ACCTExam 2 notesNOTESWAP1 - Exam 2 Current Assets Cash-...

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Exam 2 Current Assets Cash- Bank reconciliations o “Proof of Cash” Temp Inv- Adjusts to make value A/R- Bad Debts o Uncollectable receivables Can’t Pay- Bankruptcy Jerks Unhappy customers Deaths Relocate Inventories “Cost flow Assumptions”- o Fifo- most popular [42%]- First In First Out [Assumed first goods bought, assumed first good sold]. Physical flow is irrelevant FIFO EI- most recent purchases. o Lifo - Last In First Out [Last good bought are assume the first goods sold. LIFO EI- earliest purchase o Average Cost- Find the average cost per unit Multiply average/unit In between FIFO and LIFO FIFO > AC> LIFO, when prices are rising MAKE YOUR BALANCE SHEET LOOK GOOD. FIFO NI> AC> LIFO, same as above LIFO taxes < AC< FIFO, same as above above GAAP::: if LIFO is used for tax purposes, you must also use LIFO in Tax Financials Consistency- if LIFO is chosen in year 1, must continue to use it thereafter, and vice versa with FIFO. Bad Debits- uncollectible receivables o Two Methods Direct write-off: When you learn of a specific accounts
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Account’s uncollectinility, “write it off” by: o Bad debts xxx Account Releivable xxx o Acct Receivables 2,000 Service Revenue 2,000 o Bad Debt Exp. 2,000 Accounts Receivables 2,000 Matching Principle: record revenues and related expenses in same accounting period When bad debts are material, must use what’s called the “ALLOWANCE METHOD”, instead.
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ACCTExam 2 notesNOTESWAP1 - Exam 2 Current Assets Cash-...

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