Terms Flashcards
Inventory
the merchandisers total cost of acquiring goods that has not yet sold
sales revenue
total selling price of all goods that the merchandiser did sell to customers
cost of goods sold
total cost of all goods that the merchandiser did sell to customers (what you paid to buy inventory items)
Gross profit equation
sales revenue - cost of goods sold = gross profit
Cost of goods sold equation
BI+P-EI=CGS
Ending inventory equation
BI+P-CGS=EI
periodic inventory
updates the inventory records for merchandise purchases, sales and returns only at the end of the accounting period
perpetual inventory
the inventory records are updated “perpetually,” every time inventory is bought, sold, or returned (updating their inventory records every time something gets scanned)
FOB shipping point
the sale is recorded when the goods leave the seller’s shipping department
FOB destination
the sale is recorded when the goods reach their destination (the customer) (you want to be the FOB destination)
Debit
Cash
Credit
Sales revenue/ inventory
Expense accounts go up w
Debit
Expense accounts go down w
Credit
FIFO
first in first out
LIFO
Last in first out
Weighted average
COGAS/# of Units Available for Sale
LCM
when the value of inventory falls below its recorded cost, the amount recorded for inventory is written down to its lower market value
Inventory turnover
Beginning Inventory + Ending Inventory / 2
Pros and cons of extending credit
advantage: increases the seller’s revenues
disadvantages: increased wage costs, bad debt costs, delayed receipt of cash
Estimate bad debt expense
Then put on the income statement
Allowance for doubtful accounts
Asset/ credit
Bad debt expense
stockholders’ equity, debit
Accruing equation
Principal (P) X Interest Rate (R) X Time (T) in months (12) = Interest (I)
inventory converts to _______, goods are recorded _____________
INVENTORY WILL BE USED OR CONVERTED INTO CASH WITHIN ONE YEAR, IT IS REPORTED ON THE BALANCE SHEET AS A CURRENT ASSET. GOODS ARE INITIALLY RECORDED IN INVENTORY AT COST, WHICH IS THE AMOUNT PAID TO ACQUIRE THE ASSET AND PREPARE IT FOR SALE.
Notes receivable
promises that require other parties to pay the business according to written agreements.
Accounts receivable
arise from the sale of goods or services on credit
Direct write off method
records bad debt expense only when accounts are written off; not allowed under GAAP
Fraud triangle
Rationalization
Opportunity
Incentive
Gross profit equation
Revenues - expenses
(Sales) - (COGS)
Segregation of duties
not be responsible for all arts of their job , cashier needs to get managers approval to check the money. so they don’t make mistakes
Establish responsibility
Assign each task to one employee
Independently verify
Check others work
Restrict access
Don’t provide access to assets or information unless needed for info
Document procedures
Prepare documents to show activities that occurred
Comparative financial statement
Gauge how a company does over time
Consistent financial statements
Follow same accounting principals
Consolidated financial statements
A group of entities that are presented as being those of a single entity
