Accounting Quiz #3

COGS

Cost of Goods Sold

Gross Profit

Sales amount – Cost amount=

Gross Margin Ratio

Gross Profit ÷ Sales Revenue (Revs - TD) =

Profit Margin Ratio

Net Income ÷ Total Revenue (Revs - TD) =

How to determine who has ownership when it is in transit?

Whoever paid for the shipment

FOB

Freight On Board

FOB Shipping Point

Ownership changes when goods are shipped

The company paid for shipment

Records inventory when shipped

FOB Destination

Ownership changes when the goods arrive

The seller paid the shipping

Records inventory when received

How is freight in recorded?

It is recorded in Inventory Cost

Perpetual

Scanner at the Grocery store, constantly recording transactions

Periodic

Tracking everything (at the end of a period), normally smaller companies

Consignors

OWN the inventory and REPORT it in their Inventory accounts

Consignees

EXHIBIT the inventory and EXCLUDE it from their Inventory accounts.

Consignment

Where they still have ownership of their product being sold somewhere else.

FIFO

First in, First out (When the same good has different COGS)

LIFO

Last in, First out (When the same good has different COGS)

weighted average cost

The average cost for each of the same item there is in inventory

Why should a company use the same inventory costing method from one period to the next?

Consistency and Comparability

Inventory Turnover

COGS ÷ Average Inventory

How many times the business sold through its average inventory during the period

Days in Inventory

365 ÷ Inventory Turnover

On average, how many days does inventory remain in the business before it’s sold

Average Inventory

Beginning inventory + Ending inventory / 2

COGAfS

Cost of goods available for sale

Interpret the Gross Margin Ratio

After covering the cost the company kept 0.__% of every dollar from sales revenue

Interpret Profit Margin Ratio

After covering all expenses the company keeps $0.00 of every dollar gained from the total revenue

Cash to Cash

How long it takes / the process of receiving cash from the cash you put into the company

Freight-In

Shipping cost - Add to Net Purchases

Purchase Returns

Subtract from Net Purchases

Purchase Allowances

Getting a discounted price to keep a good (based on amount) - subtract from Net purchases

Purchase Discounts

Pay early makes u pay less - subtract Net purchases

2/10 n/30

2% discount of net purchases if u pay within 10 days - if not payment due in 30 days

Invoice

Bill → documents amount owed

Receipt

Paid → Documents Payment

List Price

Full selling price

Price before any discounts

doesnt include shipping

Trade discount

Reduction of Price

Net Price

Ending Value of Net Purchase

In Transit

Goods on the way from selling to buyer

Freight-In

Cost of shipping goods to your company

Freight-Out

Cost of shipping goods to another company

Sales and Return Allowances

Sales Discounts

Written on the sales side of the I/S an JE’s

Conrta-Revenue

Returns, Allowances, and Discounts

When calculating Purchase Discount Only include…

Purchase Cost

Sales Returns and Allowances

From the Sellers POV

Non-Operating items

Found on the I/S After Revs and Exps

Gross Profit

The process of taking sales revenue and subtracting the COGS

Specific ID

Like a car dealership, they know what product is being sold, and identical products are known which is different

Average Inventory

Beg Inv + End Inv / 2 =

What does Inventory Include for Manufacturing Co

Raw Materials, Work in Progress, Finished Goods

Detailed Records

Need to know the cost of the actual unit sold

Don’t use Specific ID

Cost Flow ≠ Physical Flow