Exam 2 Study Guide

• Account determines net sales on account
• Changes in account
• increases add to cash
• decreases subtract from cash

• Cash method does not account for increases in this account but it is sales for the period
• Cash method counts the money received for this account as a sale but it is already counted

• Account gives amount received for revenues not earned
• Changes in account
• increases subtract from cash
• decreases add to cash

Cash method accounts for increases in this account as revenue but it has not been earned. A decrease in this account is the revenue being earned.

• Account gives amount of revenue earned but money owed to company.
• Changes in account
• increases add to cash
• decreases subtract from cash

Cash method does not account for revenue earned for this account but should be counted as revenue. The cash method counts the money received for this account as revenue but it is already counted

• Account gives the amount for purchases made on account
• Changes in account
• increases add to cash
• decreases subtract from cash

Cash method does not account for increases in this account because the purchases are for credit. Cash method considers payments for this account as additional purchases but it's already counted

• Account gives the amount of payments for expenses not yet incurred
• Changes in account
• increases subtract from cash
• decreases add to cash

Cash method considers money paid to this account as expense but the expense has not occurred yet. Decreases in this account is the expense being incurred so it needs to be accounted then

• Account gives amount that needs to be payed for expenses incurred.
• Changes in account
• increases add to cash
• decreases subtract from cash

Cash method does not account for increases to this account because no payment is made but the expense has been incurred. payments for this account is recognized as expense under cash but it is already counted

• PV * Factor = FV
• lump sum

• FV * Factore = PV
• lump sum

equal periodic installments

Installment * Factor= FV

If payments are end of the period it is an ordinary annuity

Installment * Factor = PV

payments at the end of period

Installment * Factor = FV

payments at the beginning of the period

Installment * Factor = PV

• Impress system-set standard balance
• Money taken out, Receipts put in
• Money & Receipts should equal balance deposit

• To correct balance
• "Adjust" balance to arrive at the actual cash owned on that date

• Cash balance bank
• +Deposits in Transit
• - Outstanding Checks
• +/- Errors
• =Adjusted Bank Balance

• Cash balance books
• + Interest earned on account
• +Collections made by the bank
• -NSF (Non=Sufficient Funds) Check
• -Service Charges
• +/- Errors
• =Adjusted Book Balance

• Bank Balance
• +Deposits in Transits
• -Outstanding Checks
• +Service Charge
• -Bank Collections
• +NSF Checks
• +/- Errors
• =Book Balance

• Bad Debt Exp.
•      Acct. Rec.

violates matching principle-not GAAP

• Bad Debt Exp.
•      Allowance for D.A
• Allowance for D.A.
•       Acct. Rec.

follows matching principle-GAAP

• The amount of credit balances that is estimated to be collected
• Acct. Rec.
• -Allowance for D.A.
• =Net Realizable Value

• Adjust Bad Debt Expenses to a desired balance
• Estimated by a percentage of sales

• Adjust Allowance account to desired balance
• take into consideration the amount already in the account
• balance in the account will be estimated to be a certain amount

Account estimate was short so adjust to compensate for the bad estimate as well as the balance necessary for the account

• write off
• Bad Debt Exp./Acct. Rec.
• reinstate
• Acct. Rec. /Bad Debt Exp.
• collect
• Cash/ Acct. Rec.

• write-off
• Allowance / Acct. Rec.
• reinstate
• Acct. Rec. / Allowance
• collect
• Cash / Acct. Rec.

• sale revenue is total sale price
• sale
• Acct. Rec. / Sales Rev.
• collect early
• Cash, Sales Disc. / Acct. Rec.
• collect late
• Cash / Acct Rec.

• sale revenue is sale - discount to start
• sale
• Acct. Rec. / Sales Rev.
• collect early
• Cash / Acct. Rec.
• collect late
• Cash / Sales Disc. Forfeited Acct Rec.

Use Acct Rec. as collateral to obtain borrowed funds. Footnote disclosure

• Use Acct. Rec. to obtain borrowed funds. Creating a seperate account so that as funds are collected from the receivables the debt gets paid
• Borrow:
• cash, finance charges / notes payable
• Re-classify
• Acct. Rec. Assigned / Acct. Rec.

Sell Acct. Rec. for cash less a fee. Factor now controls Acct. Rec. and will collect from customers. Factor assumes risk of uncollectibles if sold "without recourse"

Notes Receivable / Cash or Revenue

• Calculate Present value
• Difference between maturity value and present value is the discount

• Discount/time frame of notes= interest revenue to record each period
• Journal entry
• Discount / Interest Revenue

PV of note * effective interest rate =interest revenue to record each period

• Calculate Present Value of lump sum and annuity
• Remember that for installments record and subtract from total Interest Revenue to get the Discount account adjustment

• Beginning Balance
• +(d)Raw Material Purchased
• - (c)Raw Materials Used
• =Ending Balance

transfer raw materials used to work-in-process

• Beginning Balance
• +(d) Raw Material Used
• +(d) Direct Labor
• +(d) Direct Overhead
• - (c) Cost of Goods Manufactured
• =Ending Balance

transfer cost of goods manufactured to finished goods

• Beginning Balance
• +(debit)Cost of Goods Manufactured
• -(credit)Cost of Goods Sold
• =Ending Balance

• sale
• Acct. Rec. / Sales Revenue
• CGS / Inventory

• sale return
• Sales Return / Acct. Rec.
• Inventory / CGS

• purchase
• Inventory / Acct. Payable
• purchase return
• Acct. Payable / Inventory

• adjustments made right away to CGS and Inventory Accounts for sales
• adjustments made right away to Inventory account and Acct. Payable for purchases
• Physical count done at end of year and adjustment is made if balance is off

• sale
• Acct. Rec. / Sales Revenue
• sales return
• Sales Return / Acct. Rec.

• purchase
• Purchase / Acct. Payable &
• Freight-In / Acct. Payable

Owned by consignor; held by consignee

The buyer pays the freight and owns the inventory during transit

The seller pays the freight and owns the inventory during transit

actual cost used; no assumptions

first goods purchased are first goods sold

lost goods purchased are first goods sold

• record cost based on the average
• $ Goods Available for sale / Units available for sale

• BI
• + P
• -EI
• =CGS(-)
• GP
• NI
• RE

• based on a layer system
• adjust by the base year (1st layer)
• EI value / CPI = EI adjusted for inflation
• campare EI to previous year. If increased add layer if decrease subtract layer.

• choosing between the lower amounts to account for inventory
• for market choose the lowest of: replacement cost, ceiling, floor
• compare the lowest of market to cost and choose the lowest between cost and market

• determine cash paid
• allocate cash paid to various items
• once percentage is determined use it to determine what amount was to each item