Recitation4 ACCT211_Feb 08 2008

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Accounting 211
Financial and Managerial
Accounting
Teaching Assistant
Hyun Jung (JoAnn) Lee
Contents
1. Introduction
2. Review of Chapter5&6
3. Practice
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Introduction
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Recitation Materials
Personal Blog : www.personal.psu.edu/hul152
Click on “ACCTG 211 Spring 2008”
“Student Information Form”  Did you Bring IT!~^^*
Office : 381A Business Building, 814-863-3796
Office Hour : 8 AM. ~ 10:00 AM on Tuesday
Email : hul152@psu.edu
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WileyPlus
Technical Issues
Let's follow WileyPLUS’s directions!!~
List expenses in order of magnitude
List assets in order of liquidity and liabilities in order of magnitude,
with notes payable first.
This is a minor point so Professor won't do this on the exam.
No number
Enter “0” in the table
All boxes must be filled.
Negative number
Use the negative (-) sign preceding the number.
$ and Commas(,).
Acceptable with and without dollar signs & commas
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WileyPlus
Direction of 3rd HW
P6-7
The inventory turnover ratio
Calculate “Inventory Turnover Ration “ to one decimal place.
Next you compute the days in inventory metric, using the just
computed inventory turnover ratio already rounded to one
decimal place.
BE SURE YOU FOLLOW THE DIRECTIONS.
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1st Mid-term : February 13th
When : February 13th 2008, 8:15 PM to 10:00PM
Place : Posted on ANGEL & Check your Email!!~~
Section 04 : 121 Sparks
Section 11 : 111 Forum
Section 17 : 100 Thomas
Go to the appropriate room according to your section.
Anybody in the wrong room will lose 20 points on the
exam.
PSU ID, Pencils, and Calculator
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Make-up Exam
Assignments
Ask “W.G. Deng” for “PERMISSION”
Contact Information
Office : 350A Business Building
Phone : 863-5467
Email : wxd139@psu.edu
Office Hours : Mon & Thrs from 1pm until 3pm and by appointment.
Only one chance to take it
Makeup for the First Exam : Mar 1st on Saturday 9 AM.
Makeup for the Second Exam : April 5th on Saturday
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Review of Chapter5 & 6
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Income Statements
Service Business
Multistep Income Statement
Sales
Cost of Goods Sold
Revenues
Expenses
Net Income
= Gross margin
Operating Expenses
+/- Other Rev & Exp
= Income before taxes
Income Taxes
= Net income
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Income Statements, conti.
For the most part we simplify this to:
Multistep Income Statement
Sales
Cost of Goods Sold
= Gross margin
Operating Expenses
= Net income
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Cost of Goods Sold (CoGS)
COGS implies we have some inventory to sell.
Here is how we derive CoGS:
Add:
Beginning inventory
Net Cost of Purchases
=
Goods available for sale
Deduct: Ending inventory
=
Cost of goods sold
Hint : Inventory T-Account
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Shipping Costs
Whoever owns the goods while they are in-transit pays
for the shipping.
Shipping costs to get the inventory IN are included as
part of the cost of the inventory.
Shipping costs for a sale (OUT) are part of operating
expenses
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Terms of Sale and Purchases
2/10, n/30 (for example)
tells when and how much must be paid
2% discount if invoice paid in ten days but balance (i.e. n = net) is
due in 30 days
high interest cost of not taking purchase discounts
Shipping Terms (Sales & Purchases)
F.O.B. indicates when title to the goods changes hands (& who
pays shipping)
F.O.B shipping (freight in)
F.O.B. destination (freight out)
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Calculating Net Cost of Purchases
Inventory is recorded at the price paid for it and should
include
Invoice price, freight charges, inspection costs, and preparation costs.
Net Cost of Purchases =
Purchases + Freight In
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Inventory Cost Flow Methods
Weighted Average
Cost per unit = Cost of GAFS / # of units
GAFS : Goods Available For Sales
FIFO (First In First Out)
Under FIFO, the first goods in inventory go to COGS
The remaining goods are used to calculate Ending Inventory Cost
LIFO (Last In First Out)
Under LIFO, the last goods in inventory go to COGS
The first goods in inventory are used to calculate Ending
Inventory
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Comparison of Methods
Each of the methods is acceptable, and an argument
can be made for using each.
The choice of an inventory method will depend on
management’s incentives, the tax laws, and the
reporting company’s particular economic
circumstances.
FIFO would result in higher income.
LIFO would reduce income taxes and provide better
matching of current sales revenue with current costs.
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Errors in Measuring Ending Inventory
Misstatements in inventory may cause errors in the
following areas:
Income Statement
Cost of Goods Sold, Gross Margin, Net Income
Balance Sheet
Inventory, Payables, Retained Earnings
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Periodic Inventory Systems - The old
The # of items in ending inventory is determined at the
end of the period by taking a physical count of the
goods remaining on hand.
Cost of goods sold is calculated at the end of the
accounting period using the ending inventory count.
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Perpetual Inventory Systems – The New
The inventory account is continuously updated for the
following items:
Purchases
Returns & Allowances
Sales
Cost of Goods Sold is calculated AT EACH SALE!
A physical count of the inventory is still required (why?)
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Ratio Analysis
Chapter 2
Working capital
Current ratio
Debt to total assets ratio
Earnings per share
Chapter5&6
Inventory Turnover Ratio
Gross Margin Ratio
Profit Margin
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Ratio Analysis, conti.
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Practice!!!
3
Chapter5&6 : Practice A
Problem 5-8
Problem 6-5
Problem 6-6
3rd Homework
Due Date : “Next Monday 6 PM.”
Problem : Chapter5-P8, Chapter6-P4, and Chapter6-P7
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Do you have any questions?
381A Business Building
814-863-3796, hul152@psu.edu
Welcome to Accounting World!!~
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