Chapter 5 and 6

# Chapter 5 and 6 - Accouting Notes – Exam#2 Chapter 5 –...

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Unformatted text preview: Accouting Notes – Exam #2 Chapter 5 – Things we’re going to discuss: 1)CASH – Bank reconciliations- Define it, what is it? 2)INVENTORY – 1/1/07 100 Units @ \$6.00/unit = \$600 3/15/07 500 Units @ \$6.50/unit = \$3,250 6/10/07 1,000 Units @ \$7.00/unit = \$7,000 9/20/07 900 Units @ \$8.00/unit = \$7,200 2,500 Units available \$18,050- 1,500 Units sold in 2007 12/31/07 1,000 Units 3)ACCOUNTS RECEIVABLE & BAD DEBTS !- BAD DEBTS = UNCOLLECTABLE ACCOUNTS!- Causes of bad debts: 1)BANKRUPTCY! 2)JERKS! 3)UNHAPPY CUSTOMERS 4)DEATH 5)RELOCATE 1)BANK RECONCILIATION 2)FIFO/LIFO/AVERAGE COST 3)BAD DEBTS 1/1/07 (Beginning Inventory) 100 Units @ \$6.00/unit 3/15/07 Purchase 500 Units @ \$6.50/unit 6/10/07 Purchase 1,000 Units @\$7.00/unit 9/20/07 Purchase 900 Units @ \$8.00/unit 2,500 Units Available- 1,500 Units sold in 2007 12/31/07 (Ending Inventory) 1,000 Units unsold 1)FIFO – First-In-First-Out- ASSUME 1 st goods purchased are sold 1 st- 100 @ \$7.00 = \$700 “Inventory cost flow”- 900 @ \$8.00 = \$7,200 1,000 \$7,900 The above 1,000 is subtracted from the most recent purchases going backwards. You subtract from the most recent # of units until you have added up to the total current inventory. The \$7,900 is what is recorded under INVENTORY under current assets on a balance sheet.- FIFO ENDING INVENTORY = MOST RECENT PURCHASES- PHYSICAL FLOW ≠ COST FLOW 2)LIFO – Last-In-First-Out- MOST RECENT PURCHASES ARE SOLD 1 st- LIFO ENDING INVENTORY = EARLIEST PURCHASES Most comp anies use this. 600 100 @ \$6.00 = \$600 500 @ \$6.50 = \$3,250 400 @ \$7.00 = \$2,800 1,000 \$6,650 vs. \$7,900 with FIFO If prices are high, FIFO Ending Inventory > LIFO Ending Inventory If prices are low, LIFO Ending Inventory > FIFO Ending Inventory FIFO is used by 42% of companies LIFO is used by 33% of companies 93% AVG. COST is used by 18% FIFO Ending Inventory > Average Cost Ending Inventory > LIFO Ending Inventory “CONSISTENCY ” – Once a company adopts an accounting method, it must continue to use that same method from year to year.same method from year to year....
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Chapter 5 and 6 - Accouting Notes – Exam#2 Chapter 5 –...

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