ACC 240 Lecture Notes - Lecture 18: Current Asset, Financial Statement, Income Statement

69 views11 pages

indigolion532

17 May 2018

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Operating Cycle

a series of activities that a company undertakes to generate revenues and cash

3 differences in financial statements of a service company

1) merchandisers report inventory as an asset

2) service companies earn revenue from services whereas merchandisers earn revenue from sales

3) Merchandisers report an expense called Cost of Goods Sold (total cost of all goods sold to customers

during the period) service companies do not incur this expense because they do not sell goods

Inventory for merchandisers

reports total cost of aquiring goods that it has not yet sold

AdvertisementUpgrade to remove ads

Sales revenue and Cost of Goods Sold for merchandisers

indicate the total selling price and cost of all goods that the merchandier did sell to customers during the

period

merchandiser determines gross profit by...

subtracting cost of goods sold from sales revenue (gross profit is profit before taking into account

expesnes)

merchandise inventory

consists of products aquired in a finished condition, ready fro sale without further processing.

raw materials inventory

plastic steel or fabrics when these raw materials enter the production process they become part of

Work in Process inventory

Work in process inventory

includes goods that are in the process of being manufactured, when completed, work in process

inventory beomes finished goods inventory

find more resources at oneclass.com

Unlock document

This preview shows pages 1-3 of the document.
Unlock all 11 pages and 3 million more documents.

Already have an account? Log in

finished goods inventory

ready for sale just like merchandise inventory

consignment inventory

refers to goods a company is holding on behalf of the goods' owner (arises when a company is willing to

sell the goods for the owner for a fee but does not want to take ownership of the goods in the event the

goods are difficult to sell) is reported on the balance sheet of the owner not the company holding the

inventory

goods in transit

inventory items being trnasported (this type of inventory is reported on the owner's balance sheet not

the comapny selling it)

since inventory will be used or converted into cash within one year...

it is reported on the balance sheet as a current asset

when a company sells goods...

it removes their cost from the inventory account and reort the cost on the income statement as the

expense cost of goods sold (followed directly under net sales, the difference between these two is gross

profit)

cost of goods sold equation (periodic updating)

beginning inventory + purchases - ending inventory= cost of goods sold

Ending inventory equation (perpetual updating)

Beginning inventory+ purchases - cost of goods sold = ending inventory

Specific identification

the inventory costing method that identifies the cost of the specific item that was sold

weighted average

find more resources at oneclass.com

Unlock document

This preview shows pages 1-3 of the document.
Unlock all 11 pages and 3 million more documents.

Already have an account? Log in

uses theweighted average of the costs of goods available for sale for both the cost of each item sold and

those remaining in inventory.

FIFO

Beginnning inventory 10 untis x $7 $70

+ purchases 30 units x $8 240

10 units x $10 100

-----------------------------------------------------

Goods available for sale 410

- ending inventory (10x$10) + (5x$8) 140

-----------------------------------------------------

cost of goods sold (10x$7) + (25x$8) $270

____________________________________________________________________

the reason it is 25 and not 30 is because there were 5 units remaining

LIFO

Beginnning inventory 10 untis x $7 $70

+ purchases 30 units x $8 240

10 units x $10 100

-----------------------------------------------------

Goods available for sale 410

- ending inventory (10x$10) + (5x$8) 140

-----------------------------------------------------

cost of goods sold (10x$10) + (25x$8) $300

____________________________________________________________________

the reason it is 25 and not 30 is because there were 5 units remaining

weighted average cost=

cost of goods available for sale $410 $8.20

------------------------------------ = ------- =per unit

find more resources at oneclass.com

Unlock document

This preview shows pages 1-3 of the document.
Unlock all 11 pages and 3 million more documents.

