Exam 2 (Chapters 5-8) Extra stuff Flashcards
How to calculate income statement (3 equations)
Sales revenue - sales return - sales discount = net sales
Net sales - cost of goods sold = gross profit
Gross profit - operating expense = net income
How to calculate the cost of goods sold (2 equations)
Beginning inventory + purchases = cost of goods available for sales
Cost of goods available for sale - ending inventory = cost of goods sold
How do you find ending inventory?
Physical count
What happens if the ending inventory is understated?
Cost of goods sold is overstated
What happens if ending inventory if overstated?
Then cost of goods sold is understated
What happens if the cost of goods sold is understated?
Net income is overstated
What are the 3 accounts we need to close?
Revenue, dividend, expenses
Revenue +/- dividend +/- expenses = ?
Retained earnings
Is sales return normally a debit/credit balance?
Debit
If sales return is debited, what account is credited?
Retained earnings
Are dividends usually a debit or credit balance?
Debit
If a dividend is debited, what account is credited?
Retained earnings
Does sales revenue usually have a debit or credit balance?
Debit
If sales revenue is debited, which account is credited?
Retained earnings
How to calculate net income?
Revenue - expenses
Do we close the sales discount account?
Yes
Do we close the cost of goods sold?
No
Do we close the inventory?
No
Does cost of goods sold usually have a debit or credit balance?
Credit
If cost of goods sold is credited, which account is debited?
Retained earnings
Which expense accounts are closed?
All of them
Is prepaid insurance expense closed?
No, because it’s an asset, not an expense
Is unearned revenue closed?
No, it’s a libaility
Define deposit in transit.
You sent the bank the money but they haven’t received it yet
