Accounting Principles Final Exam Review - Chapters 5-11

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FOB shipping point

means that goods are placed free on board the carrier by the seller, and the buyer pay the freight costs.

FOB destination

means that goods are placed free on board at the buyer's place of business, and the seller pays the freight.

net sales

how to calculate or get __ formula?
sales - sales returns and allowances- sale discounts =
S - SRA - SD=

inventory

classified into three categories: finished inventory goods - is manufactured items that are completed and ready for sale.
work in process - is that portion of manufactured inventory that has been placed into the production process but is not yet complete.
raw materials - are the basic goods that will be used in production but have not yet been placed into production.

LCM

lower-of-cost-or-market whereby inventory is stated at the lower of the either its cost or its market value as determined by current replacement cost.

cost flow assumptions

there are three assumed cost flow methods: FIFO, LIFO, and Average-cost

FIFO

first-in, first-out earliest goods

LIFO

last-in, last-out latest goods

average-cost method

uses the weighted average unit cost to allocate to ending inventory and cost of goods sold the cost of goods available for sale.

sales journal

a special journal that records all sales of merchandise on account. (only credit sales merchandise) [business's customer is allowed to charge purchases]

purchases journal

is used to record all purchases and various expenses and other charges from suppliers that a business has an open account with (supplier allows the business to charge purchases).

cash receipts journal

is a special journal that is used to record all receipts of cash. Columns are set up that indicate the sources of the cash. (Two of the major sources of cash for a busines are Cash Sales and Collections of customer charge sales. These and other categories that have a lot of activity (transactions) have their own column.

internal controls

some systems have an internal accounting review that identifies suspicious transactions or likely mistakes such as wrong account numbers or duplicate transactions. (safeguarding assets) What are the five components?

accounting information systems

what are the three basic principles or concepts of AIS? cost effectiveness, flexibility, and useful output

petty cash

a cash fund used to pay relatively small amounts.

account receivable

are amounts owed by customers on account. They result from the sales of goods and services. Companies generally expect to collect these receivables within 30 to 60days. AR are the mos significant type of claim held by a company.

notes receivable

are claims for which formal instruments of credit issued as proof of the debt. A note receivable normally extends for time periods of 60-90 days longer and requires the debtor to pay interest.

natural resources

consist of standing timber and underground deposits of oil, gas, and minerals. Theses long-lived productive assets have two distinguishing characteristics: (1) They are physically extracted in operations (such as mining, cutting, or pumping). (2) The replaceable only by an act of nature.

bonding

obtaining insurance protection against misappropriation of assets by employees. (misappropriation of assets)

subsidary ledgers

a group of accounts with a common characteristic. (A company would not likely use this for owner's capital)

cash reciepts journal

a special journal that records all cash received. (cash from sales of merchandise will be recorded in)

debit AR/CR sales

journal entry to record a credit sales

sales revenues

are recorded when earned and the primary source of revenue for a merchandising company. Typically sales revenues are earned when the goods are transferred from the seller to the buyer.

COGS and OE

expenses are divided into two categories

gross profit

sales less cost of goods sold on sales. (or margin) *Note: after calculation operating expenses are deducted to determine net income.*
S - COGS= _____ - OE= Net Income

operating expenses

are expenses incurred in the process of earning sales revenue.

perpetual or periodic

a merchandising company may use either inventory system in determining cost of goods sold.

perpetual inventory system

detailed records of the cost of each inventory item are maintained and the cost of each item sold is determined from the records when the sale occurs.

periodic inventory system

detailed inventory records are not maintained and the cost of goods sold is determined on the end of an accounting period.

merchandise inventory account

under the perpetual inventory system, purchases of merchandise for sales are recorded in the ____. (Cash purchase: cash is credited and Credit purchase, accounts payable is credited.

purchase returns and allowances

when merchandise is returned, Merchandise Inventory is credited.

purchase discount

when an invoice is paid within the discount period, the amount of the discount is credited to Merchandise Inventory and if not paid within the discount period then debit to Account Payable and credit to Cash.

cost of goods sold

is determined by two steps:
1) The cost of goods purchased is added to the cost of good on hand at the beginning of the period to obtain the cost of goods available for sale. 2) The cost of goods on hand at the end of the period is subtracted from the cost of goods available for sale.

cost of goods sold under period inventory system

three steps are required:
1) Record purchases of merchandise. 2) Determine the cost of goods purchased; 3) Determine the cost of good on hand at the beginning and end of the accounting period. **in determining COGP a) contra-purchase accounts are subracted from purchases to produce net purchases, and b) freight-in is the added to net purchases.

transactions

in a typical business transaction we get something and we give up something.

cash sale

customer pays at the time of sale (The business gets cash or a check from their customer and gives up a product or service to their customer.)

on account sale

business allows the customer time to pay (The business gets a promise to pay from their customer and gives up a product or service to their customer.)

cash purchase

business pays the supplier at the time of purchase (The business gets a product or service from their supplier and gives up cash or a check to their supplier.)

on account purchase

supplier allows the business time to pay (The business gets a product or service from a supplier and gives up a promise to pay to their supplier.)

pay supplier charge purchases

pay suppliers for products and/or services that we promised to pay for later (charge). (The business gets the amount of the promise to pay the supplier reduced and gives up cash or check.)

receive customer charge payments

recieve payments from a customer that promised to pay us later (charge sale). (The business gets cash or check from their customer and gives up (reduces the amount of) their customer's promise to pay.)

borrow money

(Loans) (The business gets cash or equipment and gives up a promise to pay.

repay a loan

The business gets cash the amount of their promise to pay reduced and gives up cash or check.

draw

The business gets the owner's claim to the business assets reduced and gives up cash or a check.

general journal

is used to record unusal types of transactions. Type of entries normally made are depreciation, correcting, adjusting, and closing entries.

cash payment journal

is a special journal that is used to record all cash that is paid out by a business except for payroll. Columns are set up for types of transactions that occur frequently enough to warrant a separate column. (Some examples are Accounts Payable [payments on purchases and services charged] and Cash Purchases.)

sales return and allowances journal

is a special journal that is used to record the returns and allowances of merchandise sold on account.

purchase returns and allowances journal

is a special journal that is use to record the returns and allowances of merchandise purchased on account.

sales and revenue journal

Type of Transaction Recorded: product sales/fees billed to customers who we have granted credit (charge sales)

note payable

is in the form of a written promissory note

crediting sales tax payable

sales taxes collected by retailer are recorded by

gross pay

total compensation earned by an employees is called

8.0%

the effective federal unemployment tax rate is

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