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Chapter 7, 8, 8

Int. Financial

TermDefinition
Bank Balance Add: DIT, Undeposited receipts (cash on hand), Bank errors that understate the bank statement balance Deduct: Outstanding checks, Bank errors that overstate bank balance
Book Balance Add: Bank credits and collections not recorded, Book errors that understate book balance Deduct: Bank charges no yet recorded, Book errors that overstate book balance
Petty Cash Transfer of funds to Petty Cash: Debit Petty Cash and credit Cash
Perpetual Inventory System Continuously tracks changes in Inventory
Periodic Inventory System Physical count at year end
COGS (Periodic method) BI + Purchases - Purchase Returns & Allowances - Purchase Discounts + Transportation In = COGA for sale - EI = COGS
Purchase of Inventory (Perpetual) Debit Inventory; Credit A/P
Purchase of Inventory (Periodic) Debit Purchases; Credit A/P
Return of PUR (Perpetual) DR A/P; CR Inventory
Return of PUR (Periodic) DR A/P; CR Purchase Returns & Allowances (Contra account to PURs)
Payment for PURs w/ cash discounts (Perpetual) DR A/P; CR Cash, Inventory
Payment for PURs w/ cash discounts (Periodic) DR A/P; CR Cash, Purchase Discounts
FOB Shipping point Buyer's at time of delivery to common carrier
Consigned Goods Seller's inventory, not buyer's
Sales w/ buybacks Seller's inventory, not buyer's
Sales on installments Buyer's if you can estimate collectability
Effect of Inventory Errors (EI understated) If EI understated > RE understated, Working Capital understated, Current Ratio understated, COGS overstated, Net Income understated
Effect of Inventory Errors (EI overstated) Current year: Total Assets overstated, COGS understated, Net Income overstated, RE overstated; Following year (if perfect count): TA No effect, COGS over, NI Under, RE No effect
Effect of Inventory Errors (Purchase & EI understated) Inventory under, RE no effect, A/P under, Working Capital no effect, Current Ratio over, PURs under, COGS no effect, Net Income no effect, EI under
FOB destination exclude from inventory if not received by year end
Product Costs Attach to Inventory; Costs directly connected with bringing the goods to the buyer's place of business and converting such goods to a salable condition. Includes freight charges on goods purchased.
Conventional Method Ratio (Cost BI + Cost PUR) / (Retail BI + PUR M ups)
Conventional Method EI EI @ retail x Ratio
LIFO Method Ratio (If EI > BI) (Cost PURs) / (Retail PUR + M up - M dwn)
LIFO Method EI (If EI > BI) BI @ LIFO Cost + (added layer @ retail x ratio)
LIFO Method Ratio (If EI < BI) Cost BI / Retail BI
LIFO Method EI (If EI < BI) EI @ retail x Ratio
Gross Profit Method - Estimated COGS Sales x % of COGS
% of Markup Cost GP % sales / (100% - GP % sales)
% of Sales (to convert % of Cost) % of Cost / (100% + % of Cost)
Created by: ronniemad