M3 Flashcards
Cash equivalents mature in
90 days
A/R is presented on the balance sheet at the
Net realizable value
The preferred method for recording Sales and related receivables
Net method
Trade discounts
- Apply sequentially
- Record receivables net of trade discount
A/R write offs
Direct write off method
Used for tax - not GAAP
A/R write offs
Allowance method (GAAP)
The ending balance in the allowance account must equal an amount determined by an analysis of the A/R schedule
D Allowance account
C A/R
The allowance for uncollectible accounts is a
Contra asset
Methods for determining
A/R write off
- Percentage of ending A/R
- Aging method
Factoring with or without recourse
With- transferor retains risk of uncollectability
Without- is a sale of the liability to the assignee and they assume the risk
Discounting notes receivables
With and without recourse
Inventory - 4 types
Retail, raw materials, work-in-progress, and finished goods
FOB shipping point
Whatever’s after the B fixes the last point of responsibility for the seller
Buyer takes control of the goods once the seller gives them to the common carrier for shipment
FOB Destination
Seller retains control of the goods until the goods reach the buyers destination
Inventory write down methods
(2)
- Lower of cost or market method
- Lower of cost or net realizable value
Inventory recording
2 systems
Periodic inventory system
Perpetual inventory system
Inventory tracking methods under GAAP (3)
- First in, first out FIFO
- Last in, first out LIFO
- Weighted average aka Moving average
Inventory with highest ending amounts in a period of rising prices
FIFO because it values inventory at most recent costs
Inventory with lowest ending amounts and the lowest net income in a period of rising prices
LIFO - last in, highest cost stuff out first so low net amounts and low net income because the inventory was higher cost
Donated fixed assets are recorded at
Fair value with a gain or revenue recognized equal to that value
Basket purchase of land and buildings
Allocate the purchase price based on the ratio of appraised value of individual items
Methods of depreciation
3 main
Straight line
Sum of the years digits
Declining balance methods
Units of completion method is similar to
Straight line depreciation
Intangible assets
Long lived legal rights and competitive advantages
Patents, Copywrights, Trademarks, Goodwill
Intangible assets are recorded at
Cost plus additional expenditures necessary to purchase
R&D costs of internally developed intangible assets are
Expensed according to GAAP
Intangible assets are reported at
Cost less amortization (finite life intangibles only) and impairment
Identifiable intangibles with finite lives are recorded at
Amortized over the shorter of the estimated economic life and the legal life
Goodwill and identifiable intangibles with indefinite lives are
Not amortized and subject to impairment testing
Franchisee accounting
Record the initial fee at present value as an intangible asset on the balance sheet and amortize over the expected period of benefit
Start up costs
Expense as incurred
R&D expenses are
Expenses as incurred
Computer software development
Expense costs during development until technological feasibility
Capitalize costs from technological feasibility until selling
Start expensing costs again after selling begins
Bank balances - cash balances on the balance sheet
Same bank - balances can be netted together
Negative balances become liabilities
Cash definition
Unrestricted, liquid, short term
90 days from maturity date
Bond sinking funds
Funds are restricted so can’t be counted as cash or liquid
Negative bank balances reported on the balance sheet as
Current liabilities
Agricultural products and precious metals may be states at above cost using net selling price less the cost of disposal
Revenue is recognized at the time of production and not at the time of sale
Current assets - converted in 1 yr
Natural debit balance
Cash, accounts receivable, inventory, marketable securities, stocks and bonds held as investments, prepaid expenses - AND construction in progress (aka costs in excess of Billings) even though these are longer than 1 yr
