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FSU - ACG 2021 - Exam 2 Study Guide - Study Guide

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FSU - ACG 2021 - Exam 2 Study Guide - Study Guide

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background image ACG  2021  Exam  2       Chapter  5-­‐  Multi-­‐Step  Income  Statement    
Primary  source  of  income  for  retailers  –  sales/  sales  revenue    
Primary  expenses  –  cost  of  goods  sold;  operating  expenses  
Cost  of  goods  sold:  total  cost  of  merchandise  sold  during  the  period    
-­‐  Directly  related  to  sale  of  good      
Sales  Revenue    
Less:  Cost  of  Goods  Sold     Gross  Profit     Less:  Operating  Expenses       Net  Income    
Flow  of  Costs    
Beginning  inventory  +  cost  of  goods  purchased  =  Cost  of  goods  available  for  sale    
Perpetual  Inventory  System-­‐  Company  maintains  detailed  records  of  the  cost  of  each  
inventory  purchases  and  sale    
-­‐  Record  each  time  sale  occurs  (ex.  grocery  store  checkout)       Purchase  Invoice-­‐  indicates  the  total  purchase  price  and  other  relevant  info.      
Ex:  JR  &Co.  receives  an  invoice  from  PW  Suppliers-­‐  increase  (debits)  inventory  and  
increases  (credits)  Accounts  Payable      
May  4      
Inventory        3,800                    Accounts  Payable     3,800     Terms  2/10,  n/30                   í  î      
Freight  Costs    
FOB  =  free  on  board    
2%  Cash   Discount:  Must  be  
paid  with  in  10  
days  to  receive  
discount.   Full  invoice  price  to   be  paid  within  30  
background image FOB  Shipping  Point-­‐  seller  places  the  goods  free  on  bard  the  carrier,   BUYER  pays   the  freight  cost      
FOB  Destination-­‐  
seller  places  the  goods  free  on  board  to  buyers  place  of  business;  
SELLER  pays  for  freight  costs    
Buyer:     -­‐  Buyers  pays  for  transportation  cost  –  considered  part  of  the  purchasing   inventory     o  Inventory  is  increased  (debited)     Seller:     -­‐  Freight  costs  incurred  by  seller  on  outgoing  merchandise  is  an  operating   expense  to  seller           o  Freight  Out  (account)  is  debited       Purchase  Allowance/Returns    
Purchase  Return -­‐  purchaser  may  return  the  goods  to  the  seller  for  credit  if  the  sale   is  on  credit,  or  cash  for  refund    
Purchase  Allowance -­‐  purchaser  may  choose  to  keep  the  merchandise  is  seller  is   willing  to  grant  reduction  in  price.    
Ex:  JR  &  Co.  returned  goods  costing  $300  to  PW  Supplier  on  May  8.    Entry  by  JR  &  Co.  
for  the  returned  merchandise  decreases  (debits  Accounts  Receivable)  and  
decreases  (debits)  Inventory    
May  8      
Accounts  Payable     300         Inventory     300      
Purchase  Discounts-­‐  credit  terms  specify  the  amount  of  cash  discount  and  the  time  
period,  which  it  is  offered  (ex.  2/10,  n/30)  
Ex.  Jr  &  Co.  pays  the  discounts  of  2/10,  n/30  the  last  day  discount  offered.  Gross  
invoice  price  is  $3,500  (-­‐  300  of  returns  and  allowances  from  3,800)  Cash  discount  =  
$70  ($3,500  x  2%),  the  amount  of  cash  paid  =  $3,430  ($3,500  -­‐  $70)    
May  14    
Accounts  Payable        3,500     Cash     3,430     Inventory              70        
background image Recording  Sales  of  Merchandise    
*Companies  record  sales  revenue  when  performance  obligation  is  satisfied      
Sales  Invoice  provides  support  for  sale  with  2  entries:    
    1.  Debits  A/R  or  Cash     Credits  Sales  Revenue       2.  Debits  Cost  of  Goods   Sold     Credits  Inventory  
Sales  Returns/Allowances      
Contar  revenue  account  (debit  revenue  account)  
Return-­‐seller  accepts  goods  back  from  purchaser    
Allowance-­‐  grants  a  reduction  in  purchase  of  price    
Returned  Good:       1.  Debit  Sales  Returns/Allowance  (contra  to  Sales  Rev.)     Credit  A/R  at  selling  price    
2.  Debit  Inventory  (at  cost)     Credit  Cost  of  Goods  Sold  
  Sales  Discount-­‐  seller  may  offer  the  customer  a  cash  discount  (Contra  revenue   account)  (Debit  for  Rev.  Account)  
-­‐  Prompt  payment  for  balance  due    
-­‐  Seller  increases  (debits)  the  Sales  Discounts  accounts  for  discounts  that  
are  taken         1.  Debit  Cash     2.  Debit  Sales  Discount    
3.  Credit  A/R  
Date   Accounts   Debit   Credit   Date   Accounts  Receivable   1300                        Sales     1300     Cost  of  Goods  Sold   1000                        Inventory     1000     Sold  $1000  of  Inventory  for  $1300  on  account   Date   Accounts   Debit   Credit   date   Sales  Returns/Allowances   300                Accounts  Receivable     300     Inventory     150                Cost  of  Goods  Sold     150     Returned  $150  of  Inventory  purchased  at  $300  on  account  
background image  
Ex.  Entry  by  PW  Suppliers  to  record  cash  receipt  on  May  14  from  JR  &Co.  within  the  
discounts  period    
May  14     Cash              3,430       Sales  Discounts                                70         Accounts  Receivable         3,500       (Record  collection  within  2/10,  n/30  discount  period)    
    =     NET  SALES     $3,430      
Income  Statement    
Net  Sales  –  CGS  =  Gross  Profit       Gross  Profit  –  Operating  Exp  =  Income  from  Operations       +/-­‐  results  of  activities  not  related  to  operations  =    Net  Income        
Other  rev-­‐  Interest,  Dividends,  Rent,  Gain    
Other  Exp-­‐  Interest  casualty  losses,  loss  of  sale,  loss  of  strikes  
  Multi  Step  Income  Statement      
    3800   70      300      Sales  R/A   Sales  Rev   Sales  Discounts  

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School: Florida State University
Department: Accounting
Course: Financial Accounting
Professor: Ronald Pierno
Term: Summer 2015
Tags: Study Guide, Exam 2, and financial accounting
Name: Exam 2 Study Guide
Description: Study Guide for Exam 2 Chapter 5-9 includes definitions, examples and charts!
Uploaded: 11/04/2015
13 Pages 61 Views 48 Unlocks
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