# Exam 2 Study Guide

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1. Cash to Accrual
Account Receivable
• Account determines net sales on account
• Changes in account
• decreases subtract from cash

• Cash method does not account for increases in this account but it is sales for the period
• Cash method counts the money received for this account as a sale but it is already counted
2. Cash to Accrual
Unearned Revenue
• Account gives amount received for revenues not earned
• Changes in account
• increases subtract from cash

Cash method accounts for increases in this account as revenue but it has not been earned. A decrease in this account is the revenue being earned.
3. Cash to Accrual
Revenue Receivables(Rent)
• Account gives amount of revenue earned but money owed to company.
• Changes in account
• decreases subtract from cash

Cash method does not account for revenue earned for this account but should be counted as revenue. The cash method counts the money received for this account as revenue but it is already counted
4. Account Payable
• Account gives the amount for purchases made on account
• Changes in account
• decreases subtract from cash

Cash method does not account for increases in this account because the purchases are for credit. Cash method considers payments for this account as additional purchases but it's already counted
5. Cash to Accrual
Prepaid Expenses
• Account gives the amount of payments for expenses not yet incurred
• Changes in account
• increases subtract from cash

Cash method considers money paid to this account as expense but the expense has not occurred yet. Decreases in this account is the expense being incurred so it needs to be accounted then
6. Cash to Accrual
Accrued Expenses (payable)
• Account gives amount that needs to be payed for expenses incurred.
• Changes in account
• decreases subtract from cash

Cash method does not account for increases to this account because no payment is made but the expense has been incurred. payments for this account is recognized as expense under cash but it is already counted
7. Future value of \$
• PV * Factor = FV
• lump sum
8. Present value of \$
• FV * Factore = PV
• lump sum
9. Annuity
equal periodic installments
10. Future value of Annuity
Installment * Factor= FV

If payments are end of the period it is an ordinary annuity
11. Present Value of Annuity
Installment * Factor = PV

payments at the end of period
12. Future value of Annuity Due
Installment * Factor = FV

payments at the beginning of the period
13. Present value of Annuity Due
Installment * Factor = PV
14. Petty Cash
• Impress system-set standard balance
• Money taken out, Receipts put in
• Money & Receipts should equal balance deposit
15. Bank Reconciliation
• To correct balance
• "Adjust" balance to arrive at the actual cash owned on that date
16. Balance per Bank
(bank rec)
• Cash balance bank
• +Deposits in Transit
• - Outstanding Checks
• +/- Errors
17. Balance per book-general ledger
(bank rec)
• Cash balance books
• + Interest earned on account
• +Collections made by the bank
• -NSF (Non=Sufficient Funds) Check
• -Service Charges
• +/- Errors
(bank rec)
• Bank Balance
• +Deposits in Transits
• -Outstanding Checks
• +Service Charge
• -Bank Collections
• +NSF Checks
• +/- Errors
• =Book Balance
Direct Method
•      Acct. Rec.

violates matching principle-not GAAP
Allowance Method
•      Allowance for D.A
• Allowance for D.A.
•       Acct. Rec.

follows matching principle-GAAP
21. Net Realizable Value
• The amount of credit balances that is estimated to be collected
• Acct. Rec.
• -Allowance for D.A.
• =Net Realizable Value
22. Allowance Method
Income Statement Approach
• Estimated by a percentage of sales
23. Allowance Method
Balance Sheet Approach
• Adjust Allowance account to desired balance
• take into consideration the amount already in the account
• balance in the account will be estimated to be a certain amount
24. Allowance Account-debit balance
Account estimate was short so adjust to compensate for the bad estimate as well as the balance necessary for the account
25. Recovery of Account Written Off
Direct Method-write off, reinstate, collect
• write off
• reinstate
• Acct. Rec. /Bad Debt Exp.
• collect
• Cash/ Acct. Rec.
26. Recovery of Account Written Off
Allowance Method-write off, reinstate, collect
• write-off
• Allowance / Acct. Rec.
• reinstate
• Acct. Rec. / Allowance
• collect
• Cash / Acct. Rec.
27. Sales Discounts

