Chapters 2-4 Flashcards

1
Q

Perpetual Inventory Systems

A

Companies keep detailed records of COGS and continuously update them so that the amount of inventory on hand is up to date

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2
Q

Periodic Inventory System

A

Companies wait until the end of the period to determine GOGS
-> usually smaller inventory companies use this

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3
Q

How do you determine you COGAS

A

Beginning inventory + Net Purchases

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4
Q

What are Net Purchases

A

Your purchase plus any freight in and then you subtract things like purchase returns and allowances and purchase discounts

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5
Q

How do you determine COGS

A

COGAS - Ending Inventory

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6
Q

What are Periodic System Temporary Accounts

A

Purchases, Freight In, Purchase Returns and Allowances

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7
Q

Where do you close out your Periodic Inventory Accounts at the end of the period

A

Close Temporary Accounts to COGS

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8
Q

Why do companies prepare adjusting entries

A

To ensure that companies follow the revenue recognition and expense recognition principals
-to ensure that the correct amounts of assets, liabilities, and owners equity are reported on the balance sheet
- to ensure that proper revenues and expenses are reported on the income statement
-Required every time a company prepares financial statements

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9
Q

What are the two things adjusting entries are classified as

A

Deferrals and Accruals

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10
Q

What are deferrals

A

Cash payment has been made but expense or revenue has not been applied

  • prepaid expenses
    -unearned revenues

1.) cash now 2.) rev/expense later

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11
Q

What are accruals

A

Expense or Revenue has been applied but cash has not been payed/received

-accrued expenses
-accrued revenue

1.) rev/expense now 2.) cash later

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12
Q

When are reversing entries completed

A

Reversing entries are completed AFTER the previous period’s financial statements are prepared and closing entries have been done

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13
Q

How to reversing entries affect accrued expenses and revenues

A

It always reverses them

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14
Q

When should deferrals be reversed?

A

when the original cash transaction is recorded as an expense or revenue

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15
Q

What to reversing entries do

A

Simplifies the recording of transactions in the next accounting period

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16
Q

what is never reversed

A

bad debts expense and depreciation (no original cash entry)

17
Q

What are two special items that may be added to the income statement

A

1.) Discontinued Operations
2.) Other comprehensive income

18
Q

When does a discontinued operation happen

A

1.) A company eliminates the results of operations of component of the buisiness
2.) The elimination of a represents a strategic shift that impacts a company’s operations and financial results

19
Q

Are the discontinued operations reported gross or net tax

20
Q

What does a company report of its discontinued operations

A

All impacts

Both income (loss) from operations for the year and any gain/loss from disposal, net of tax

21
Q

What is intraperiod tax allocation

A

“Let the tax follow the income”

22
Q

Intraperiod tax allocation is used for

A

1.) Income from continuing operations
2.) Discontinued operations

23
Q

What does comprehensive income not include

A

changes resulting from investments

24
Q

What does comprehensive income include?

A

1.) All revenues and gains and expenses and losses reported in net income
2.) All gains and losses that bypass net income but affect stockholders equity

25
what are the gains and losses that bypass the income statement considered
other comprehensive income
26
what are the ways that a company could display comprehensive income
one statement approach or two statement approach
27
What is the revenue recognition principal
revenue is recognized when its performance is satisfied (transfer of good or service)
28
what is the deciding factor in determining when a performance obligation is satisfied
change in control
29
What adjustments are made for a change in principal
- retrospective adjustments -cumulative effect adjustments to the beginning of R.E
30
What adjustments are made for changes in Estimates
-prospective changes -changes are only made for the future
31
What adjustments are made for Errors
-PPA -adjustments to R.E
32
What increases R.E
N.I, changes in accounting principal, PPA
33
what decreases R.E
Net loss, dividends, PPA, changes in accounting principals
34
EPS
(N.I - Pref. Dividends)/ Outstanding shares