Accounting Exam 3

Which line item would be found on a merchandiser's balance sheet but not on a service firm's balance sheet?

Inventory

Which line item would be found on a merchandiser's income statement but not on a service firm's income statement?

Cost of Goods Sold

Sales Revenue is a(n) ________blank account and ________blank is an expense account.

Revenue; Cost of Goods Sold

What is the difference between a service, merchandiser, and manufacturer?

Service = provides services; Merchandiser = buys/sells goods; Manufacturer = makes goods

What accounts are unique to a merchandiser?

Inventory and Cost of Goods Sold

Where is Inventory found?

Balance Sheet

Is Inventory an asset or a liability? What type?

Asset: Current asset

What is the formula for Cost of Goods Available for Sale (COGA)?

Beginning Inventory + Purchases

What is the formula for Ending Inventory?

COGA − COGS

What does 2/10, n/30 mean?

2% discount if paid within 10 days; full amount due in 30 days

What is the formula for Gross Profit?

Sales − COGS

What does FIFO mean?

First In, First Out (oldest costs go to COGS first)

What does LIFO mean?

Last In, First Out (newest costs go to COGS first)

What is the goal of inventory costing methods?

To determine which costs go to COGS and which go to Ending Inventory

How does FIFO affect net income when prices are rising?

Higher net income and High Taxation

How does LIFO affect net income when prices are rising?

Lower net income and Lower Taxation

How is weighted average cost calculated?

Total cost ÷ total units

What is the formula for inventory turnover?

COGS ÷ Average Inventory

How do you calculate average inventory?

(Beginning Inventory + Ending Inventory) ÷ 2

What does inventory turnover tell a business?

How quickly inventory is sold

Is a high inventory turnover good or bad?

Good

How do you calculate days to sell inventory?

365 ÷ Inventory Turnover

When is bad debt expense recorded?

In the same period as the sale (not when the customer fails to pay)

What is a contra-asset?

An account that reduces an asset

What is the normal balance of a contra-asset?

Credit

What contra-asset did we learn in this chapter?

Allowance for Doubtful Accounts

What is the journal entry to record bad debt expense?

Debit Bad Debt Expense; Credit Allowance for Doubtful Accounts

What is the journal entry to write off a specific account?

Debit Allowance for Doubtful Accounts; Credit Accounts Receivable

How is bad debt expense calculated using the % of sales method?

Credit Sales × Percentage

What is the journal entry when a company lends money?

Debit Notes Receivable; Credit Cash

How is interest calculated?

Principal × Rate × Time

What is the journal entry to record interest revenue?

Debit Interest Receivable; Credit Interest Revenue

When is interest revenue recorded?

When earned (not when cash is received)

What is the formula for receivables turnover?

Net Sales ÷ Average Accounts Receivable

How do you calculate days to collect?

365 ÷ Receivables Turnover

What does a high receivables turnover mean?

Faster collection (good)