Chapters 2-4 Flashcards
Perpetual Inventory Systems
Companies keep detailed records of COGS and continuously update them so that the amount of inventory on hand is up to date
Periodic Inventory System
Companies wait until the end of the period to determine GOGS
-> usually smaller inventory companies use this
How do you determine you COGAS
Beginning inventory + Net Purchases
What are Net Purchases
Your purchase plus any freight in and then you subtract things like purchase returns and allowances and purchase discounts
How do you determine COGS
COGAS - Ending Inventory
What are Periodic System Temporary Accounts
Purchases, Freight In, Purchase Returns and Allowances
Where do you close out your Periodic Inventory Accounts at the end of the period
Close Temporary Accounts to COGS
Why do companies prepare adjusting entries
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
What are the two things adjusting entries are classified as
Deferrals and Accruals
What are deferrals
Cash payment has been made but expense or revenue has not been applied
- prepaid expenses
-unearned revenues
1.) cash now 2.) rev/expense later
What are accruals
Expense or Revenue has been applied but cash has not been payed/received
-accrued expenses
-accrued revenue
1.) rev/expense now 2.) cash later
When are reversing entries completed
Reversing entries are completed AFTER the previous period’s financial statements are prepared and closing entries have been done
How to reversing entries affect accrued expenses and revenues
It always reverses them
When should deferrals be reversed?
when the original cash transaction is recorded as an expense or revenue
What to reversing entries do
Simplifies the recording of transactions in the next accounting period
what is never reversed
bad debts expense and depreciation (no original cash entry)
What are two special items that may be added to the income statement
1.) Discontinued Operations
2.) Other comprehensive income
When does a discontinued operation happen
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
Are the discontinued operations reported gross or net tax
net
What does a company report of its discontinued operations
All impacts
Both income (loss) from operations for the year and any gain/loss from disposal, net of tax
What is intraperiod tax allocation
“Let the tax follow the income”
Intraperiod tax allocation is used for
1.) Income from continuing operations
2.) Discontinued operations
What does comprehensive income not include
changes resulting from investments
What does comprehensive income include?
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
what are the gains and losses that bypass the income statement considered
other comprehensive income
what are the ways that a company could display comprehensive income
one statement approach or two statement approach
What is the revenue recognition principal
revenue is recognized when its performance is satisfied (transfer of good or service)
what is the deciding factor in determining when a performance obligation is satisfied
change in control
What adjustments are made for a change in principal
- retrospective adjustments
-cumulative effect adjustments to the beginning of R.E
What adjustments are made for changes in Estimates
-prospective changes
-changes are only made for the future
What adjustments are made for Errors
-PPA
-adjustments to R.E
What increases R.E
N.I, changes in accounting principal, PPA
what decreases R.E
Net loss, dividends, PPA, changes in accounting principals
EPS
(N.I - Pref. Dividends)/ Outstanding shares
