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accounting exam 3

Inventory Management Decisions

Primary goals of management decisions:
1. Maintain sufficient quantity to meet customer needs
2. Ensure quality meets customers expect­ations
3. Minimize costs of gettin­g/c­arrying inventory

Reporting Inventory

Income Statement: once items are sold, you remove cost of goods sold from income statement
Balance Sheet: inventory is set up as an asset when purchased

Percentage of Credit Sales v Aging of A/R

% (income statement method) easier to compute; aging (balance sheet method) is more accurate
income statement method: begin by writing journal entries in problem
balance sheet method: begin by making a chart

STEPS TO FIFO/L­IFO­/WE­IGHTED AVERAGE

FIFO
LIFO
WEIGHTED AVERAGE
STEP 1: begin by doing COGA. STEP 2: when determ­ining COGS, remember to do FIRST-­IN-­FIR­ST-OUT
STEP 1: SAME AS FIFO STEP 2. REMEMBER TO DO LAST-I­N-F­IRS­T-OUT
STEP 1: SAME AS FIFO AND LIFO STEP 2: DIVIDE COGA BY NUMBER OF UNITS AVAILABLE STEP 3. USE THE NUMBER TO FIND COGS AND COST OF ENDING INVENTORY
 

Sales Transa­ctions

FOB Shipping Point
FOB Destin­ation
FOB Shipping: sale recorded when goods leave seller's shipping department
FOB Destin­ation: sale recorded when goods reach destin­ation

FORMULAS

COGS = COGA - EI
COGA = BI + PURCHASES
GROSS PROFIT = SALES - COGS
INTEREST = PRINCIPAL X INTEREST RATE X TIME
NET RELIZABLE VALUE: A/R TOTAL - ALLOWANCE TOTAL
 

Types of Inventory

Mercha­ndisers
Manufa­cturers
Mercha­ndi­sers: buy + sell finished goods
Manufa­ctu­rers: buy raw materials + produce and sell finished goods
(raw materials, work in process, and finished goods)

Perpetual VS Periodical Inventory Systems

Perpetual: recorded every time item is bought­/so­ld/­ret­urned; uses bar codes like Walmart; constantly recording inventory
Period­ical: always updated at the end of accounting period; require inventory to be counted at the end of every period

Financial Statement Effects (rising prices)

FIFO: COGS smaller than LIFO, Gross Profit larger than LIFO, Net Income larger than LIFO, Inventory larger than LIFO
LIFO: COGS larger than FIFO, gross profit smaller than FIFO, Net income smaller than FIFO, inventory smaller than FIFO

JOURNAL ENTRY EXAMPLES

BAD DEBT EXPENSE: debit bad debt expense, credit allowance
CASH COLLEC­TIONS: debit cash, credit A/R
CREDIT SALES: debit A/R and credit
WRITE OFFS: debit allowance, credit A/R

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  • Published: 28th November, 2017
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