AC210 Exam 2: Revenue Recognition, Inventory Costing, and Managerial Accounting Review

Comprehensive vocabulary flashcards covering revenue recognition, receivables, inventory costing methods, cost classification, and Cost-Volume-Profit (CVP) analysis for AC210 Exam 2.

Revenue Recognition: Single Point in Time

The accounting principle where revenue is recognized when control of a good or service transfers to the customer.

Revenue Recognition: Over a Period of Time

The accounting principle where revenue is recognized proportionally over time if: (1) the customer consumes the benefit as it is performed, (2) the customer controls the asset as it is created, or (3) the asset has no alternative use and the seller has an enforceable right to payment.

Multiple Performance Obligations

A revenue arrangement involving multiple distinct goods or services where the total transaction price is allocated to each obligation based on its relative stand-alone selling price.

Deferred Revenue

A liability account recorded when cash is received from a customer prior to goods or services being delivered, which is debited as performance obligations are satisfied.

Trade Discount

A reduction in the list price of a product or service granted to customers.

Sales Discount

A reduction in the amount owed by a customer granted if payment is made within a specified early payment period (for example, $2/10,\,n/30$).

Sales Returns

A contra-revenue account tracking the estimated or actual amount of merchandise returned by customers, which reduces net sales and stockholders' equity.

Sales Allowance

A contra-revenue account representing a reduction in the selling price granted to a buyer due to issues like merchandise defects or shipping delays.

Net Sales

The subtotal of revenues calculated as: $\text{Net Sales} = \text{Gross Sales} - \text{Sales Contra Accounts (Returns, Allowances, and Discounts)}$.

Accounts Receivable

A current asset account recognized when sales are made on account (credit sales), representing amounts owed by customers to be paid at a later date.

Allowance for Uncollectible Accounts (AUA)

A contra-asset account paired with accounts receivable that reflects the estimated dollar amount of customer receivables not expected to be collected.

Net Accounts Receivable

The estimated net realizable value of receivables reported on the balance sheet, calculated as: $\text{Net AR} = \text{Total AR} - \text{Total AUA}$.

Bad Debt Expense

An operating expense account reflecting the estimated cost of uncollectible accounts for the period, debited with a corresponding credit to the allowance for uncollectible accounts.

Write-Off

The removal of a specific uncollectible customer account by debiting the allowance for uncollectible accounts and crediting accounts receivable, which has no net effect on total assets or the basic accounting equation ($A = L + SE$).

Raw Materials

An inventory classification for manufacturing companies representing unprocessed goods and materials purchased to be used in production.

Work in Process

An inventory account for manufacturing companies representing products that are currently in the production process but not yet completed.

Finished Goods

Completed manufactured items that are ready for sale to customers.

Merchandising Company

A commercial business that buys inventory in a finished condition from suppliers and resells it directly to customers.

Cost of Goods Sold (COGS)

The total inventoried cost of goods that were sold to customers during the accounting period, reported as an expense on the income statement.

Gross Profit

The profitability subtotal measuring sales revenues less the cost of goods sold: $\text{Gross Profit} = \text{Sales Revenue} - \text{COGS}$.

Cost of Goods Available for Sale (CGAS)

The total cost of inventory available to sell during an accounting period, calculated as: $\text{Beginning Inventory} + \text{Purchases}$.

Multiple-Step Income Statement

A formatted income statement that reports multiple intermediate profitability metrics in the following sequence: Gross Profit, Operating Income, Pretax Income (Income before Taxes), and Net Income.

Specific Identification Method

An inventory costing method that matches each unit sold or remaining in ending inventory with its actual specific purchase cost, typically utilized for high-cost, unique items.

FIFO (First In, First Out)

An inventory cost flow assumption where the first units purchased are assumed to be sold first, resulting in ending inventory being valued at current costs and closely mirroring the actual physical flow of inventory.

