Exam 2 Flashcards
How do you calculate the Gross Profit Ratio?
Gross Profit/Net Sales
How to do you calculate the Current Ratio?
Current Assets/Current Liabilities
How do you calculate Working Capital?
Current Assets - Current Liabilities
What are the two methods of accounting for inventory?
Perpetual Method
-updates inventory after every sale
Periodic Method
-updates inventory at the end of a period
What are the two entries made upon each sale when a company is using the Perpetual Inventory Method?
- record the sale
- update the inventory
Where is “Freight-In” included? Where is “Freight-Out” included?
Freight-In part of NET PURCHASES
Freight-Out part of Operating Expenses
Explain the title transfer process with FOB Shipping
- BUYER pays for shipping (Freight-In)
- Title transfers to buyer as soon as the goods leave companies property
Explain the title transfer process with FOB Destination
- Title transfers from seller to buy whenever the goods are delivered
- Seller pays for shipping cost (Freight-Out)
Explain the title transfer process with Consigned Goods
Seller transfers the physical product over to Buyer without forfeiting the legal title(title)
What are the are Inventory Costing Methods associated with the Periodic System?
- Specific-Identification Method
- FIFO
- LIFO
- Avg Cost Method
How do you find the average cost when using the Average Cost Method?
COGS / Total # of units (GAS units)
Which inventory costing method of the Periodic System is the most used in the U.S.?
LIFO
Which inventory costing method of the Periodic System is not allowed by the IASB?
LIFO
What does the Inventory Turnover Ratio show?
Tells how many times a company buys inventory and then sells it during the year
How is the Inventory Turnover Ratio calculated?
COGS / AVG Inventory
*Avg Inventory = (BI+EI) / 2
What does the LIFO Conformity Rule say?
Says if a company uses LIFO to report COGS on it’s tax return, then it must also use LIFO on it’s Income Statement
How does Inventory Profit occur?
Happens when a company is using FIFO during a time of rising prices
-current prices (high) go on the balance sheet causing the inventory to appreciate
What is Lower-of-Cost-or-Market Rule (LCM)?
says that if a the FMV (fair market value) of inventory decreases lower than what a company paid for it. . . then the company must depreciate it’s inventory on the balance sheet
-follows conservatism
What are the 2 methods to writing off Bad Debt Expense
Direct Write-Off Method
- specifically identifies each customer’s accounts receivable and writes them off
- ** only works for accounts receivable that are immaterial
-Allowance Method
Do the Direct Write-Off Method and the Allowance Method follow the Matching principle?
Allowance Methods follows Matching Principle
Direct Write-Off Method DOES not follow Matching Principle
Maturity Value = ___ + ___
Principal + Interest
Acquisition Costs
All money spent to get the asset
3 things that you don’t include in Acquisition Costs?
- money spent to repair damaged asset (if it was damaged)
- money spent on asset after it was installed
- interest expense if you bought the asset with borrowed money
Acquisition costs of Land?
- purchase price
- sales commission
- title fees
- title insurance
- legal fees
- land preparation costs
- (proceeds from salvage)
