Accounting Midterm 2

Which costing method is more accurate indicator of the efficiency of inventory management?

FIFO

average inventory

(beginning inventory + ending inventory)/2

straight line depreciation

(cost – residual value)/estimated useful life in years 

units of production

• Do not depreciate below residual value 

• 
  

• ( (cost – residual value)/estimated total units of production) x actual units produced 

declining costs: highest net income and highest net inventory

Highest net income	LIFO
Highest inventory	LIFO

rising costs: highest net income and highest net inventory

Highest net income	FIFO
Highest inventory	FIFO

gross profit

sales revenue - COGS

ending inventory

total available - COGS

total available

beginning inventory + purchases

COGS

total available - ending inventory

pretax income (loss)

gross profit - expenses

what accounts are contra revenues?

sales returns

sales allowances

sales discounts

net sales

gross sales - contra revenues

contra revenues

sales returns and allowances + sales discounts

Percent of credit sales method

Credit sales × % uncollectible = Bad debt expense

Aging of receivables method

AR in each age bucket × % uncollectible = Required ending balance in the allowance for doubtful accounts

goods available for sale

beginning inventory + purchases

ending inventory

goods available for sale - COGS