Abby's Accounting Cards

Assets increase with _______ and decrease with _______

debit, credit

Liabilities increase with _______ and decrease with _______

credit, debit

Equity increase with _______ and decrease with _______

credit, debit

Revenue increase with _______ and decrease with _______

credit, debit

Expenses increase with _______ and decrease with _______

debit, credit

Define DEAD CRLS

Debit Expense Assets Dividends

Credit Revenue Liabilities Stockholders-equity

COGS Formula

beginning inventory + purchases - ending inventory

COGAS Formula

beginning inventory + purchases

Ending Inventory Formula

COGAS (Beginning Inventory + Purchases) - Cost of Goods Sold =

Gross Margin Formula

sales - cost of goods sold =

Gross Margin Percentage Formula

Gross Margin / Sales =

Key Journal Entries Appearance:

Cash Purchase

Inventory Debit

Cash Credit

Key Journal Entries Appearance:

Purchase On Account

Inventory Debit

Acc/Payable Credit

Key Journal Entries Appearance:

Cash Purchase Return

Cash Debit

Inventory Credit

Key Journal Entries Appearance:

Purchase Return On Account

Acc/Payable Debit

Inventory Credit

Key Journal Entries Appearance:

Discount Taken

Acc/Payable Debit

Inventory Credit

Key Journal Entries Appearance:

Transportation-In

Inventory Debit

Cash or Acc/Payable Credit

Key Journal Entries Appearance:

Cash Sale

Cash Debit

Sales Rev Credit

Key Journal Entries Appearance:

Sale On Account

Acc/Rec Debit

Sales Rev Credit

Key Journal Entries Appearance:

Cost Of Goods Sold

COGS Debit

Inventory Credit

Key Journal Entries Appearance:

Sales Return

Inventory Debit

COGS Credit

Key Journal Entries Appearance:

Discount Allowed

Cash Debit

Sales Disc. Acc/Rec Credit

Key Journal Entries Appearance:

Transportation-Out

Trasport-Out Debit

Cash or Acc/Payable Credit

FIFO

First in, First Out

LIFO

Last in, First Out

_____ has higher profits and taxes during inflation

FIFO

_____ has higher COGS and lower taxable income during inflation

LIFO

What are the three formulas you need for a multistep income statement?

1. Net sales - COGS = Gross Margin

2. Gross Margin - Operating Exp = Operating Income

3. Operating Income +/- Non-Operating Items = Net Income

Inventory Turnover Formula

Cost of Goods Sold / Average Inventory

Average Days To Sell Formula

365/Inventory Turnover

What does Higher Turnover Mean

Selling goods faster in fewer days, think Trader Joes

What Does Lower Turnover Mean

Selling goods more slowly over more days, think Walmart

What falls under Debit?

- Interest Receivable

- Prepaid Insurance

- Salaries Expense

- Land

- Supplies Expense

- Operating Expense

- Dividends

- Supplies

- Cash

- Insurance Expense

- Accounts Receivable

- Utilities Expense

What falls under credit?

- Interest Revenue

- Salaries Payable

- Consulting Revenue

- Utilities Payable

- Service Revenue

- Accounts Payable

- Unearned Revenue

- Retained Earnings

- Common Stock

Types of Financial Statements

Income statement, statement of changes in stockholders' equity, balance sheet, statement of cash flows

Income Statement...

For the year ended

Features of income statements

- No dividends

- No liabilities

- Revenue+Expense=Net Income

Balance sheets...