Already have an account? Log in

Document Summary

Operating cycle a series of activities that a company undertakes to generate revenues and cash. Inventory for merchandisers reports total cost of aquiring goods that it has not yet sold. Beginning inventory+ purchases - cost of goods sold = ending inventory. ____________________________________________________________________ the reason it is 25 and not 30 is because there were 5 units remaining. Ending inventory (10x) + (5x) 140 cost of goods sold (10x) + (25x) . ____________________________________________________________________ the reason it is 25 and not 30 is because there were 5 units remaining weighted average cost= cost of goods available for sale . 20. Number of units available for sale 50 units weighted average cost. Ending inventory (15x. 20) 123 cost of goods sold (35x. 20) when costs are rising Fifo produces a higher inventory value and a lower cost of goods sold (making the balance sheet appear to be stronger by giving a higher gross profit) when costs are falling

Related Questions

***This is a classmates discussion that they posted my onlyassignment is to comment on it 150 words minium***

1. The company's inventory at the 2016 year end had a value of$4,864,000.

2. The amount of cost of goods for the fiscal year of 2016 had avalue of $30,150,000,000 including depreciation (D) andamortization (A). The value was $29,490,000,000 excluding D andA.

3. Best Buy uses a multi-step income statement. The incomestatement begins with sales/revenue, cost of goods sold, and grossincome. There is another section that lists the selling, general,and administrative expense for the company. This includes incometax along with interest expenses. The net income is stated afterthese entries.

4. Gross profit percentage is found by subtracting the cost ofgoods sold by the total revenue. So for Best Buy this would be$39,400,000,000-$30,150,000,000 which equal a gross profit of$9,250,000,000. The final step to get the gross profit percentageis to divide gross profit by the total revenue and multiply by 100.Plugging Best Buy's data into the equation, I got$9,250,000,000/$39,400,000,000 which equals 0.235. Multiply by 100to get a percentage makes Best Buy's gross profit percentage23.5%.

5. The gross profit percentage in 2015 for Best Buy was 23.0%.The gross profit percentage increased by 0.5% from 2015 to 2016.That concludes that the gross profit percentage for Best Buy heldfairly steady from 2015 to 2016.

6. Best Buy's gross profit percentage is considerably lower thanother companies in the industry. For example, Apple's gross profitpercentage for 2016 was 38.6%. That is 15% higher than BestBuy's.

7. I calculated the company's inventory turnover ratio bydividing the value of cost of goods sold by the value of inventory;$30,150,000,000/$4,860,000,000 which came out to a ratio of 6.2. Tocalculate the days sales in inventory I took the the inventoryturnover ratio and divided 365 by the number; 365/6.2 which equals58.9 days. These ratios mean that Best Buy sells is averageinventory 6 times per year or about every 2 months during a year.Best Buy also has about a 59 day supply of inventory available atall times. These numbers indicate that Best Buy does not encountermany problems when selling their inventory.

12 ACCOUNTING QUESTIONS

4. Using a perpetual inventory system, the buyer'sjournal entry to record the return of merchandise purchased onaccount includes a:

Select one:

A. Credit to Cost of Goods Sold

B. Credit to Accounts Payable

C. Credit to Purchase Returns

D. Credit to Inventory

6.Using a perpetual inventory system, the buyerâsjournal entry to record the payment for merchandise within thediscount period includes a:

Select one:

A. Debit to Accounts Payable

B. Debit to Cost of Goods Sold

C. Debit to Purchases

D. Debit to Inventory

7.Which of the following statements regarding cost flows istrue?

Select one:

Cost of goods available for sale is equal to beginning inventoryminus cost of goods purchased.

CGAS = beginning inventory minus ending inventory.

Cost of goods available for sale is equal to beginning inventoryplus cost of goods purchased.

CGAS = cost of goods sold minus cost of goods purchased.

10. Using a perpetual inventory system, the buyerâsjournal entry to record the purchase of merchandise on creditincludes a:

Select one:

A. Debit to Inventory

B. Debit to Freight In

C. Debit to Cost of Goods Sold

D. Debit to Purchases

11. Which of the following is not shown in thestatement of stockholder's equity?

Select one:

A. Unearned revenue

B. Common stock

C. Retained earnings

D. Dividends

13. Using a perpetual inventory system, the sellerâsjournal entry to record the sale of merchandise on account includesa:

Select one:

A. Debit to Accounts Receivable

B. Credit to Cost of Goods Sold

C. Credit to Purchases

D. Debit to Inventory

14. A merchandising company's multi-step income statementdiffers from that of a service company in what way?

Select one:

A service company does not include a line for cost of goodssold.

A service company has a line for selling expenses whereas amerchandising company does not.

