# Accounting

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1. Multi-Step Income Statement
• Revenue:
•  Sales
• -Sales Returns and Allowances
• -Sales Discounts
• =Net Sales

• Expenses:
• -Cost of Merchandise Sold Expense
• =Gross Profit
• -Operating Expenses:
•      Selling Expenses
• =Income from Operations
• +Other Income
• -Other Expenses
• =Net Income
2. 2/10, Net 30 Means what?
a 2% discount is offered if payment is made within 10 days; otherwise full payment is due within 30 days
3. n/30 or net 30 means what?
no discount is offered; full payment is due within 30 days
4. n/eom means what?
no discount is offered; full payment is due at the end of the month.
5. FOB Shipping Point Means what?
• -The Buyer owns the goods during transit
• -The Buyer pays the shipping costs, which increase buyer's cost of inventory
6. FOB Destination means what?
• -The Seller owns the goods during transit.
• -The Seller pays the shipping costs, which increase seller's Transportation Out
7. Receipt of Payment is performed how?
Gross amount sold * Discount percentage = \$1960
8. What do you record for the Dual Nature of Merchandise Transactions according to the seller and buyer?
• Seller:
• Accounts receivable and sales are the same.
• Cost of Merchandise Sold and Merchandise inventory are the same decrease by the same amount.
• Merchandise Inventory and accounts payable increase by the same amount.

Sale - Cost of Merchandise Sold = Net Income
9. Summarize the Inventory formula:
• Beginning Inventory
• +Purchases
• +Shipping Charges
• -Purchase Discounts
• -Purchase Returns and Allowances
• -COGS
• =Ending Inventory
10. Summarize the Sales formula:
• Sales Revenue
• -Sales Discounts
• -Sales Returns and Allowances
• =Net Sales
11. Gross Profit % formula and what it's used for:
Gross Profit % = Gross Profit / Net Sales

Measures how much of each dollar in a sales transaction is profit to the seller (before other expenses).
12. What is a Service Business Responsible for?
• - Providing services to customers (Do not buy or sell goods)
• - Reports no inventory on the balance sheet
• - reports no cost of sales expense on the income statement
13. What is a Merchandising Business responsible for?
• - Buying finished goods from manufacturers and sell them to customers
• - Reporting Merchandise Inventory on the balance sheet
• - Reporting Cost of Merchandise Sold expense on the income statement.
14. What is a Manufacturing Business responsible for?
• - Buying elements to make goods (DM, DL, and FOH) and sell them to customers.
• - Reporting Raw Materials Inventory, Work in Process Inventory, and Finished Goods Inventory on the balance sheet.
• - Reporting Cost of Goods Sold expense on the income statement.
15. Why would a cost be recorded as an Asset on the Balance sheet?
• Capitalize cost if the item will be used in the future to help generate revenue.
• - Current asset if it will be used within one year.
• - Long-term asset if it will be used in longer than one year.
16. Why would a cost be recorded as an expense on the income statement?
Expense cost if the item is used up in the current period to help generate revenue.
17. Where are Product costs on the Balance sheet and what does it include?
• Capitalized as an Asset(Inventory) on the balance sheet:
•  Direct Materials cost
•  Direct Labor cost
•  Factory Overhead Cost(this and Direct labor are conversion costs)
• = Total Manufacturing Costs

Cost of Goods Sold Expense
18. What is Cost of Goods Sold Expense?
The Direct Materials, Direct Labor, and Factory Overhead cost of the goods sold in the current period.
19. Where do Period Costs get recorded and what do they include?
Expense on the Income Statement