Gross Method-sale, collect early, collect late
• sale revenue is total sale price
• sale
• Acct. Rec. / Sales Rev.
• collect early
• Cash, Sales Disc. / Acct. Rec.
• collect late
• Cash / Acct Rec.
28. Sales Discounts

Net Method-sale, collect early, collect late
• sale revenue is sale - discount to start
• sale
• Acct. Rec. / Sales Rev.
• collect early
• Cash / Acct. Rec.
• collect late
• Cash / Sales Disc. Forfeited Acct Rec.
29. Pledging
Use Acct Rec. as collateral to obtain borrowed funds. Footnote disclosure
30. Specific Assignment
• Use Acct. Rec. to obtain borrowed funds. Creating a seperate account so that as funds are collected from the receivables the debt gets paid
• Borrow:
• cash, finance charges / notes payable
• Re-classify
• Acct. Rec. Assigned / Acct. Rec.
31. Factoring
Sell Acct. Rec. for cash less a fee. Factor now controls Acct. Rec. and will collect from customers. Factor assumes risk of uncollectibles if sold "without recourse"
32. Notes Receivable-journal entry
Notes Receivable / Cash or Revenue
33. Notes Receivable
Future lump sum
• Calculate Present value
• Difference between maturity value and present value is the discount
34. Amortization-straight line method
• Discount/time frame of notes= interest revenue to record each period
• Journal entry
• Discount / Interest Revenue
35. Amortization-Effective method
PV of note * effective interest rate =interest revenue to record each period
36. Note Receivable
Future lump sum & Annuity
• Calculate Present Value of lump sum and annuity
• Remember that for installments record and subtract from total Interest Revenue to get the Discount account adjustment
37. Raw Material
• Beginning Balance
• +(d)Raw Material Purchased
• - (c)Raw Materials Used
• =Ending Balance

transfer raw materials used to work-in-process
38. Work-in-process
• Beginning Balance
• +(d) Raw Material Used
• +(d) Direct Labor
• - (c) Cost of Goods Manufactured
• =Ending Balance

transfer cost of goods manufactured to finished goods
39. Finished Goods
• Beginning Balance
• +(debit)Cost of Goods Manufactured
• -(credit)Cost of Goods Sold
• =Ending Balance
40. Perpetual Bookkeeping
Sales & Returns journal entry
• sale
• Acct. Rec. / Sales Revenue
• CGS / Inventory

• sale return
• Sales Return / Acct. Rec.
• Inventory / CGS
41. Perpetual Bookkeeping
Purchases & Returns journal entry
• purchase
• Inventory / Acct. Payable
• purchase return
• Acct. Payable / Inventory
42. Perpetual Bookkeeping
Basics
• adjustments made right away to CGS and Inventory Accounts for sales
• adjustments made right away to Inventory account and Acct. Payable for purchases
• Physical count done at end of year and adjustment is made if balance is off
43. Periodic Bookkeeping
Sales & Returns journal entry
• sale
• Acct. Rec. / Sales Revenue
• sales return
• Sales Return / Acct. Rec.
44. Periodic Bookkeeping
Purchases and Returns journal entry
• purchase
• Purchase / Acct. Payable &
• Freight-In / Acct. Payable
45. Consigned Goods
Owned by consignor; held by consignee
46. Goods in transit:
FOB shipping
The buyer pays the freight and owns the inventory during transit
47. Goods in transit:
FOB Destination
The seller pays the freight and owns the inventory during transit
48. Inventory Costing
Specific ID
actual cost used; no assumptions
49. Fifo
first goods purchased are first goods sold
50. Lifo
lost goods purchased are first goods sold
51. average cost
(weighted, moving)
• record cost based on the average
• \$ Goods Available for sale / Units available for sale
52. Inventory Errors
• BI
• + P
• -EI
• =CGS(-)
• GP
• NI
• RE
53. Dollar Value LIFO
• based on a layer system
• adjust by the base year (1st layer)
• EI value / CPI = EI adjusted for inflation
• campare EI to previous year. If increased add layer if decrease subtract layer.
54. Lower of Cost or Market
• choosing between the lower amounts to account for inventory
• for market choose the lowest of: replacement cost, ceiling, floor
• compare the lowest of market to cost and choose the lowest between cost and market