There is no difference.

A merchandising company will have a line for income fromoperations whereas a service company will not.

16.Using a perpetual inventory system, the sellerâs journalentry to record the return, by the buyer, of merchandise purchasedon account includes a:

Select one:

A. Credit to Purchase Returns

B. Debit to Cost of Goods Sold

C. Debit to Accounts Receivable

D. Debit to Sales and Allowances

20. For a firm that uses the perpetual inventory system, theSales Returns and Allowances account:

Select one:

A. Is not a contra account

B. Is not used

C. Is debited by the firm receiving returned goods from acustomer

D. Has a normal credit balance

21. Current assets are cash and other assets that will beconverted into cash or used up within:

Select one:

A. One year

B. The normal operating cycle of the business

C. The normal operating cycle of the business or one year,whichever is longer

D. The normal operating cycle of the business or one year,whichever is shorter

22. The balance sheet format that reports assets first and then,beneath the assets, reports the liabilities and stockholders'equity is called the:

Select one:

A. Account form

B. Report form

C. Stack form

D. Classified form

23. Safari Monkey Company sold $2,400,000 worth of merchandise,had $200,000 returned, and then the balance was received during the2% discount period.

What were the companyâs net sales?

Select one:

A. $1,800,000

B. $1,760,000

C. $2,156,000

D. $2,040,000

turquoisesea-lion93

1. Inventory is classified on the balance sheet as a

a.current liability

b.long-term asset

c.current asset

d.long-term liability

2. What is the term applied to the excess of sales over the cost of goods sold?

a.net income

b.gross profit

c.operations

d.gross sales

3. The inventory system employing accounting records that continuously disclose the amount of inventory is called

a.periodic

b.retail

c.perpetual

d.physical

4. Calculate the gross profit for Jefferson Company based on the following:

Sales $764,000

Selling Expenses $42,500

Cost of Goods Sold $538,000

a.$183,500

b.$721,500

c.$495,500

d.$226,000

5. Calculate income from operations for Jonas Company based on the following data:

Sales $764,000

Selling Expenses $52,500

Cost of Goods Sold $538,000

a.$226,000

b.$711,500

c.$485,500

d.$173,500

6. The primary difference between the periodic and perpetual inventory systems is that a

a.periodic system keeps a record showing the inventory on hand at all times

b.periodic system determines the inventory on hand only at the end of the accounting period

c.periodic system records the cost of the sale on the date the sale is made

d.periodic system provides an easy means to determine inventory shrinkage

7. In credit terms of 3/15, n/45, the "3" represents the

a.percent of the cash discount

b.full amount of the invoice

c.number of days when the entire amount is due

d.number of days in the discount period

8. Which of the following accounts has a normal credit balance?

a.Inventory

b.Accounts Receivable

c.Sales

d.Delivery Expense

9. Using a perpetual inventory system, the entry to record the purchase of $30,000 of merchandise on account would include a

a.debit to Inventory

b.debit to Accounts Payable

c.credit to Sales

d.credit to Inventory

10. Which of the following accounts usually has a debit balance?

a.Sales

b.Inventory

c.Accounts Payable

d.Sales Tax Payable

11. If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are

a.n/30

b.consigned

c.FOB shipping point

d.FOB destination

12. When goods are shipped FOB destination and the seller pays the freight charges, the buyer

a.does not take a discount

b.journalizes a reduction for the cost of the merchandise

c.makes no journal entry for the freight

d.journalizes a reimbursement to the seller

13. When the perpetual inventory system is used, the inventory sold is debited to

a.Supplies Expense

b.Cost of Goods Sold

c.Sales

d.Inventory

14. Generally, the revenue account for a merchandising business is entitled

a.Gross Sales

b.Sales

c.Gross Profit

d.Fees Earned

lemonpug879

ACC 240 Lecture Notes - Lecture 18: Current Asset, Financial Statement, Income Statement

Document Summary

Get access

Related Documents

ACC 240 Study Guide - Final Guide: Net Income, Income Statement, Perpetual Inventory

ACG2021 Chapter Notes - Chapter 4: Merchandising, Gross Profit, Gross Margin

ACCT-2010 Lecture Notes - Lecture 6: Income Statement

Related Questions