Acc 300 Exam 2 Study Guide

Ch18 Revenue Recognition (when it is realized or realizable, when it is earned) Revenue Recognition at point of sales event (1) gross sales with Discounts (2) Sales with Right of Return trinity alternative revenue recognition method actings, and recognize revenue only if each(prenominal) of six condition (3) Sales with buybacks (4) Bill and Hold Sales emptor is non yet ready to take delivery that does take title and accept billing.Revenue is field of studyed at the time title passes if (a) the risks of ownership have passed (b) the buyer makes a fixed commitment of bribe the goods, requests the transaction be on a buy and extend basis, and sets a fixed delivery date and (c) goods must be segregated, complete, and ready for shipment. FOB shipping-buyer FOB destination-seller Ch7 exchange and Receivable 1 Cash, cash equivalents, restricted cash and Bank overdrafts (1). Cash equivalents are short-term, highly gas investment. Ex.Treasury bills, commercial paper and money mar ket funds. (2). Restricted Cash Ex. Petty cash, payroll and dividend funds. Amount is not material, not segregate from cash amount is material, segregate. (3). Bank Overdrafts when a come with writes a check for much than the amount in its cash account. 2 A/R (1). Trade due A/R, Notes Receivable. (2). Nontrade receivable Advances to officers and employees and subsidiaries Deposits paid to cover potential damages or losses dividends and interest receivable (3).Recognition of A/R (a) Trade discount. (b) Cash (sales) discounts. Companies care for and report short-term receivable at net realizable esteemthe net amount they expect to receive in cash. (Determining NRV need both uncollectible receivables and any returns or solelyowances) Two methods are used in uncollectible accounts (1) the direct write-off method (Bad debt expense-debit, Accounts Receivable-credit). (2) Allowance method NRV, three essential features (a). estimate uncollectible receivable. (b).Debit estimated uncoll ectible to Bad Debt Expense and credit them to Allowance for tentative Accounts. (c). When companies write off a specific account, they debit actual uncollectible to AFDA and credit that amount to A/R. Companies do not close AFDA at the end of fiscal year. Recovery of an Uncollectible Account It reverses the institution made in writing off the account. It journalizes the collection in the usual manner. Percentage of sales salesBad Debt Expense Percentage of Receivable A/RAFDA, Ch8 Inventories . Perpetual system continuously caterpillar track changes in the caudex account, a play along records all purchase and sales of goods directly in the roll account as they occur. ( Purchase of merchandise for resale or RM for production are debited to inventory rather than to purchase Freight-in is debited to inventory, Purchase returns and allowances and purchase discounts are credited to inventory COGS is recorded at the time of each sale by debiting COGS and crediting Inventory 2.Periodi c system a company determines the Q of inventory on hand only biweeklyally. It records all acquisitions of inventory by debiting the purchase account. The semiweekly system matches the total withdrawals for the month with the total purchases for the month in applying the LIFO method. In contrast, the perpetual system matches each withdrawal with the immediately preceding purchases. FIFO periodic and FIFO perpetual provide the same gross profit and inventory value. LIFO usually produces a lower GP than FIFO. 3. Basic issues in inventory valuation (1). he physical goods to include in inventory (who owns the goods FOB shipping pointBuyers at time of deliver committal goodssellers Sales with buybacksellers Sales with high rate of returnsbuyers, if you can estimate returns Sales on installmentsbuyers, if you can estimate collectability. (2) The cost to include in inventory (product vs. period costs). (3) The cost flow surmisal to adopt (specific identification, average cost, FIFO, LI FO, retail) 4. FIFO in all cases, the inventory and COGS would be the same at the end of the month whether a perpetual or periodic system is used.LIFO results in different ending inventory and COGS amounts that the amounts calculated chthonic the periodic method. Not allowed under IFRS LIFO liquidation can suddenly Inc task liability ADV matchingreflect current prices tax benefits fewer write downs of Inventory DIS lower NI understate EI Ch9 Inventories Additional valuation issues 1. A company abandons the historical cost principle when the future utility (revenue-producing ability) of the asset drops below its original cost.Companies therefore report inventories at the lower-of-cost-or-market (a conservative approach to inventory valuation) at each reporting period. Net realizable value is the estimated selling price slight(prenominal) reasonably predictable costs of completion and disposal (net selling price). A normal profit margin is subtracted from that amount to arrive at n et realizable value less a normal profit margin. The general lcm rule is a company values inventory at the LCM, replacement cost with market limited to an amount that is not more than NRV (upper, ceiling) or less than NRV less a normal profit margin (lower, floor).The designated market value is the amount that a company compares to cost. It is always the middle value of three amounts (replacement cost, NRV and NRV less a normal PM). Assumption A Computes a cost ratio after markups (and markup cancellations) but before markdowns. One approach use only assumption A. It approximates the lower-of-average-cost-or-market. We will refer to this approach as the conventional retail inventory method or the LCM approach. It also provides the most conservative estimate of EI.