Final+Review - Chapter 7 Reporting and Interpreting...

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Chapter 7 Reporting and Interpreting Inventories and Cost of Goods Sold Types of inventory Merchandise Raw materials Work in process inventory Finished goods inventory Consignment inventory Cost of goods Sold = Beginning Inventory + Purchases – Ending Inventory Cost of Goods Available for Sale = Beginning Inventory + Purchases Inventory costing methods Specific identification o Identifies the cost of specific item that was sold First-in, first-out (FIFO) Last-in, first-out (LIFO) Weighted Average o Cost of goods available for sale/# of units available of sale Rising Prices o FIFO has lower COGS and higher ending inventory o LIFO has higher COGS and lower ending inventory Lower of Cost for Market Inventory is written down when its market value falls below its cost dr. Cost of Goods Sold cr. Inventory Perpetual inventory system Up-to-date balance in the inventory accounts at all times Inventory Purchases Includes any cost needed to get the inventory into a condition and location ready for sale dr. Inventory cr. Accounts Payable Purchase Returns and Allowances dr. Accounts Payable cr. Inventory Purchase Discount 2/10, n/30 = 2% discount if paid within 10 days, the full amount is due in 30 days Reduce inventory for the amount of the discount dr. Accounts Payable cr Cash
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cr Inventory Chapter 8 Reporting and Interpreting Receivables, Bad Debt Expense, and Interest Revenue Pros and Cons of Extending Credit Accounts Receivable and Bad Debts Allowance method o Reduces accounts receivable for an estimate of uncollectible accounts o Matching principle Bad Debt Expense o Reports the estimated amount of this period’s credit sales that customers will fail to pay o dr Bad Debt Expense cr Allowance for Doubtful Accounts Write Off o Removing an uncollectible account and its corresponding allowance from the accounting records o dr Allowance for Doubtful Accounts cr Accounts Receivable o Does not affect income statement accounts Methods for Estimating Bad Debts Percentage of Credit Sales Method o Credit Sales this Period x Bad Debt % = Bad Debt Expense this month Aging of Accounts Receivable Method o Equals the ending balance of Allowance for Doubtful Accounts (where we want the number to be) Account Recoveries Reverse the write-off o Accounts Receivable Allowance for Doubtful Accounts Record the collection o Cash Accounts Receivable Notes Receivable and Interest Revenue Establishing the Note Receivable o Note Receivable Cash Accruing Interest
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o Interest = Principal x Interest Rate x Time (out of 12 months) o dr Interest Receivable cr Interest Revenue Recording Interest Received o dr Cash cr Interest Receivable
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This note was uploaded on 12/20/2011 for the course ACIS 2115 taught by Professor Jayardley during the Fall '07 term at Virginia Tech.

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Final+Review - Chapter 7 Reporting and Interpreting...

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