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13 Cards in this Set
- Front
- Back
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Inventory (What included) - Cost
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Cost is the primary basis of accounting for inventories
1. number of units included in inventory 2. costs attached to those units Cost to be included in inventory are: -All cost necessary to prepare the goods for sale (freight in-even if paid by seller purchaser is reponsible for freight-in and has to reimb. seller, handling cost and normal spoilage) Manufactoring entity: direct materials, direct labor and direct/indirect factory overhead **Unallocated fixed overhead is recognized when incurred |
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Periodic Inventory VS Perpetual Inventory System
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Periodic Inventory is counted periodically in which FIFO, LIFO and Weight-average are costing methods
1. When calculating, figure total COG available then applying costing techniques 2. Enitiy must count inventories to figure E.I Perpetual System is a continues system where inventories are perpetually updated = FIFO, LIFO and Monging Average are costing methods 1. All increases/decreases are recorded as they occur (dates of purchases and sales are important in calculations) Big difference: a. is when goods are purchased purchases increases which goes into formula to calculate COGS for Periodic b. Perpetual - purchases increase inventory...only have to calculate net purchases etc...with Periodic system **Moving Average = Perpetual **Weighted Average = Periodic |
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Weighted-Average VS. Moving Average
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Weighted Average is for Periodic System and Moving Average is for Perpetual System
Weight Average - total units and $ of inventories are averaged = divide COG available by total units Moving Average recalculates average price every time goods are purchased. Sells (sold at current average cost) effects quantity and $ of inventory and numbers will be recalculated with next purchase |
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Lower of Cost or Market (LCM) vs. Lower of Cost or Net Realizable Value (LCNRV)
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GAAP = LCM, IFRS = LCNRV
Market = Replacement cost long as it falls b/w ceiling/NRV (Selling price - cost to sell) and floor/NRV less normal operating profit...this determines the Mkt then entity picks the lower of this or cost a, entry to record when mkt is lower than cost can be either done together where loss is passed through COGS b/c E.I. entry is made at market or a better approach would be to record inventory at actuall cost and make separate entry to mark down inventory (decrease) and hit loss due to mkt decline IFRS requires entity to record at lower of cost or NRV...disregards replacement cost, ceiling and floors ***Remember once inventory is marked down for a loss, it cannot be recovered ***Differs from IFRS b/c inventories can be recovered once marked down ***Interim statements the entity does not have to record markdown if believe decline is due to temporary events....When doing ANNUAL statements it does not matter whether decline is termporary or not - MUST BE RECORDED |
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Dollar Value LIFO
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E.I. at YE prices / E.I. at Base year prices = Conversion Price index (Manufactoring firms calculate themselves, Retailing/Merchandising firms us published numbers)
1. E.I. at YE prices / Conversion Price = Base Year E.I. 2. Calculate layers = change in base years 3. Calculate E.I. Dollar-Value LIFO = multiply layers (changes in base year) by conversion index 4. Calculate step 3 totals (Dollar-value E.I. LIFO) ***Dollar Value LIFO lowers likelihood of involuntary liquidations of LIFO layers do to pooling ***Dollar Value LIFO considers effects of inflations and accounts for decreases/increases in E.I. in terms of purchasing power rather than just units |
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Gross Profit (Estimating E.I)
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2 methods:
GP on Sales (Sales is placed at 100%) Sales - 100% COGS - 75% GP - 25% GP on COGS (COGS placed at 100%) Sales - 150% COGS - 100% GP - 50% ***Remember to notice which is being asked - whether there is a mark-up in SALES or COSTS |
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Purchases (Gross Method vs Net Method)
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Gross method - records purchased inventory at total cost (including potential discount) - which is netted out of purchases to get net purchases
Net Method - purchased inventories are recorded net of any discounts 1, missed discounts hit a "purchase discount loss" (I/S) a. discounts are assumed to be taken initially, but subsequently if not above adjusting entry is made |
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Percentage of Completion
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*Remember criteria has to be fulfilled to use method - Cost/Revenue and cost to completed must be reasonably estimated
1. Construction in Process is debited for construction cost and place holder for intermin profits throughout contract completion a. The account is credited out against the "billing on contract" accounts to close both of them - the billing accounting is a contra - CIP account b. Remember if CIP is lower than billing on contract, a laibility is recognize (like unearned revenue) if CIP exceends billing then there is a net asset **Profits are porated based on cost incurred to total cost to completed times GP **Losses are not prorated and are recognized in full once realized** CIP (debit) Cash/Payable (credit) A/R (debit) Billing on contract (credit) Cash (debit) A/R (credit) CIP (debit) Constr. Income (credit) 1. to record revenue in uncompeted years Billing on contract (debit) CIP (credit) Constr Income (credit) or CIP (debit) record current inc. Billing on contract (debit) close CIP (credit) close acct. Const. income (credit) |
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Inventory (What included) - Cost
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Cost is the primary basis of accounting for inventories
1. number of units included in inventory 2. costs attached to those units Cost to be included in inventory are: -All cost necessary to prepare the goods for sale (freight in-even if paid by seller purchaser is reponsible for freight-in and has to reimb. seller, handling cost and normal spoilage) Manufactoring entity: direct materials, direct labor and direct/indirect factory overhead **Unallocated fixed overhead is recognized when incurred |
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Periodic Inventory VS Perpetual Inventory System
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Periodic Inventory is counted periodically in which FIFO, LIFO and Weight-average are costing methods
1. When calculating, figure total COG available then applying costing techniques 2. Enitiy must count inventories to figure E.I Perpetual System is a continues system where inventories are perpetually updated = FIFO, LIFO and Monging Average are costing methods 1. All increases/decreases are recorded as they occur (dates of purchases and sales are important in calculations) Big difference: a. is when goods are purchased purchases increases which goes into formula to calculate COGS for Periodic b. Perpetual - purchases increase inventory...only have to calculate net purchases etc...with Periodic system **Moving Average = Perpetual **Weighted Average = Periodic |
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Weighted-Average VS. Moving Average
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Weighted Average is for Periodic System and Moving Average is for Perpetual System
Weight Average - total units and $ of inventories are averaged = divide COG available by total units Moving Average recalculates average price every time goods are purchased. Sells (sold at current average cost) effects quantity and $ of inventory and numbers will be recalculated with next purchase |
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Lower of Cost or Market (LCM) vs. Lower of Cost or Net Realizable Value (LCNRV)
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GAAP = LCM, IFRS = LCNRV
Market = Replacement cost long as it falls b/w ceiling/NRV (Selling price - cost to sell) and floor/NRV less normal operating profit...this determines the Mkt then entity picks the lower of this or cost a, entry to record when mkt is lower than cost can be either done together where loss is passed through COGS b/c E.I. entry is made at market or a better approach would be to record inventory at actuall cost and make separate entry to mark down inventory (decrease) and hit loss due to mkt decline IFRS requires entity to record at lower of cost or NRV...disregards replacement cost, ceiling and floors ***Remember once inventory is marked down for a loss, it cannot be recovered ***Differs from IFRS b/c inventories can be recovered once marked down ***Interim statements the entity does not have to record markdown if believe decline is due to temporary events....When doing ANNUAL statements it does not matter whether decline is termporary or not - MUST BE RECORDED |
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Completed Contracts
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Income on Construction contract is not recognized until contract is completed
***Again losses are recognized in full as soon as realized CIP account differs and will always be lower w/ completed contracts method because it does not include income on contract |
