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Financial Accounting > Midterm #2 > Flashcards

Midterm #2 Flashcards

1
Q

Net Sales (income statement)

A

Net returns of products

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2
Q

Net Earnings from Discontinued Operations (income statement)

A

Earnings from operating / products no longer being sold / discontinued

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3
Q

Consolidated Statement of Earnings (income statement)

A

All of the companies earnings and the companies that they own more than 50% of as well

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4
Q

Revenue Recognition Rules

A

Revenue is included on the income statement when it is earned

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5
Q

Revenue is Earned when…

A
  1. Service provided OR
  2. When ownership of goods transfers to the customer
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6
Q

Ownership of Goods Transfers to Customer when…

A
  1. FOB Shipping Point – (Freight on Board) legal ownership transfers upon shipment
  2. FOB Destination – legal ownership transfers upon receipt by customer
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7
Q

5 Step Process for Revenue Recognition

A
  1. Identify the Contract with the customer
  2. Identify the Performance Obligations in the contract
  3. Determine the transaction Price
  4. Allocate the transaction price to the performance obligations
  5. Recognize revenues as each performance obligation is satisfied - earned
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8
Q

Separate Performance Obligation

A

Capable of being distinct (customer can receive the benefit on its own)

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9
Q

Revenue Earned Over Time

A

-Can recognize revenue evenly overtime
-Long-term construction (percentage of completion)

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10
Q

Accounts Receivable

A

-Must be presented on the balance sheet at net realizable value
-Must estimate how much of accounts receivable might become uncollectible

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11
Q

Net Realizable Value

A

Amount company expects to collect from customers

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12
Q

Accounts Receivable Aging Report

A

Can be 0-30 days, 31-60 days etc. shows Percentage of Uncollectible and Total Uncollectible

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13
Q

Allowance for Uncollectible Accounts

A

-A contra-asset
-Decreases accounts receivable down to net realizable value

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14
Q

Throughout the Year (accounts receivable)

A

-Known Uncollectible Accounts (Write-Offs): Dr. Allowance for Uncollectible Accounts, Cr. Accounts Receivable

-Collection of an Account Already Written-Off: Dr. Accounts Receivable, Cr. Allowance for Uncollectible Accounts, Dr. Cash, Cr. Accounts Receivable

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15
Q

Ending of Reporting Period (accounts receivable)

A

-Calculate uncollectible accounts receivable using an aging analysis

-Estimated uncollectible’s must be the ending balance in the allowance account

-Record bad debt expense entry to adjust the allowance to the correct ending balance: Dr. Bad Debt Expense, Cr. Allowance for Uncollectible Accounts

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16
Q

Net Operating Profit After Taxes (ratios)

A

(NOPAT)
= Net Income + Tax Expense + Non-Operating Expenses - Non-Operating Income * (1 - tax rate)

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17
Q

Income from Operations

A

= Net Income + Tax Expense + Non-Operating Expenses

18
Q

Net Operating Profit Margin (ratios)

A

= NOPAT / Revenue

19
Q

Accounts Receivable Turnover Ratio (ratios)

A

= Revenue / Average Accounts Receivable

*how many times during the year was accounts receivable collected

20
Q

Average Accounts Receivable

A

= Current Year Accounts Receivable + Prior Year Accounts Receivable / 2

21
Q

Average Collection Period (ratios)

A

=Average Accounts Receivable / Revenue / 365
OR
= 365 / Accounts Receivable Turnover

*how many days does it take to collect receivables

22
Q

3 Types of Expenses

A
  1. Direct Association Expense
  2. Immediate Recognition Expense
  3. Systematic Allocation Expense
23
Q

Direct Association Expense

A

Directly associated with a specific revenue transaction

Ex: cost of goods sold, commissions/fees, etc.

*recognized at the same time as the revenue

24
Q

Immediate Recognition Expense

A

Related to a time period, not a specific revenue event

Ex: wages, insurance, interest, utilities, etc.

*recognized in the time period they were incurred

25
Q

Systematic Allocation Expense

A

Allocating items to expense that impact multiple periods

Ex: depreciation

26
Q

Inventory

A

Reported on the balance sheet at cost

Cost: cost to purchase/acquire, transport to company, make/manufacture (labor, overhead), packaging, inspection, etc.

27
Q

Categories of Inventory

A
  1. Raw Materials - parts/materials/ingredients that will be used to make the companies products
  2. Work in Process -
    partially completed goods
  3. Finished Goods -
    completed products ready for sale
28
Q

Inventory Assumptions

A
  1. First in First Out (FIFO)
  2. Last in First Out (LIFO)
  3. Average Cost
29
Q

First in First Out (FIFO)

A

Assumed oldest inventory is sold first and newest inventory remains

30
Q

Last in First Out (LIFO)

A

Assumes newest inventory is sold first and oldest inventory remains

31
Q

Average Cost

A

= $ Goods Available for Sale / # of Units in Goods Available for Sale

32
Q

Cost of Goods Sold & Ending Inventory

A

Cost of Goods Sold =
Average Cost * Units Sold

Ending Inventory =
Average Cost * Units in Ending Inventory

33
Q

Lower of Cost or Net Realizable Value

A

= Sales Price - Costs to complete or sell

34
Q

NRV Per Item

A

Lesser of Cost Value and NRV value for all items and then added up for the total

35
Q

NRV Per Category

A

Lesser of Cost Value total and NRV value total for each category and then add the two lessers for the total

36
Q

NVR By Total

A

Total of all Cost Values and NVR values for all items

37
Q

Gross Profit Margin (ratios)

A

= Revenue - Cost of Goods Sold
/ Revenue

38
Q

Reasons for Gross Profit Margin Decline

A
  1. Competition
  2. Product line is stale
  3. Economic issues
  4. Inventory is overstocked
39
Q

Inventory Turnover (ratios)

A

= Cost of Goods Sold / Average Inventory

*how many times the inventory population is sold during the year

40
Q

Average Inventory

A

= Current Year Inventory + Prior Year Inventory / 2

41
Q

Average Inventory Days Outstanding (ratios)

A

= Average Inventory / Cost of Goods Sold / 365
OR
= 365 / Inventory Turnover

*how many days it takes to sell inventory

42
Q

Journal Entry for Sales (cash and account)

A

Cash:
Dr. Cash
Cr. Revenue
Dr. Cost of Goods Sold
Cr. Inventory

Account:
Dr. Accounts Receivable
Cr. Revenue
Dr. Cost of Goods Sold
Cr. Inventory

Financial Accounting (2 decks)

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