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Primary goals of management decisions:
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Income Statement: once items are sold, you remove cost of goods sold from income statement
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Balance Sheet: inventory is set up as an asset when purchased
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% (income statement method) easier to compute; aging (balance sheet method) is more accurate
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income statement method: begin by writing journal entries in problem
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balance sheet method: begin by making a chart
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FIFO
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LIFO
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WEIGHTED AVERAGE
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STEP 1: begin by doing COGA. STEP 2: when determining COGS, remember to do FIRST-IN-FIRST-OUT
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STEP 1: SAME AS FIFO STEP 2. REMEMBER TO DO LAST-IN-FIRST-OUT
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STEP 1: SAME AS FIFO AND LIFO STEP 2: DIVIDE COGA BY NUMBER OF UNITS AVAILABLE STEP 3. USE THE NUMBER TO FIND COGS AND COST OF ENDING INVENTORY
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FOB Shipping Point
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FOB Destination
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COGS = COGA - EI
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COGA = BI + PURCHASES
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GROSS PROFIT = SALES - COGS
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INTEREST = PRINCIPAL X INTEREST RATE X TIME
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NET RELIZABLE VALUE: A/R TOTAL - ALLOWANCE TOTAL
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Merchandisers
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Manufacturers
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Perpetual: recorded every time item is bought/sold/returned; uses bar codes like Walmart; constantly recording inventory
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Periodical: always updated at the end of accounting period; require inventory to be counted at the end of every period
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FIFO: COGS smaller than LIFO, Gross Profit larger than LIFO, Net Income larger than LIFO, Inventory larger than LIFO
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LIFO: COGS larger than FIFO, gross profit smaller than FIFO, Net income smaller than FIFO, inventory smaller than FIFO
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BAD DEBT EXPENSE: debit bad debt expense, credit allowance
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CASH COLLECTIONS: debit cash, credit A/R
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CREDIT SALES: debit A/R and credit
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WRITE OFFS: debit allowance, credit A/R
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