Exam 3 Flashcards
What is the difference between single and multi-step income statements?
Single accounts for all expenses in one lump sum for categories
Why would a business use a single step income statement vs a multi-step?
To better inform users
How do you compute Net Sales using multi-step?
Sales minus discounts and returns and allowences
How do you compute Gross Profit using multi-step?
Net Sales - Cost of Goods Sold
How do you compute Income from Operations using multi-step?
Gross profit minus operating expenses
How do you compute a Gross Margin Ratio? (formula)
Cash and equivalents + short term investments + current receivables
Divided by: Current Liabilities
How do you compute the Total Cost of Goods Available for Sale? (Formula)
Total COGs minus Ending Inventory
What are temporary accounts that need to be closed at the end of an accounting period? (7)
Income Summary, Discounts, Returns and Allowances, COGs, Expenses, Retained Earnings, Dividends
What is the formula for Acid Test Ratio?
Gross profit/net sales
What assets are classified as Quick Assets?
Assets that can be easily converted to cash, like accounts rec. or cash
How do you compute Days Sales in Inventory? (formula)
(Ending Inv divided by COGs) times 365
What is the formula for Inventory Turnover Ratio?
COGs divided by Average Inventory
When is it best to use a FIFO inventory method?
When the price of products is rising
When is it best to use a LIFO inventory method?
When the price of products is falling
What does the LIFO conformity rule require?
If you use LIFO for tax, you have to use it for financial reporting
