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Accounting 11a notes Ch 5 continued

# Accounting 11a notes Ch 5 continued - Accounting 11a notes...

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Accounting 11a notes, new Added on to Ch 5 hand written notes 1. Inventory Costing 2. Costing Under Periodic Inventory-Online example on class website- Farm and Feed sells fertilizer to farmers. Beginning Inventory+ NET purchases= Cost Goods Available- ending Inventory=cost of goods sold. (made at the end of the accounting cycle) a. Specific Identification- purchase or sale? Number of units? i. Goal: On each of the dates we have a sale, what is the value we are going to assign to the products sold. ii. Specific ID Average Cost FIFO LIFO Ending Inventory 19900 18950 20400 16700 CGS 53200 54150 52700 56400 CGA 73100 73100 73100 73100. iii. b. Average Cost- price per unit CGA/total goods available for sale*# units sold=CGS c. FIFO first in first out- assume oldest cost, is the first cost to go out, beginning inventory at 46 bucks was first to be sold, add 100 cases at 52 dollars, etc. Ending inventory value is calculated using the last purchase raters per unit. Constandly updating prices aka the most recent prices, a mmore accurate inventory count. Potential error- does better job of valuing ending inventory aka old prices, could d. LIFO last in first out, ex, have 350 cases ending inventory, last 200 cases costed 60, and e. Suitible method 3. Costing under Perpetual Inventory a. Specific Identification- adjust inventory, and CGS for each sale. Same as periodic. Average cost. b. FIFO- more accurate ending inv c. LIFO-more accurate CGS d. Weighted Average e. Effects on Financial Statements 4. Valuing Inventory (important bc need to know difference between value and cost) a. Lower of Cost or Market- lower the cost or market when inventory goes out of date b. Effects on Financial Statements i. Beg Inventory+purchases= CGA-Ending Inventory=CGS accurate 50 25 75 30 45k Inaccurate, underestimate ending inventory, overestimate CGS, then net income will be 10k too low, then retained earnings will be 10k too low, OE will be 10k too low. 50 25 75 20 55 Ch 7

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1. Causes of credit- a. Extended to customers bc it is very difficult and costly to arrange for immediate transfer of payment for a transfer being made i. Ex. FOB destination- product arrives at warehouse, but because of time and cost to pay at that time, companies extend credit. Give invoice that says 30 days to pay, aka extension of credit. 1. Periodic a. Sale: Dr Accounts Receivable \$4000 i. Cr Sales Rev \$4000 b. Payment: Dr Cash 4000 i. Cr Accounts Receivable 4000 NOTE: Acct R is a controlling acct, and identified the total value of all acct R. Subsidiary acct receivables are accounts for EACH customer. For above example, must post 4000 to BOTH the AR and the subsidiary AR for the customer. 2. Perpetual 2. Types of credit a. Accounts Receivable b. Credit Card Sales- Enter in agreement with retail stores, credit card co charges company 1-5% i. Benefits- less theft, customers spend more ii. Submit and wait credit- company takes receipts to bank to a deposit box, bank goes through receipts and money shows up in revenue that night.
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