Accounting Unit 2

Going Concern

company will be around long enough to use up assets and pay all liabilities

Consistency

follow the same procedures each accounting period so can compare financial statements

Conservatism

if multiple options exist, pick the least favorable

Full Disclosure

“Full Monty” must disclose all relevant information

PPE

Assets with an estimated useful life of more than one year

Goodwill

amount paid above the identifiable assets in a transaction

Long term liabilities

liabilities due beyond more than one year

Net Revenue

Gross revenue minus sales returns, allowances, and discounts

Net Accounts Receivable

Gross accounts receivable minus the allowance for doubtful accounts

Is gross revenue or net revenue more important?

Net revenue is most important because that is what you expect to collect

Are gross accounts receivable or net accounts receivable more important?

Net accounts receivable is most important because that is what you expect to collect

Objectivity

arm’s length negotiation

FOB

free on board

Freight in

cost of getting materials to the plant or warehouse (current asset on balance sheet)

Freight out

part of SG&A – sales/marketing expense of getting product to the customer; deduction from gross profit on I/S

Bad debt expense

the net adjustment to the ADA account; part of S,G &A on the income statement

ADA

the estimate of accounts that are uncollectible; contra account to A/R in current assets

Direct Write Off

bad debts go directly to I/S since there is no ADA history

JIT

Just in time delivery - Delivery of inventory just as it is required for production

FIFO

First-In-First-Out flow of goods sold

LISH

Last-In-Still-Here inventory valuation

LIFO

Last-In-First-Out flow of goods sold

FISH

First-In-Still-Here inventory valuation

Simple Interest

interest for one period (I = PRT, I = Interest amount, P= Principle, R = Annual rate of interest, T = Time)

Compound Interest

interest over multiple periods; interest on interest

Periodic inventory

every so often, i.e. daily, weekly, monthly, quarterly, annually

Perpetual inventory

every transaction (i.e. scanner)

Normal assumption of freight:

buyer pays freight

Bad debts go to the…

ADA to die