Equations Flashcards
COGS equation
COGS = BI + P – EI
Weighted Average Cost Method
Cost of Goods Available for Sale
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Number of Units Available for Sale
Net Realizable Value
Sales price – costs to sell
Inventory Turnover
Cost of Goods Sold
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Average Inventory
When to Capitalize (asset)
If it increases future benefits
When to Expense (revenue)
If it benefits only the current period
Tangible assets such as land, land improvements, buildings, equipment, and natural resources are recorded _______ plus __________________.
at cost, all costs necessary to get the asset ready for its intended use.
We capitalize (record as an asset) expenditures that benefit ________ periods. We expense items that benefit only the ______ period.
future, current
Depreciation Expense
Depreciation for the current year (Income Statement)
Accumulated Depreciation
Total of depreciation to date on an asset (Balance Sheet)
The calculation of depreciation requires three amounts for each asset:
Acquisition cost
Estimated useful life
Estimated residual value.
Straight-Line Depreciation
(Asset’s cost − Residual value) / Service life
Accelerated depreciation
Accelerated depreciation matches higher depreciation expense with higher revenues in the early years of an asset’s useful life when the asset is more efficient.
Double declining method
Net Book Value x (Useful Life in Years / 2)
Change in Estimates for Depreciation
(Book value at date of change - Salvage value at date of change) /Remaining useful life at date of change
Units-of-Production Method
♠ Depreciation Rate = (Cost — Residual Value) / Life in Units of Production
♠ Depreciation Expense = Depreciation Rate × Number of Units Produced for the Year
Fixed Asset Turnover
[Net Sales (or Operating Revenues)] / [Average Net Fixed Assets]
Matching principle for bad debt expense
Record in same accounting period.
Receivables turnover
Net sales / Average Net Accounts Receivable
PV factor
= 1/(1+r)^n
Annuity PV factor
=((1-(1+r)^(-n))/r
