What types of accounts do companies close at the end of the period.
Temporary Accounts
What type of accounts aren't closed from period to period
Permanent accounts
Temporary accounts include
Revenue accounts
Expense accounts
Owners Drawings
Permanent accounts include
All assent accounts
All liability accounts
Owner capital accounts
When do companies usually journalize and post closing entires
only at the end of the annual accounting period
What type of accounts are contained on the post-closing trial balance
Only permanent accounts- balance sheet accounts
On a Classified Balance Sheet assets are grouped into
Current Assets
Long-term investments
Property, plant and equipment
Intangible assets
Examples of current assets, long term investments, ppe, and intangible assets (group in proper order)
current assets- cash, debt investments, accounts receivable, inventory, supplies, prepaid insurance
long-term investments- stock investments, investment in real estate
ppe- land, equipment, building, accumulated depreciation has to be leased out
intangibl
On a classified balance sheet liabilities are group into (what is the difference between the two)
current liabilities- to be paid off in less than 12 months
long term liabilities - to be paid off in more than 12 months
What are current assets
assets that a company expects to convert to cash or use up within one year or its operating cycle
In what order does the balance sheet list current assets
in the order in which they expect to convert them into cash
In a Perpetual inventory system
companies keep detailed records of the cost of each inventory purchase and sale
In a periodic inventory system
companies do not keep detailed inventory records, they determine cost of goods sold only at the end of the accounting period
Biggest advantage of a perpetual system
it provides better control over inventories
Who pays for freight costs with FOB shipping point/ when does ownership pass over
the buyer/ buyer has ownership when the item is shipped
Who pays for freight costs with FOB destination/ when does ownership pass over
the seller/ seller has ownership when the item is fully delivered
Sauk Stero purchases $3,800 worth of inventory on account from PW Audio Supply. The entry to record this purchase would be:
Debit inventory for $3,800
Credit Account Payable $3,800
If Sauk Stereo (the buyer) pays Public Carrier Co. $150 for freight charges , the entry would be
Debit inventory for $150
Credit Cash for $150
Freight terms on the invoice require PW Audio Supply (the seller) to pay the freight charges of $150, the entry on PW Audio Supply would be
Debit to Freight out for $150
Credit to Cash for $150
If Sauk stereo returned goods costing $300 to PW Audio Supply on May 8th. The following entry would be
Debit to Accounts Payable for $300
Credit to Inventory for $300
Sauk Stereo pays an invoice balance of $3500 on may 14th the last day of the discount period. The discount terms are 2/10, n/30. Our entry to record this would be
discount amount: 70
cash amount: 3430
Debit to accounts payable for $3500
Credit to inventory for $70
Credit to cash for $3430
PW Audio Supply records its may 4th credit sale of $3,800 to sauk stereo. The merchandise cost of PW Audio Supply $2400. The entries would be (include both)
Debit to A/R for $3800
Credit to Sales Revenue for $3800
Debit to COGS for $2400
Credit to Inventory for $2400
What type of account is Sales Returns and Allowances
Contra revenue account
Sauk stereo returned $300 of goods costing $140 to PW audio supply on may 8th. The entries that pw audio supply would record would be
Debit Sales return and allowances for $300
Credit A/R for $300
Debit inventory for $140
Credit COGS for $140
What type of account is sales discount
contra revenue account
If Sauk stereo pays an invoice balance of $3500 on may 14th the last day of the discount period. The discount terms are 2/10, n/30. The entry that PW audio supply would make would be
discount : 70
cash: 3430
Debit to cash for $3430
Debit to sales discount for $70
Credit to A/R for $3500
How do you get gross profit and gross profit rate
Gross profit = net sales - cogs
gross profit rate = gross profit / net sales
Periodic inventory system takes a physical inventory for two different reasons
1- to determine the inventory to put on balance sheet
2- to determine the cost of goods sold for the period
What does FOB mean
free on board
Do we claim ownership of cosigned goods
no
What two methods are accepted by IFRS
FIFO
Average cost
How to get weighted- average unit cost
Cost of total goods available for sale / Total units for sale
In a period of inflation, which cost method produces a higher net income
FIFO
In a period of inflation, which cost method produces a higher ending inventory
FIFO
Which cost method, during a period of inflation, better allocates to ending inventory that proximate current costs
FIFO
why doesn't the IFRS allow LIFO
because in a period of inflation it can seriously underestimate current costs
Which cost method, during a period of inflation, produce the lowest income taxes
LIFO because lower net income
What is the consistency concept
a company uses the same accounting principles and methods from year to year
What is conservatism
method that is least likely to overstate assets and net income
Inventory Turnover
cost of goods sold/ average inventory (beg inv-ending inv/ 2)
days in inventory
365/inventory turnover
PW audio supply has an adjusted balance of $40,500 in inventory. Through a physical count, PW audio supply determines that its actual merchandise inventory at December 31 is $40,000. The company would make the following adjusting entry:
Debit COGS for 500
Credit Inventory for 500