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Exam (elaborations)

ACG 2021 Exam 2 (1).

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ACG 2021 Exam 2 (1).

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  • July 29, 2024
  • 11
  • 2023/2024
  • Exam (elaborations)
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ACG 2021 Exam 2
Inventory - ANS-Tangible property (CA) held for sale in the normal course of business or will be
used up in the production of goods to be sold in normal operations

Revenue Recognition Principle - ANS-states that revenue must be: earned--delivery has
occurred or services have been rendered

FOB Shipping Point - ANS-title of good and risk of ownership transfers to the customer at the
time the merchandise is shipped. Seller can record revenue

FOB Destination - ANS-title of goods and risk of ownership transfers to the customer once the
goods are delivered to the customer.

Net Sales - ANS-Amount of sales recorder AFTER credit card discounts, sales discounts, and
sales returns and allowances.

Revenue Recognition Standard
-companies must only record sales revenue they expect to eventually realize, so sales must be
reduced by estimated returns

Sales Discounts - ANS-Buyer only receives discount if paid within the discount period. If not, the
full price is due.

-Record net amount, assuming buyer will take discount
Ex: 2/10, n/30

Net Sales - COGS = - ANS-Gross Profit/Gross Margin

Gross Profit/Gross Margin - Selling, General, and Admin. Expenses = - ANS-Operating Income

Operating Income +/- Other items (Interest income or expense, Other gains or losses, sales
discounts forfeited) = - ANS-Income before taxes

Income before taxes - Income tax expense (for corporations) = - ANS-Net income from
continuing operations

Net income form continuing operations +/- Discounted Operations (if company has these) = -
ANS-Net Income

Gross Profit Percentage - ANS-Computed to determine how effective a company is with selling
its goods for more than its cost.

, Gross Profit Percentage = Gross Profit $/Net Sales

Perpetual Inventory - ANS--Inventory records are always kept up to date -maintained by a
transaction by transaction basis
-Ex: bar coding, RFID, tags, etc.)

Periodic Inventory - ANS--Does not track inventory
-Inventory records are not up to date
-Records are always kept for the amount of purchases throughout the year, which is added to
the beginning inventory to determine the cost of goods available for sale
-Ending Inventory is deducted from the cost of goods available for sale (at end of year) to
calculate COGS
(COGS = Ending Inventory - cost of goods available for sale)
-Cannot reliably determine ending inventory balance until it is counted at year-end

To Calculate COGS under Period Method - ANS-Beginning Inventory
+Purchases
-Purchase Returns and Allowances
-Purchase Discounts
+Freight In
= Cost of Goods Available for Sale
-Ending Inventory
= COGS

Types of Inventory - ANS--Merchandisers
-Manufactures

Merchandisers - ANS-Have merchandise inventory on their balance sheet-Goods held for resale
in the normal operations of business
-buy goods in finished form from wholesalers to sell in their stores

Manufacturers - ANS-Have 3 different inventory accounts on their BS
-Raw Materials
-Work In Process (WIP)
-Finished Goods

Work IN Process (WIP) - ANS-Includes
-Raw Materials: direct materials
-Direct Labor: "touch labor"
-Overhead: all other manufacturing costs

COGS - ANS-costs of inventory recorded as an expense at the time inventory is sold, on the
Income Statement

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