LIFO (Last In, First Out)

An inventory cost flow assumption where the most recent units purchased are assumed to be sold first, matching current costs against current revenues and yielding tax savings during periods of rising costs.

Weighted Average Cost Method

An inventory costing method that assumes cost of goods sold and ending inventory consist of a random mix of all goods available, calculated as: $\text{Weighted Average Cost per Unit} = \frac{\text{CGAS}}{\text{Total Units Available}}$.

LIFO Conformity Rule

The tax regulation requiring that if a company uses LIFO for tax reporting purposes, it must also use LIFO for its financial reporting statements.

Perpetual Inventory System

An inventory management system that continuously updates inventory and cost of goods sold balances in real time with each individual purchase, sale, or return.

Periodic Inventory System

An inventory tracking method that records purchases during the period and adjusts inventory and cost of goods sold accounts only at the end of the accounting period based on a physical inventory count.

FOB Shipping Point

Shipping terms where title and ownership of goods transfer to the buyer at the seller's shipping dock, making the buyer responsible for freight costs and transit risks.

FOB Destination

Shipping terms where title and ownership transfer only when goods arrive at the buyer's destination, making the seller responsible for freight charges and transit risks.

Purchase Discount

A reduction in the invoice purchase price offered by a supplier to an inventory buyer for remitting payment within a specified cash discount period.

Managerial Accounting

The branch of accounting that prepares flexible, monetary and nonmonetary reports focused on current and future planning, control, and decision-making for internal managers, unconstrained by GAAP.

Financial Accounting

The branch of accounting that generates historical, monetary, GAAP-compliant reports covering the whole organization primarily for external users such as investors and creditors.

Product Costs

Costs directly tied to manufacturing a product (including direct materials, direct labor, and manufacturing overhead) that are capitalized into inventory as assets and expensed as COGS only when the product is sold.

Period Costs

Non-manufacturing operating costs tied to a specific time period (such as selling, general, and administrative expenses) that are expensed directly on the income statement as incurred.

Direct Costs

Costs that can be easily, conveniently, and cost-effectively traced directly to a specific cost object (such as tires, computer solder, or pizza dough).

Indirect Costs

Costs that cannot be easily or cost-effectively traced to a specific cost object, commonly categorized as manufacturing overhead (such as factory rent, glue, or supervisor salaries).

Fixed Costs

Costs whose total dollar amount remains unchanged despite fluctuations in production or sales volume within a relevant range (such as factory rent, insurance, or plant manager salaries).

Variable Costs

Costs that change in total in direct proportion to changes in production or sales volume (such as direct materials and assembly labor wages).

Mixed Costs

Costs that contain both a fixed component that remains constant and a variable component that fluctuates with activity volume (such as utility electricity or a base salary plus sales commission).

Cost-Volume-Profit (CVP) Analysis

A managerial decision-making technique used to study the interrelated effects of changes in product selling prices, sales volume, variable costs, and fixed costs on operating profit.

Contribution Margin (CM)

The total amount remaining from sales revenue after subtracting all variable costs, which goes toward covering fixed costs and generating net operating profit.

Contribution Margin per Unit

The dollar amount remaining from each unit sold after covering its variable cost, calculated as: $\text{CM per Unit} = \text{Sales Price per Unit} - \text{Variable Cost per Unit}$.

Break-Even Point

The sales level where total revenue exactly equals total costs, yielding zero profit, calculated in units as: $\text{Break-Even Units} = \frac{\text{Fixed Costs}}{\text{CM per Unit}}$.

Target Profit

The specific dollar amount of operating profit a company aims to achieve, with required unit sales calculated as: $\text{Required Units} = \frac{\text{Fixed Costs} + \text{Target Profit}}{\text{CM per Unit}}$.

Contribution Margin Income Statement

An internal cost-behavior-based income statement formatted as: $\text{Sales} - \text{Variable Costs} = \text{Contribution Margin} - \text{Fixed Costs} = \text{Net Operating Income}$.