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by: Amy Kwon

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# ACCY 202 Midterm 1 Study Guide ACCY 202

Amy Kwon
UIUC

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These cover the Modules 1A and 1B.
COURSE
Accounting and Accountancy II
PROF.
Julia P Shapland
TYPE
Study Guide
PAGES
5
WORDS
CONCEPTS
Accounting
KARMA
50 ?

## Popular in Accounting

This 5 page Study Guide was uploaded by Amy Kwon on Saturday September 24, 2016. The Study Guide belongs to ACCY 202 at University of Illinois at Urbana-Champaign taught by Julia P Shapland in Fall 2016. Since its upload, it has received 4 views. For similar materials see Accounting and Accountancy II in Accounting at University of Illinois at Urbana-Champaign.

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Date Created: 09/24/16
Friday, September 9, 2016 ACCY 202 Midterm 1 Study Guide Looking from Seller’s View When a company sells something, they need to have bought it at some point at its historical cost. You’d have to go back to manufacture of that inventory, and as its sold, the company no longer owns it, so it’s removed from the balance sheet to the income statement. That expense (COGS) offsets revenue. Difference between selling price of inventory and the COGS = subtotal proﬁt  To assign costs to inventory & COGS: 1. speciﬁc identiﬁcation  2. FIFO  3. LIFO  4. weighted average • perishable goods such as fresh fruits that they want to get rid of ﬁrst-in, ﬁrst-out physically  but physical ﬂow =/= cash ﬂow  Say 3 identical units are PURCHASED separately: May 1 at \$25, May 3 at \$65, and May 6 at \$70. One unit is SOLD on May 7 at \$100. Visualize this:  You put down the ﬁrst package of what you bought on the ground (May 1)  Then you put down the second on top of the ﬁrst (May 3) and so on \$70 Income Statement (FIFO)  Net sales \$100  \$65 COGS \$45 (May 1 cost)  —————————————-  \$45 \$55 1 Friday, September 9, 2016 Balance Sheet (FIFO) Inventory is \$70 + \$65 = \$135 Income Statement (LIFO) \$70 Net sales \$100  \$65 COGS \$70 (May 6 cost)  —————————————- \$45 \$\$30 Balance Sheet (LIFO) Inventory is \$65 + \$45 = \$110 Weighted Average Income Statement \$70 Net Sales \$100  \$65 \$180/3  COGS \$60 (because \$180/3)  = \$60 ——————————————- \$45 \$40 Balance Sheet Inventory is \$120 (\$60 x 2 leftover units) Methods of assigning costs FIFO: inventory items are sold in the order acquired LIFO: most recent purchases are sold ﬁrst — recent costs are charge to the goods sold, and the costs of the oldest purchases are assigned to inventory Weighted Average: use average cost per unit of inventory at the end of the period = the cost of goods available for sale decided by the units available  2 Friday, September 9, 2016 If we received money but didn’t do the work for them, If paid in advance, we don’t record money (cash) (bc we didn’t actually earn/deserve) = deferred revenue and liability! Cash XX  Unearned Rev XX If we did the work, but wasn’t paid, we still record it (just offset it with A/R) Accounts Receivable XX  Sales Revenue XX When there are costs afﬁliated with the goods sold:  COGS XX  Inventory XX Seller’s Perspective Things to consider when recording sales  1) recording on the date they meet accrual revenue criteria (does the work and earns revenue = title transfer) First, look at historical cost! (always two things are affected) (seller also bought the items at one point)  COGS XX  Inventory XX (the DEBIT right side depends on how the customer paid)  If customer paid and seller met Accrual Revenue Criteria:    Cash XX  Sales Rev XX A/R XX  Sales Rev XX    If customer paid, but we performed it way later: 3 Friday, September 9, 2016 Cash XX  Unearned Rev XX   Unearned Rev XX  Sales Rev XX 2) Freight cost (paid/collect) 3) Returns / Price allowances (lowering price so they don’t return) 4) price discount Collect/prepaid – Do you pay to the shipper or the seller? FOB Shipping/Destination – title transfer (who is responsible for freight) Shipping- buyer is responsible for the freight, so they pay the seller the freight + invoice (Title transfers when it leaves A) Destination – seller is responsible (Title transfers when it reaches B) Prepaid- seller pays the carrier for freight Whenever its “collect” B pays directly to the carrier ——————————————————————————————————————— Actual > Estimate : underapplied Estimate < Actual : overapplied ratio - MOH Ratio everything else is the other expense perpetual inventory system: continually updates accounting records for merchandising transactions (for inventory available for sale & sold) periodic inventory system: records only at the end of a period 4 Friday, September 9, 2016 5

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