As Of

Features of Balance Sheets

- Assets, liabilities, stockholders' equity

- Use the year-end balance

Features of Statement of Cash Flows

- Increase: receipts of, inflows

- decrease: payment of, outflows

Weighted Average Cost Per Unit Formula

Total COGAS/ Total units available to sell = Weighted Average CPU

Taxable income is highest when using ______

Consequently, MORE income tax will be paid, causing a LARGER cash outflow for tax expense, and LOWER net cash flows from operating activities

FIFO

What is the IRS LIFO conformity rule?

if LIFO is chosen to report taxes, it must also choose LIFO for all other financial reporting

LIFO FOR LIFE-O

FOB Destination means...?

seller pays freight costs

Part a. of selling inventory

Acc/ Receivable: Debit

Sales Revenue: Credit

Part b. of selling inventory

COGS: Debit

Inventory: Credit

Is COGS a cash expense?

NO, GOD NO YOU'VE ALREADY PAID

what does 2/10 or n/30 mean

there is a 2% off discount if paid within 10 days

Accounts Payable Balance Should Equal What

Zero

FOB Shipping point means

buyer pays freight costs

Balance Sheets Include

- Advertising expense

- COGS

- Interest Expense

- Sales Revenue

- Salaries Expense

- Rent Expense

- Gain on sale of land

Is Gross Margin an accounts title?

NO NO NO! GROSS MARGIN IS A SUBTOTAL!!!!!!

WHAT IS A = L + OE

Assets = Liabilities + Owners Equity

When something says "on account" does that involve cash?

NO, DON'T BE DUMB

When prices are rising, which inventory cost flow method will result in the lowest relative net cash outflow (including the effects of income taxes)?

LIFO, Results in the lowest taxes

Which inventory cost flow method will produce an ending inventory balance that is closest to the current market value?

FIFO

Most recently purchased items will be closed to the current market value.

Ending investments consist of the most recent costs, so COGS consists of the oldest costs.

Which of the following cost flow methods would provide the lowest gross margin in an inflationary environment (rising prices)?

LIFO

To compute gross margin, what numbers do we need first?

Sales Revenue and COGS

Sales revenue - COGS = GM

Weighted average will always be...

somewhere between LIFO and FIFO

When prices increase, COGS

fifo cost of goods sold is less than lifo cost of goods sold

When prices decrease, COGS

fifo cost of goods sold is greater than lifo cost of goods sold

Average Inventory Formula

(Beginning Inventory + Ending Inventory) / 2

Acquired cash from the issue of common stock

Account Debited: Cash

Account Credited: Common Stock

Provided services for cash

Account Debited: Cash

Account Credited: Service Revenue

Paid Cash for Salaries Expense

Account Debited: Salaries Expense

Account Credited: Cash

Purchased supplies for cash

Account Debited: Supplies

Account Credited: Cash

Paid in advance for a 2-year lease on office space

Account Debited: Prepaid Rent

Account Credited: Cash

Provided services on account

Account Debited: Acc/ Receivable

Account Credited: Service Revenue

Recognized expense for prepaid rent that had been used up by the end of the accounting period

Account Debited: Rent expense

Account Credited: Prepaid Rent

Recorded Accrued salaries at the end of the accounting period

Account Debited: Salaries Expense

Account Credited: Salaries Payable

Journal Entry Rules

1. Debit on top, credit on bottom

2. No Negative () - values, only debit or credit

3. There will ALWAYS be at least two accounts affected

4. Sum of debits must equal sum of credits

5. The dollar amount you are using is the amount of the change in an account balance, not the resulting account balance

Whats the purpose of preparing a closing entry?

To transfer temporary accounts balances

Under the perpetual inventory method

Assets increase when inventory is purchased on account.

AND

ignoring the effects of revenue recognition, assets decrease when inventory is sold.

true

true or false:

Expense accounts normally have debit balances immediately before the closing entries are recorded

false

A debit to a liability account will increase the balance of the account.

false

A debit entry in an asset account will decrease the account.

false

A credit to a revenue account will decrease the balance of the account.

false

Adjusting entries are recorded at the beginning of an accounting cycle

true

A debit to an asset account will increase the balance of the account.

false

Equal totals in a trial balance proves that no errors have been made in the recording process.

false

A credit to the retained earnings account will decrease the balance of the account.