AC221FinalReviewSheet - AC-221Final Study GuideTable of...

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Unformatted text preview: AC-221Final Study GuideTable of Contents:Part 1: Second Midterm Study GuidePart 2:Third Midterm Study GuidePart 3: Everything up to the Final-Ch.9, Leases-Ch. 14, Financial Statement Analysis-Ch. 12, Inter-Corporate InvestmentsPart 4:Tips and TricksPart 1: Second Midterm Study GuideCHAPTER 6Overview:-Bad Debt Expense-Methods of aging accounts-Additional DetailsBad Debt Expense:-Debit BDE, Credit ADA.-For write-offs, Debit ADA and credit A/R.-ADA must ALWAYS be a credit amount.-Definition: BDEis the estimated expense associated with potential uncollectable accounts from credit sales.-Definition: ADAis a contra-asset account that contains the estimated amount of uncollectable Accounts Receivable.ADA (Cr. Account)Begin BalanceWrite-OffsBDEEnd BalanceA/R (Dr. Account)Begin BalanceCollectionsRemain. A/RWrite-offsEnd BalanceTwo Methods:1. % of Sales Method.-Calculate BDE as a % of the total credit sales for that year and use it to find the ending balance for the ADA account.2. % A/R Method (Aging Method)-Calculate Ending balance of ADA as a % of the remaining, unpaid A/R for that year and use it to find the BDE for that year. *Both methods may require calculations and averaging to find the percentages in usage.Note: If write-off is greater than BDE, do not add more B.D.E at the end.Revenue Recognition Principle-Exchange has taken place.-The amount is known, and payment is probable.-The earning process is nearly complete.CHAPTER 7 (Inventory)Overview:-Definition of Inventory-Inventory Equation-Inventory Valuation (LCM Principle)-Cost-flow assumptions (LIFO, FIFO, Avg. Cost)-LIFO Reserve-LIFO to FIFO conversion-Perpetual vs. Periodic Inventory System-Definition: Inventory is tangible property held for sale or used in producing goods or services for sale.-Recorded as a current asset, and amount of Inventory directly affects the COGS account in the Income Statement.Inventory Equation:(Inv. Begin.) + (Purchases) - (COGS) = Inv. End.*COGS is a I/S account, Inv. End. Is a B/S account.Inventory (Dr. Account)Begin Inv.COGSPurchasesEnd Inventory*Note: If inv for a previous year was found to be overstated, and the NI found to be overstated….(Reported NI) - (Inc. in COGS*) + (Reduction in Tax Expense*) = Corrected Inc.*Inc in COGS=The overstatement of the NI*Reduction in Tax Expense = (The Overstatement)x(Tax Rate)LCM:-GAAP requires that the lower of cost or market value (LCM value) be used to calculate ending inventory.Use historical cost unless market value has declined:If market/replacement cost (current purchase price foridentical goods) is lower than actual cost.If net realizable value (selling price less costs to sell) is lowerthan actual costs....
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AC221FinalReviewSheet - AC-221Final Study GuideTable of...

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