ACCT201 Exam #2 Study Guide

A set of flashcards covering key concepts and calculations for ACCT201 Exam #2, focusing on inventory systems, accounting methods, and financial calculations.

Perpetual Inventory System

An inventory accounting method where updates to inventory are made in real-time with each transaction.

Periodic Inventory System

An inventory accounting method where updates to inventory are made at specific intervals.

Net Cost of Goods

Calculated as purchase price minus returns and discounts applied when paid within the discount period.

FOB Shipping Point

Ownership of inventory transfers to the buyer as soon as the seller ships the goods.

FOB Destination

Ownership of inventory remains with the seller until the goods are delivered to the buyer.

FIFO (First In, First Out)

An inventory valuation method where the oldest inventory items are recorded as sold first.

LIFO (Last In, First Out)

An inventory valuation method where the newest inventory items are recorded as sold first.

Cost of Goods Sold (COGS)

The total cost of goods that have been sold during a specific period.

Gross Profit

Calculated as net sales minus COGS.

Lower of Cost or Net Realizable Value (LCNRV)

A rule for valuing inventory where items are recorded at the lower of their cost or their market value.

Inventory Turnover

A ratio that measures how many times inventory is sold and replaced in a period, calculated as COGS divided by average inventory.

Average Collection Period

An estimate of the number of days it takes to collect receivables, calculated as 365 days divided by accounts receivable turnover.

Petty Cash

A small amount of cash kept on hand to pay for minor expenses.

Bank Reconciliation

The process of matching and comparing figures from the accounting records against those displayed on a bank statement.

Allowance Method

A method for recording bad debts by estimating uncollectible accounts receivable.

Factoring

The process of selling accounts receivable to obtain cash, often at a discount.

Service Charge Expense

Fees charged for using credit cards that must be recorded in the accounting system.

Net Cost of Goods Calculation (if buyer pays within discount period)

\text{Purchase Cost} - \text{Returns} - \text{Discounts}

Net Sales

\text{Sales} - \text{Sales Returns} - \text{Allowances} - \text{Sales Discounts}

Gross Profit

\text{Net Sales} - \text{COGS}

Gross Profit Rate

\text{Gross Profit} / \text{Net Sales}

Net Income

\text{Gross Profit} - \text{Operating Expenses}

Profit Margin

\text{Net Income} / \text{Net Sales}

Inventory Turnover

\text{Inventory Turnover} = \frac{\text{COGS}}{\text{Average Inventory}} \quad \text{where Average Inventory} = (\text{Beginning Inventory} + \text{Ending Inventory}) / 2

Average Days in Inventory

\text{Average Days in Inventory} = \frac{365}{\text{Inventory Turnover}}

Accounts Receivable Turnover

\text{Accounts Receivable Turnover} = \frac{\text{Net Sales}}{\text{Average Accounts Receivable}} \quad \text{where Average Accounts Receivable} = (\text{Beginning Accounts Receivable} + \text{Ending Accounts Receivable}) / 2

Average Collection Period for Accounts Receivable

\text{Average Collection Period} = \frac{365}{\text{Accounts Receivable Turnover}}