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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