ACCT 229 Exam II Journal Entries and Formulas

Net Sales

Sales Revenue

<Sales Discounts>

<Sales Returns and Allowances>

Gross Profit

Net Sales

<Cost of Goods Sold>

Multi-Step Income Statement

Net Sales

<Cost of Goods Sold>

= Gross Profit

<Operating Expenses>

= Income from Operations

+ Non-Operating Items

Net Realizable Value

Accounts Receivable

<Allowance for Doubtful Accounts>

To record sales during year:

Debit: Accounts Receivable

Credit: Sales Revenue

Customer makes regular payments:

Debit: Cash

Credit: Accounts Receivable

Write off accounts receivable when known during year:

Debit: Allowance for Doubtful Accounts

Credit: Accounts Receivable

To collect previously written off accounts receivable during year:

First Entry:

Debit: Accounts Receivable

Credit: Allowance for Doubtful Accounts

Second Entry:

Debit: Cash

Credit: Accounts Receivable

To record bad debt expense at year end:

Debit: Bad Debt Expense

Credit: Allowance for Doubtful Accounts

Issuance of a note:

Debit: Notes Receivable

Credit: Accounts Receivable

Adjusting notes payable at year end:

Debit: Interest Receivable

Credit: Interest Revenue

Payment of a note at maturity:

Debit: Cash

Credit: Notes Receivable, Interest Receivable, Interest Revenue

Accounts Receivable Turnover

Net Credit Sales / Average Accounts Receivable

Average Accounts Receivable

Beginning Accounts Receivable - Ending Accounts Receivable / 2

Cost of Goods Sold

Beginning Inventory

+ Net Purchases

= Goods Available for Sale

<Ending Inventory>

When we buy inventory (Periodic):

Debit: Purchases

Credit: Cash/Accounts Payable

When we sell inventory (Periodic):

Debit: Cash/Accounts Receivable

Credit: Sales Revenue

End of year adjusting (Periodic)

Debit: Ending Inventory, Cost of Goods Sold

Credit: Beginning Inventory, Net Purchases

When we buy inventory (Perpetual):

Debit: Inventory

Credit: Cash/Accounts Payable

When we sell inventory (Perpetual)

First Entry:

Debit: Cash/Accounts Receivable

Credit: Sales Revenue

Second Entry:

Debit: Cost of Goods Sold

Credit: Inventory

End of year adjusting (Perpetual):

Debit: Loss on Shrinkage

Credit: Inventory

Average Cost

Total Cost of Goods Available to Sell / Total Units of Goods Available to Sell

Lower of Cost / Net Realizable Value

Debit: Cost of Goods Sold

Credit: Inventory

Inventory Turnover Ratio

Cost of Goods Sold / Average Inventory

Average Inventory

Beginning Inventory + Ending Inventory / 2

Straight-Line Depreciation

(Cost - Salvage Value) / # of Useful Years

Accelerated/Double Declining Balance

(Cost - Accumulated Depreciation) x (2/# of Useful Years)

Units of Production

(Cost - Salvage Value) / # of Total Units Produced, then apply to current year’s production

Book Value

Cost

<Accumulated Depreciation>

Capital Expenditure

Debit: Asset

Credit: Cash

Revenue Expenditure

Debit: Repair Expense

Credit: Cash

Disposal

Debit: Cash, Accumulated Depreciation, Loss (if applicable)

Credit: Asset, Gain (if applicable)

Amortization end of year adjustment:

Debit: Amortization Expense

Credit: Patent

Depreciation Expense

Debit: Depreciation Expense

Credit: Accumulated Depreciation