Accounting A Flashcards
Gross Profit Formula
Revenue - Cost of goods Sold
Revenue
Include the sale of products and services to customers
Service Revenue
Providing a service is recorded as
Inventory sales
Commonly referred to as sales revenue
Net Sales
The net amount of revenue is commonly referred to as
Cost of goods sold
Is the cost of inventory sold during the year including shipping/distribution
Operating income
Gross Profit - Operating Expences
In operating income after gross profit what is recorded
Operating expenses
After operating income what does a company report
Nonoperating revenues and expenses.
Income before income taxes
Operating income+no operating income
Net income
Total - income tax expense = net income
Inventory cost methods
- Specific identification
- First in first out
- Last in first out
- Weighted Average Cost
Specific identification
- used primarily by companies with expensive unique products with low sales volume
- fine jewelery and prices of art
Inventory definition
- items held for resale
-materials used currently in the production of goods to be sold
-items currently in production for future sale
Determining inventory related amounts is very important because for some companies cost of goods sold represents the largest expense in the income statement
True
Manufacturer or sells goods must take account for
Inventory
The inventory cost flow assumption must match the physical flow of inventory units
False
Margot inc which uses a perpetual inventory system purchases 500 units of inventory to be held for resale. Margot should debit the purchase to :
Inventory
LIFO inventory assumes that the units sold are
The most recent units purchased
The purchase discount term 2/10 n/30 means that the purchaser
Has 10 days from the purchase date in which to pay and receive 2% discount
The weighted average cost method assumes that the cost of goods sold consists of
A mixture of all the goods available for sale
FIFO
Most closely approximates the actual physical flow of inventory
LIFO
provides better matching of current revenues with current inventory cost
Recording a write down of inventory from cost to its lower net realizable value includes:
Debit: cost of goods sold
Credit: inventory
The lower of cost and net realizable value method causes losses in the value of inventory to be recognized in the period when
the value declines below cost
