mid term notes - Multi-Step Income Statement Sales-Sales...

Multi-Step Income Statement
Sales
-Sales Return/Allowance Income before Taxes
-Sales Discount - Income Taxes Exp
Net Sales Net Income
-COGS
Gross Profit
-Operating Exp
Income from Operations
(+/-)Other Income/Exp (Gain/Loss)
Income before Taxes
Perpetual System
Merchandise Inventory
DR. CR.
Freight-In Return/Allowance
Discount
Periodic System
Purchase Purchase Discount
DR. Bal. CR. Bal.
Freight-In Purchase Return/Allowance
DR. Bal. CR. Bal.
(Separate Accounts)
Calculate COGAS (Cost of
Goods Available for Sale) Beginning Inv
+ Net Purchases
COGAS
Calculate COGS
Beginning Inv
+ Net Purchases
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Financial Accounting Solutions Manual
COGAS
-Ending Inventory (Physical Count)
COGS
FOB Shipping Point
Freight-In --> Buyer's Cost
Buyer pays to get Inv
---> therefore part of Inv cost
FOB Destination
Freight-Out --> Seller's Cost
Selling/Operating Exp (Exp incurred to make a sale)
1/10, n/45
1% Discount if you pay in
10 Days
,
n = Full Amount
"45" -->45 days given to pay whole amount
(This is good for the Seller --> they get $$ faster)
Shrinkage Definition
When peeps be stealin' yo moneyyyyyy or supplies!
Relationship between COGS and
Ending Inventory
Inversely Proportional
If COGS increases, End Inv decreases
If COGS decreases, End Inv increases
Relationship between COGS and
Gross Profit
Inversely Proportional

CHAPTER 3 PROCESSING ACCOUNTING INFORMATION
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If COGS increases, Gross Profit decreases
If COGS decreases, Gross Profit increases
Salvage Amount (or Value)
You buy an item and plan on selling it before it depreciates fully.
Purchase Cost - Salvage Amount = Total Price/Cost of Item
The total cost is what you record.
Specialization I.D.
Cost Flow = Physical Flow
Specific options of a common product
Not popularly used .
ex: There are a bunch of blue cars, but each blue car is different, has a different I.D. number/code. That
type of situation is what Specialization I.D. is used for.
Average Cost
According to Wikipedia:
Average Cost = Unit Cost = Total Cost
# of Goods Produced
Easy to use
Objective
Less Subject to Manipulation
FIFO
First In, First Out
An approximation of physical flow of goods
----> cost flow parallels physical flow
Less Subject to manipulation than Specialization I.D.
LIFO
Last In, First Out
Tax Benefits
Matching Principle
Goods on Consignment Inventory that someone is selling on the behalf of someone else without taking ownership.

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Financial Accounting Solutions Manual
Cost Flow Assumptions
Specialization I.D.
FIFO
LIFO
Average Cost
Which Cost Flow Assumption
produces same answer for both
Periodic and Perpetual Systems?
FIFO
Periodic FIFO = Perpetual FIFO
Calculate Net Purchase
Purchase
-Returns
-Discounts
Net Purchase
Calculate Gross Profit
Sales Revenue
-COGS
Gross Profit
Conservatism Principle Keeps assets from being over estimated.
Lower of Cost or Market Valua-
tion
ex:
Inv Categories Cost Data Market Data
Cameras $12,500 $13,400
Camcorders $9,000 $9,500
DVD's $13.000 $12,800
Choose the lowest values out of Cost Data and Market Data and then add them together for the LCM.