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Calculate and record sales discounts
Debit Cash, debit Sales Discount, credit Accounts Receivable
Calculate and record credit card discounts (bank-issued)
Debit Cash, debit Credit Card Discount, credit Sales Revenue
Calculate and record credit card discounts (company-issued)
Debit Accounts Receivable, credit Sales Revenue
Calculate and record Sales Returns and Allowances (2 steps)
Debit Bad Debt Expense, credit Allowance for Doubtful Accounts
Debit Allowance for Doubtful Accounts, credit Accounts Receivable
Record bad debt write-offs
Debit Allowance for Doubtful Accounts, credit Accounts Receivable
Calculate / record bad debt expense and ADA using percentage of sales method
Bad Debt Expense = Sales Revenue x Historic Relation between Sales and Bad Debts
Percentage of Receivables Method
Determine the balance of ADA using Percentage of Receivables
Bad debt adjustment = Difference between current and revised balance in ADA
Calculate COGS using LIFO
Calculate COGS using the units last purchased during the period
Calculate COGS using FIFO
Calculate COGS using the units first purchased during the period (or beginning inventory)
Calculate COGS using Weighted Average
Calculate COGS based on the weighted average cost of all units held for sale
Calculate Shipping Costs using any of the three methods
Only calculate shipping for the amount of units sold. If only 2/3 of a batch were sold, we add 2/3 of the shipping cost to COGS.
Calculate loss due to inventory writedowns and inventory shrinkage
Debit inventory shrinkage/writedown, credit inventory
Calculate relative effect of LIFO / FIFO / WA on gross profit and book value of inventory
Sales Revenue - Cost of Goods Sold = Gross Profit
Calculate Cost of Goods Sold
(Beginning Inventory + Purchases) = Cost of Goods Available - Ending Inventory = Cost of Goods Sold
Types of items included in manufacturer’s inventory
Raw materials, Work-in-Process (WIP), Finished Goods
Raw Materials
Items acquired for processing into finished goods
Work in Process Inventory
Goods in the process of being manufactured but not yet complete
Finished Goods Inventory
Manufactured items that are complete and ready for sale
Effect of inventory error on income statement and balance sheet items for 2 quarter income statement
If ending inventory is recorded lower than it actually is: COGS should be lower in 1st quarter, Gross profit higher. 2nd quarter: Beginning inventory should be higher, COGS should be higher, Gross profit lower
If ending inventory is recorded higher than it actually is: COGS should be higher in 1st quarter, Gross profit lower. 2nd quarter: Beginning inventory should be lower, COGS should be lower, Gross profit higher.
Calculate depreciation expense
Debit Depreciation Expense, Credit Accumulated Depreciation
Calculate Depreciation using Straight-Line Method
Depreciation Expense = (Cost - Residual Value) / Useful Life
Calculate Depreciation using Double Declining Balance Method
Depreciation Expense = Book Value x (2 / Useful Life)
Calculate Depreciable Base of an asset
Depreciable Base = Book Value - Residual Value
Calculate Amortization Expense
Debit Amortization Expense (Cost / Useful Life), credit specific intangible asset
Calculate depreciation following changes in repairs and betterments
Repairs are immediately expensed, betterments are added to the fixed asset accounts and depreciated over useful life
Calculate change in depreciation estimate following a betterment
Depreciation Expense: (BV + Betterment - SV) / Remaining Life
What costs are capitalized as intangible assets and costs that are immediately expensed
Costs incurred to acquire intangible assets from other other companies are capitalized. Legal and filing fees related to obtaining, defending, or enforcing a patent or copyright too
Costs incurred to develop intangible assets are expensed when incurred. Includes: organizational costs, M & A costs, brand development costs, research and development costs
Calculating Goodwill
Goodwill = purchase price - fair value of net assets
Calculating gain or loss on the sale of depreciable assets
Debit Accumulated Depreciation, Debit Loss/Gain on disposal of asset, Credit Asset