Exam 2 Flashcards
Periodic Accounting
- Physically counted every period
- Usually for inexpensive inventory or small shops
Perpetual Accounting
Every inflow / outflow tracked in real time
Credit Terms
Discount Percent / Discount Period, Total Credit Period
FOB Shipping Point / Freight In
Part of inventory cost, paid by the buyer
FOB Destination / Freight Out
Part of selling expense, paid by the seller
Net Sales Revenue Equation
Net Sales Revenue = (Sales Revenue) - (Sales Return + Allowances) - (Sales Discounts)
Multi-Step Income Statement
Sales Revenue Less: Sales Return + Allowances / Discounts Net Sales Revenue Cost of Goods Sold Gross Profit Operation Expenses Selling Expenses Administrative Expenses Operating Income Other Revenues + Expenses (i.e. Interest) Net Income
Consistency Principle
(1) Businesses should use same methods period to period
(2) If changed, they should report it in Financial Statement Notes
Disclosure Principle
Company should report enough relevant information for outsiders to be able to make good educated decisions
Materiality Concept
Company should follow strictly proper accounting only for significant items (ex. anything less than $xxx is immaterial)
Accounting Conservatism
Never overstate assets or net income. Always pick the lesser option.
Inventory Costing Methods
(1) Specific Identification
(2) FIFO
(3) LIFO
(4) Weighted Average
Specific Identification Method
Used when specific cost for each unit of inventory can be tracked (ex. automobiles, unique artwork, jewels, real estate)
First-In-First-Out (FIFO) Method
The cost of the oldest item in the inventory is assigned to each unit as it is sold
Last-In-First-Out (LIFO) Method
Cost of newest item in inventory assigned to each unit as it is sold
Weighted - Average Method
(1) Average cost before + after the sale should be the SAME
(2) $ in inventory / units on hand
