Notes from Financial Flashcards
Consignor is who?
The person wanting to sell the goods
A larger number of sales occurring in the last part of the year compare to last year means that the AR balance will be higher but the sales will be the same. Just the timing is different
Just a NOTE: Generally the SALES number is always bigger than the AR number
FOB shipping point
The term FOB shipping point is a contraction of the term “Free on Board Shipping Point.” The term means that the buyer takes delivery of goods being shipped to it by a supplier once the goods leave the supplier’s shipping dock. Since the buyer takes ownership at the point of departure from the supplier’s shipping dock, the supplier should record a sale at that point.
The buyer should record an increase in its inventory at the same point (since the buyer is undertaking the risks and rewards of ownership, which occurs at the point of departure from the supplier’s shipping dock). Also, under FOB shipping point terms, the buyer is responsible for the cost of shipping the product to its facility.
If the goods are damaged in transit, the buyer should file a claim with the insurance carrier, since the buyer has title to the goods during the period when the goods were damaged.
Realistically, it is quite difficult for the buyer to record a delivery at the shipping point, since this requires proper notification into the buyer’s inventory management system from an outside location. From a practical perspective, recognition of receipt is instead completed at the receiving dock of the buyer. Thus, the sale is recorded when the shipment leaves the seller’s facility, and the receipt is recorded when it arrives at the buyer’s facility. This means there is a difference between the legal terms of the arrangement and the typical accounting for it.
Just a reminder and note that the Operating Profit Margin Formula = Operating Income / Net Sales.
Operating expenses include COGS and SG&A but exclude interest expense
Just a reminder and note that the Operating Profit Margin Formula = Operating Income / Net Sales.
Operating expenses include COGS and SG&A but exclude interest expense
What relevant assertion is this or is the auditor concerned about here?
After reviewing the balance sheet and corresponding documentation, Derek found that the inventory balance has increased significantly over the prior year
Existence and Occurrence
