Untitled Flashcards Set

Chapter 5 Definitions & Formulas

Inventory: Goods available for sale, including finished goods, raw materials, and work-in-progress.
Net Sales:
Net Sales=Gross Sales−Sales Returns−Sales Discounts−Sales Allowances\text{Net Sales} = \text{Gross Sales} - \text{Sales Returns} - \text{Sales Discounts} - \text{Sales Allowances}Net Sales=Gross Sales−Sales Returns−Sales Discounts−Sales Allowances
COGS (Cost of Goods Sold): Direct costs associated with the production of goods sold during the period.
COGS=Beginning Inventory+Purchases−Ending Inventory\text{COGS} = \text{Beginning Inventory} + \text{Purchases} - \text{Ending Inventory}COGS=Beginning Inventory+Purchases−Ending Inventory
Gross Margin: Profit made after deducting the COGS from sales.
Gross Margin=Net Sales−COGS\text{Gross Margin} = \text{Net Sales} - \text{COGS}Gross Margin=Net Sales−COGS
Gross Margin Ratio (%): Measures the percentage of sales that exceeds the COGS.
Gross Margin Ratio=(Gross MarginNet Sales)×100\text{Gross Margin Ratio} = \left(\frac{\text{Gross Margin}}{\text{Net Sales}}\right) \times 100Gross Margin Ratio=(Net SalesGross Margin)×100
Sales Discount: A reduction in the price to encourage early payment. Example: 2/10, n/30 means a 2% discount if paid within 10 days, full amount due in 30 days.
Sales Returns & Allowances: Sales return is when goods are returned; allowances are reductions in the amount due from the buyer due to defects.
Perpetual System: Continuously updates inventory and COGS with each sale or purchase.
Periodic System: Updates inventory and COGS at the end of the accounting period based on physical counts.
FOB Shipping Point: Ownership of goods transfers to the buyer once goods are shipped (buyer pays for shipping).
FOB Destination: Ownership of goods transfers to the buyer once goods reach the destination (seller pays for shipping).
Credit Terms: Conditions under which the sale is made, such as "2/10, n/30."
Journal Entries:
- Purchases: Debit Inventory,Credit Accounts Payable\text{Debit Inventory}, \text{Credit Accounts Payable}Debit Inventory,Credit Accounts Payable
- Sales: Debit Accounts Receivable,Credit Sales Revenue\text{Debit Accounts Receivable}, \text{Credit Sales Revenue}Debit Accounts Receivable,Credit Sales Revenue
- Sales Returns: Debit Sales Returns,Credit Accounts Receivable\text{Debit Sales Returns}, \text{Credit Accounts Receivable}Debit Sales Returns,Credit Accounts Receivable
- Payment within Discount Period: Debit Accounts Payable,Credit Cash,Credit Discount\text{Debit Accounts Payable}, \text{Credit Cash}, \text{Credit Discount}Debit Accounts Payable,Credit Cash,Credit Discount
Amount Due on Invoice:

Amount Due=Invoice Amount−Discount (if any)\text{Amount Due} = \text{Invoice Amount} - \text{Discount (if any)}Amount Due=Invoice Amount−Discount (if any)

Chapter 6 Definitions & Formulas

Specific Identification Method: Directly assigns costs to individual items of inventory.
Average Cost Method:
Average Cost=Total Cost of Goods Available for SaleTotal Units Available for Sale\text{Average Cost} = \frac{\text{Total Cost of Goods Available for Sale}}{\text{Total Units Available for Sale}}Average Cost=Total Units Available for SaleTotal Cost of Goods Available for Sale
(Used to assign an average cost to each unit.)
FIFO (First In, First Out): Assumes the first goods purchased are the first sold.
- Ending Inventory: Based on the most recent purchases.
- COGS: Based on the oldest inventory.
LIFO (Last In, First Out): Assumes the last goods purchased are the first sold.
- Ending Inventory: Based on the oldest inventory.
- COGS: Based on the most recent purchases.
Costs Included in Inventory: All costs to bring inventory to its present condition and location, such as:
- Purchase price, shipping, handling, and any costs incurred to get the inventory ready for sale.
Calculate Ending Inventory (Perpetual FIFO): Use the most recent purchases to calculate ending inventory.
Calculate COGS (Perpetual FIFO): Use the oldest inventory to calculate the cost of goods sold.

Chapter 8 Definitions & Formulas

Internal Control: Procedures to safeguard assets, ensure accurate financial reporting, and comply with laws and regulations.
Fraud Triangle:
- Pressure: Motivation to commit fraud.
- Opportunity: Ability to commit fraud.
- Rationalization: Justification for committing fraud.
Bank Reconciliation: The process of comparing the company’s cash records with the bank’s records to identify discrepancies and make necessary adjustments.
Adjustments to Bank & Books in Bank Rec:
- Bank side: Adjust for deposits in transit, outstanding checks, and bank errors.
- Books side: Adjust for NSF (non-sufficient funds) checks, bank charges, and unrecorded transactions.
Adjusted Cash Balance (Bank Rec):
Adjusted Bank Balance=Bank Balance+Deposits in Transit−Outstanding Checks\text{Adjusted Bank Balance} = \text{Bank Balance} + \text{Deposits in Transit} - \text{Outstanding Checks}Adjusted Bank Balance=Bank Balance+Deposits in Transit−Outstanding Checks Adjusted Book Balance=Book Balance+Bank Credits−Bank Charges\text{Adjusted Book Balance} = \text{Book Balance} + \text{Bank Credits} - \text{Bank Charges}Adjusted Book Balance=Book Balance+Bank Credits−Bank Charges
Journal Entries for Bank Reconciliation:
- For NSF checks: Debit Accounts Receivable,Credit Cash\text{Debit Accounts Receivable}, \text{Credit Cash}Debit Accounts Receivable,Credit Cash
- For bank charges: Debit Expense Account,Credit Cash\text{Debit Expense Account}, \text{Credit Cash}Debit Expense Account,Credit Cash
- For bank credits (like interest): Debit Cash,Credit Revenue Account\text{Debit Cash}, \text{Credit Revenue Account}Debit Cash,Credit Revenue Account