Exam II Study Guide

# G page 288 ii compare the existing balance in the

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Unformatted text preview: llowance for bad debts (XA +/A- ) xx Cash (A+) xx Accounts Receivable (A- ) xx • Net accounts receivable = Accounts receivable – Allowance for bad debts • Estimating bad debts o Percentage of credit sales – multiply the credit sales by the percentage given in the question to find the bad debt expense for the period, which is directly recorded as an expense in an adjusting entry 1 Prepared by: Sara Toynbee Aging of accounts receivable– in this method, use the following steps to solve for bad debt expense: (i) find the balance that the firm wants to have in its allowance for bad debts account at the end of the period via the aging schedule (e.g., page 288), (ii) compare the existing balance in the account to the balance they want (calculated in step(i)) à༎ difference in these amounts gives bad debt expense for the period, which we record as an adjusting entry Cash and cash equivalents Internal controls over cash – separation of duties and prescribed policies and procedures Bank Reconciliation – what is the purpose of performing a bank reconciliation? o • • • • Key ratios o Receivables Turnover = Net (credit) Sales/ Average (Net) Accounts Receivable o Average Collection Period = 365/Receivables Turnover o Gross profit margin = Gross profit/Net sales Chapter 7: Cost of Goods Sold and Inventory • Manufacturing inventory accounts - o Raw materials inventory o Work- in- process inventory o Finished- goods inventory • Merchandising inventory account - o Inventory • Different methods for tracking inventory (inventory systems) o Perpetual – §༊ “Perpetually” update the inventory account as transactions occur. Transactions involving inventory are taken directly to the inventory account during the year §༊ When recording sales of inventory, will also account for the cost of the item at the time of the sale (Dr: COGS; Cr: Inventory) o Periodic – §༊ “Periodically” update the inventory account based on physical stock counts of the inventory. Transactions involving inventory are recorded using temporary accounts such as purchases, purchase returns, etc. during the period and then closed into inventory at the end of the period. §༊ No journal entry to record the outflow of inventory during the year §༊ Need to calculate cost of goods sold (COGS) at end of the period – 2...
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## This document was uploaded on 02/09/2014.

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