Accounting 200 study guide 2

Accounting 200 study guide 2 - Accounting 200 Review Exam 2...

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Accounting 200 Review - Exam 2 40 multiple choice questions Carryover material Accounting Equation (increase/decrease questions) Debits/Credit Rules and normal balances Financial statements: Multi Step Income Statement, Statement of Retained Earnings and Balance Sheet and know how each is composed and how they are affected by journal entries Application of Revenue Recognition, Matching Principle, Cost Principle Chapter 6 Cost Flow Assumptions (FIFO, LIFO, Weighted average methods) Use each method to calculate Ending Inventory and/or Cost of Goods Sold Impact of method on financial statements To determine ownership of goods two questions must be answered Do all of the goods included in the count belong to the company Does the company own any goods that were not included in the count\ FOB FOB shipping point is when ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller FOB destination is ownership of the goods remains with the seller until the goods reach the buyer Consigned goods When someone hold the goods of other parties and try to sell the goods for them for a fee, but without taking ownership of the goods For example if you would like to sell a used car you take the item to a dealer which he might put the car on its lot and charge commission if its sold, but the dealer would not take ownership. Therefore if an inventory count were taken the car would not be included in the dealer’s inventory. Inventory Turnover Ratio Inventory turnover ratio= cost of goods sold/average inventory. It indicates how quickly a company sells its goods High inventory turnover (low days in inventory) indicates the company is trying up little of its funds in inventory that it has a minimal amount of inventory on hand at any one time. Although this can indicate that the company is losing sales opportunities because inventory shortages. Average Days in Inventory = (365/Inventory turnover ratio) Inventory turnover can be divided into 365 days which indicates the average age of the inventory Lower of Cost or Market (LCM) When the value of inventory is lower than its cost, companies can write down the inventory to its market value, when a price decline occurs. Applied after companies have used one of the cost flow methods such as FIFO and LIFO, to determine cost. Inventory Errors – impact on statements Income statement Errors are caused by failure to count or price the inventory correctly because companies do not properly recognize the transfer of legal title to goods that are in transit. The ending inventory of one period automatically becomes the beginning

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Accounting 200 study guide 2 - Accounting 200 Review Exam 2...

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