Accounting 2 Exam 1

Financial Accounting

Accounting used by external users that focuses on past performance and financial statements.

External users such as investors, creditors, banks, and government agencies

Who uses Financial Accounting

Managerial Accounting

Accounting used by internal managers to plan, make decisions, and improve operations.

Internal users such as managers and company executives

Who uses Managerial accounting?

Planning

Deciding goals and how to achieve them in the future.

Directing

Running day-to-day operations and carrying out plans.

Controlling

Comparing actual results to planned results and making corrections.

Institute of Management Accountants

What does IMA stand for?

1. Competence

2. Confidentiality

3. Integrity

4. Credibility

What are the four ethical standards of IMA

Service Companies

A company that sells time, skills, or knowledge

Accounting firms, cleaning services, law fimrs, consulting firms,

Examples of service companies

What is period cost

a cost that is expensed immediately and not inventoried

Rent, advertising, office supplies, administrative salaries

Examples of period costs

Merchandise Company

A company that buys finished products and resells them

Walmart, Target, Best Buy

examples of merchandising companies.

Merchandise Invenotry

Products purchased and held for resale

As an asset on the balance sheet

Before merchandise is sold, where is it reported?

Cost of goods sold (COGS)

After merchandise is sold, what does it become?

Beginning Inventory + Purchases + Freight In = Goods available for sale - Ending inventory = COGS

What is the merchandising GOGS formula

Beginning Finished Goods Inventory + Cost of Goods Manufactured - Ending Finished Goods = Cost of Goods Sold

What is the manufacturing GOGS formula

Manufacturing Company

A company that converts raw materials into finished products.

Ford, Nike, Coca-Cola.

examples of manufacturing companies.

Raw Materials

Materials used to make a product that have not entered production yet

Work In Process (WIP)

Products currently being manufactured but not yet completed

Finished goods

Completed products ready to be sold

Raw Materials → Work in Process → Finished Goods → Cost of Goods Sold.

What is the flow of manufacturing inventory

Cost of Goods Manufactured

The cost of products completed during the period

Work in Process

Which inventory account contains goods that are partially completed?

Finished Goods

Which inventory account contains goods ready to be sold?

Raw Materials

Which inventory account contains materials waiting to be used?

Direct Cost

A cost that can be easily and cost effectively traced to a specific cost object

Cost Object

Anything managers want to measure costs for, such as a product, department, or service.

Indirect Cost

A cost that cannot be easily and cost-effectively traced to a specific cost object.

Selling Price

The amount charged to customers.

Cost

The amount the company incurs to acquire goods or services

Direct Materials, Direct Labor, Manufacturing Overhead.

What are the three product costs?

Direct Materials

Raw materials that become part of the finished product (

Wood in furniture, steel in a car, flour in bread.

Example of Direct Materials?

Direct Labor (Touch Labor)

Labor from employees who physically convert raw materials into finished goods.

Factory workers assembling products.

Example of direct labor

Manufacturing Overhead (MOH)

All manufacturing costs other than direct materials and direct labor

Indirect cost

Is Manufacturing Overhead a direct or indirect cost?

Factory rent, factory utilities, factory supervisor salary, factory insurance.

Examples of Manufacturing Overhead?

Manufactoring Overhead

Which product cost is not direct material or direct labor?

No

Are period costs part of manufacturing?

Directly to the Income Statement as expenses.

Where do period costs go?

Prime costs

Direct Materials + Direct Labor

Conversion Costs

Direct Labor + Manufacturing Overhead.

Direct Labor

Which cost is included in both Prime Costs and Conversion Costs?

• Direct Materials Used

• Cost of Goods Manufactured

• Cost of Goods Sold

• Unit Product Cost.

What calculations do manufacturers commonly prepare?

Unit Product Cost

Cost to manufacture one unit of product

Direct Materials

DM stands for

Direct Labor

DL stands for

Manufacturing Overhead

MOH stands for

DM + DL

Prime cost formula:

DL + MOH

Conversion Cost Formula

DM + DL + MOH

Product Cost Formula:

Product Costs: Direct Materials, Direct Labor, Manufacturing Overhead

Inventory Accounts: Raw Materials, Work in Process, Finished Goods

What are the three Product Costs and three Inventory Accounts?

Sales revenue - COGS

Gross Profit Formula