Tutorial 4 & 5 Flashcards
What is another name for the time period assumption
The time period assumption
is also called the periodicity
assumption.
Revenue Recognition Principle
The revenue recognition principle states that revenues are earned and recognized when they are realized or realizable, no matter when cash is received.
Expense Recognition Principle
Expenses should be recognized in the period in which they are incurred, regardless of when cash is paid or received.
What is Depreciation in Accounting?
Depreciation is an allocation concept, not a valuation concept. That is, depreciation allocates an asset’s cost to the periods in which it is used. Depreciation does not attempt to report the actual change in the value of the asset.
FOB destination
Freight on Board Destination is a shipping term which means that the seller retains the legal title to the goods until they reach the location of the buyer.
FOB shipping point
Free on board (FOB) is a trade term that indicates that ownership of the goods remains with the seller until the goods reach the buyer.
Consigned Goods.
In some lines of business, it is common to hold the goods of other parties and try to sell the goods for them for a fee, but without taking ownership of the goods.
Specific identification method
The specific identification method relates to inventory valuation, specifically keeping track of each specific item in inventory and assigning costs individually instead of grouping items together.
cost flow assumptions
Rather than keep track of the cost of each particular item sold, most companies make assumptions, called cost flow assumptions, about which units were sold.
Average-cost Method
Average cost method assigns a cost to inventory items based on the total cost of goods purchased or produced in a period divided by the total number of items purchased or produced.
FIFO
The first-in, first-out (FIFO) method assumes that the earliest goods purchased are the first to be sold.
lower-of-cost-or-net realizable value (LCNRV)
When the value of inventory is lower than its cost, companies must “write down” the inventory to its net realizable value.
Types of Receivables
Accounts, Notes and Other
Account Receivables
Accounts receivable are amounts customers owe on account. They result from the sale of goods and services. Companies generally expect to collect accounts receivable within 30 to 60 days. They are usually the most significant type of claim held by a company.
Notes receivable
Notes receivable are a written promise (as evidenced by a formal instrument) for amounts to be received. The note normally requires the collection of interest and extends for time periods of 60–90 days or longer.
Other receivables
Other receivables include non-trade receivables such as interest receivable, loans to company officers, advances to employees, and income taxes refundable.
These do not generally result from the operations of the business. Therefore, they are generally classified and reported as separate items in the statement of financial position.
