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Management 1A- Chapter 5 Notes

by: Daniel Ochs

Management 1A- Chapter 5 Notes Management 1A

Daniel Ochs

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Management 1A Chapter 5 Notes
Principles of Accounting
D.S. Litt
Class Notes
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Popular in Principles of Accounting

Popular in Business, management

This 4 page Class Notes was uploaded by Daniel Ochs on Sunday May 1, 2016. The Class Notes belongs to Management 1A at University of California - Los Angeles taught by D.S. Litt in Spring 2016. Since its upload, it has received 16 views. For similar materials see Principles of Accounting in Business, management at University of California - Los Angeles.


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Date Created: 05/01/16
Sunday, May 1, 2016 Management 1A Chapter 5 [Page 155- 200] - Cost of Sales: product costs as well as any cost of transporting - Payment from suppliers: accounted for as a reduction of purchases - Advertising Costs - Pre-Opening Costs: the costs of start-up activities - Depreciation and Amortization: straight-line method over the estimated useful lives of various assets - Income Taxes: accounted for under asset and liability method - Revenue Recognition Criteria • Revenue should be recognized only when earned and realized/realizable • Revenue Sources - Revenues arising form operations - Gains arising from the sale of assets - Non operating income • Expense (or loss) Recognition - Criterion - Sources of costs and expenses - Impact on shareholders’ equity - Recording expenses in an accrual system - Net Income = Revenues (Gains) - Expenses (Losses) - Issues in Earnings Management • Ways to improve earnings: recognize revenues early, recognize expenses late, or realize one-time gains Ways to decrease earnings: recognize revenues late, recognize expenses early, or • realize one-time losses 1 Sunday, May 1, 2016 • Ways to appear big (or grow fast): - Wash sale: transaction that is nullified by its reversal or offset - Barter exchange: type of trade - Income Statement Basic Format • All-Inclusive Approach: all changes in equity during a period • Modified All-Inclusive Approach: excludes equity changes from non-owner sources - Components of Income Statement • Single Step [Page 175] • Multi-Step [Page 176] - Discounts and Terms • Quantity discounts: for purchasing various qualities • Purchase discounts: early or prompt payment • Credit terms: contains term of discount and invoice due date - Discontinued Operations: company decides to sell or abandon a segment of its business - Extraordinary Items: unusual and infrequent events - Types of Companies • Service Companies • Merchandising Companies • Manufacturing Companies - Financial Analysis of Income Statements • Percentage Analysis: reducing related amounts to a series of percentages of a given base • Horizontal Analysis: proportionate change in financial statement items over a period of time • Vertical Analysis: expression of each item on a financial statement over a period of time 2 Monday, May 2, 2016 Management 1A Chapter 6 [Page 201- 238] - Cost Flow Assumptions • First-In, First-Out (FIFO): cost of goods sold = cost of oldest available units • Last-In, First-Out (LIFO): cost of goods sold = cost of most recently purchased units • Average Cost: cost of goods sold = per-unit weighted average cost - Begging Inventory + Net Purchases = Merchandise Available for Sale = Ending Inventory + Cost of Goods Sold - Advantages and Disadvantages of LIFO and FIFO • Linked to physical flow • Matching • Valuation • Taxes • Opportunity for Income Manipulation • Difficulty in Earnings Prediction • Comparison of financial statements under LIFO and FIFO - LIFO Reserve = Ending Inventory (FIFO) - Ending Inventory (LIFO) = Cumulative difference in FIFO - LIFO inventory • LIFO Reserve = COGS (LIFO) - COGS (FIFO) - Assessing Inventory Management • Inventory Turnover Ratios - Purpose - Times Inventory Turnover = COGS / Average Inventory - Days Inventory Turnover = 365 days / Times Inventory Turnover - Estimation of Ending Inventory 1 Monday, May 2, 2016 • Gross Profit Method: based on cost of goods sold computation • Retail Method: company must keep track of cost and retail of inventory - Consignment sales: goods sold by others - Perpetual vs. Periodic Inventory • Perpetual: maintains a continuous record for each inventory item • Periodic: inventory account is not updated when inventory is sold 2


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