicate the item has fully depreciated in
value.

2) Disposal of asset results in a gain- If an asset is sold for a price above it’s disposable value, the gain on disposal of assets is entered as a debit for cash
and the amount over the value (if you sell a piece for $3000 and it’s book value was $2000, then the amount over value would be $1000) would be entered as a credit in the general ledger.

3) Disposal of an asset results in a loss-If an asset is sold for a price below its disposable value, the loss on disposable assets is recorded as a debit (the opposite process as above). Cash and the loss on disposable asset would be debited, and then credit to the asset account for the original cost.

Front 12

What is the term is used to describe assets that are used to operate the business but have no physical substance

Back 12

Intangible Assets:

A patent, copyright, trademark, and license of franchise are all examples of costs of potential intangible assets