• - Selling Expenses: costs supporting product sales this period
• - Administrative Expenses: costs of running the office this period
20. Why do Manufacturing Businesses accumulate product costs?
• a. To help them set a price for goods that will generate profit
• b. To control operations:
•         - Costs by department or process
•         - Compare actual costs to budgeted costs
• c. To develop financial statements:
•         - Cost of ending inventory on balance sheet
•         - Cost of goods sold on income statement
21. What are the Job Order Cost Systems?
They accumulate product costs in total and by job (individual product or product type)
22. How do goods move?
• 1. Warehouse - When materials are purchased
• 2. Production Floor - When work begins on product
• 3. Showroom - When product is completed
• 4. No longer here - When product is sold
23. How do Costs move?
• 1. RM Inventory (beg. Bal. + Purchases - Issuances = End Bal)
• 2. WIP Inventory (beg. bal. +DM+DL+FOH-COGM=End Bal)
• 3. FG Inventory (Beg. Bal. +COGM - COGS = End Bal)
• 4. COGS (beg bal + COGS = End Bal)
24. What are all of the Cost Flow Formulas?
• -Cost of Goods Sold
• -Raw Materials Inventory
• -Direct Materials Cost
• -Work in Process Inventory
• -Direct Labor Cost
• -Finished Goods Inventory
25. How do you compute Cost of Goods Sold?
• Sales
• -Gross Profit
• =COGS
26. Raw Materials inventory formula:
• Beginning RM Inventory
• +Purchased Materials
• -Materials Used in Production(direct and indirect)
• =Ending Raw Materials Inventory
27. Direct Materials Cost formula:
• Beginning Materials
• +Materials Purchased
• -Indirect Materials
• -Materials Inventory
• =Direct Materials Cost
28. Work in Process Inventory Formula:
• Beginning WIP
• +Direct Materials
• +Direct Labor
• -Amount Transfd. to FG (COGM)
• =Ending WIP Inventory
29. Finished Goods Inventory Formula:
• Beginning FG Inventory
• +Amount Transf. to FG (COGM)
• -COGS
• =Ending FG Inventory
30. Direct materials is the cost of materials that are:
• A. A significant portion of the total cost of the product
• B. Easily Traced to the final product
• C. Integral to the product
31. Indirect materials is the cost of materials that are:
• A. Not a significant portion of the total cost of the product
• B. Not easily traced to the final product

(Part of Factory Overhead Cost)
32. Direct Labor is the cost of labor that is:
• A. A Significant portion of the total cost of the product
• B. is easily traced to the final product
• C. Is integral to the product
33. Indirect Labor is the cost of labor that is:
• A. Not a significant portion of the product costs
• B. Not easily traced to the final product

(Part of Factory Overhead Cost)
34. What are FOH costs and what are the components?
All product costs incurred during the manufacturing process except for direct materials or direct labor.

• Components:
• A. Indirect Materials cost
• B. Indirect Labor cost
• C. Other costs of operating the factory that are not traceable to a given product
35. Predetermined FOH Rate formula
Predetermined FOH rate = (Estimated total FOH Costs for the year)/(Estimated activity base for the year)
36. Applying FOH costs to jobs:
Job's use of base activity * FOH rate = Job's share of FOH costs

• Record the application of costs:
• - Increase Work in Process Inventory
• - Decrease Factory Overhead
37. Actual and Applied FOH costs
• If Actual > Applied: then FOH costs are underapplied. The balance would be disposed of by:
•        Increase Cost of Goods Sold
•        Decrease Factory Overhead
• If Actual < Applied: then FOH costs are overapplied. The balance would be disposed of by:
•        Decrease Cost of Goods Sold
•        Increase Factory Overhead
38. Applying FOH costs to jobs based on machine hours:
1. Predetermind FOH rate = FOH Cost / Machine hours

• 2. Applied FOH Costs =
• Machine hours worked in a time period
• x Per Machine Hour
• = FOH cost applied to jobs in (a time period)
39. calculating Work In Process, total Manufacturing cost, # of units(books), and cost per unit when given more than one category
Ch. 10 Slide 20
40. What is the Cost Formula:
TC = (VC/u. * Units) + FC
41. When Business activity (volume) increases how do Variable, Fixed, and Mixed costs change?
Variable: Total amount increases, per unit amount is constant

Fixed: Total amount is constant, per unit amount decreases

Mixed: Total amount increases, per unit amount decreases
42. When business activity (volume) decreases how do Variable, Fixed, and Mixed costs change?
Variable: Total amount decreases, per unit amount is constant

Fixed: Total amount is constant, per unit amount decreases

Mixed: Total amount increases, per unit amount decreases
43. What is the variable cost per unit formula?
• Variable cost per unit = change of Cost
•                                    change of Volume

• = (highest total cost - lowest total cost)
•         (highest units - lowest units)
44. What is the Fixed cost formula?
Fixed = total cost - variable cost
45. What is the cost formula?
Total Cost = Fixed Cost + Variable Cost
46. Write the steps  of a Traditional Income Statement:
• Sales Revenue
• -Cost of Goods Sold
• =Gross Profit

• (Operating Expenses)
• -Selling expenses
• =Income from Operations
47. Write the steps to a contribution Income Statement:
• Sales Revenue
• (Variable costs)
• -Variable portion of COGS Expense
• -Variable portion of Selling Expense
• -Variable portion of Administrative Expense
• =Contribution Margin

• (Fixed Costs)
• -Fixed portion of COGS Exp.
• -Fixed portion of Selling Exp.
• -Fixed portion of Admin. Exp
• =Income from Operations
 Author: Anonymous ID: 188363 Card Set: Accounting Updated: 2012-12-10 09:08:33 Tags: Accounting 200 Folders: Description: Acct200 Exam Show Answers: