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ACCY 202 Midterm 1 Study Guide

by: Amy Kwon

ACCY 202 Midterm 1 Study Guide ACCY 202

Amy Kwon

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About this Document

These cover the Modules 1A and 1B.
Accounting and Accountancy II
Julia P Shapland
Study Guide
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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:
 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)
 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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