Ch 5 Questions
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Who are the primary users of the financial statements?
o Investors
o Managers
o Board of Directors
o Creditors
o Government
What is the equation for cost of goods sold?
o COGS=Beginning Inventory + Purchases – Ending Inventory
o GAFS= Beginning Inventory + Purchases
What improvements did the Sarbanes Oxley Act provide?
o Stiffer penalties and more internal controls
Be able to tell the difference between the financial reports issued by companies.
o 10K- annual report
o 8K- report major events
o 10Q- Quarterly reports
What is the difference between comparability and consistency?
o Comparability- ability to compare 2 different companies at the same time
(Cross sectional analysis)
o Consistency- Using the same accounting procedures year after year (Time
series analysis)
Ch 6 Questions:
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Be able to compute the bank reconciliation.
o Book: Ending Balance+ Interest collected + Notes collected by the bank –
NSF checks – Bank service charges
o Bank: Ending Balance + Deposits in transit – Outstanding checks
What is the difference between the perpetual inventory system compared to the
periodic inventory system?
o Periodic system includes an purchases account & perpetual keeps a running
total (most up-to-date amount) compared to the periodic which only counts
inventory at the end of the year
What is the difference between FOB destination and FOB shipping point?
o FOB Destination- Seller pays for the freight costs
o FOB shipping point- Buyer of goods pays for the freight costs
Be able to compute sales discounts and returns.
o 2/10, n/30- Buyer receives a 2% discount if purchase is paid within 10 days,
otherwise pay the full amount due in 30 days
 Collect from buyer within 10 days
Cash
X
Sales Discounts
X
Accounts Receivable X
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Calculate Net Sales.
o Gross Sales – Sales Discounts- Sales Returns – Sales Allowances = Net Sales
 Sale of Inventory items (COGS)
Sale on account: Accounts Receivable X
Sales Revenue X
COGS entry:
COGS X
Inventory X
Ch 7 Questions:
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Be able to compute Ending Inventory, Goods available for sale, and COGS using
FIFO, LIFO, and Weighted Average
o Know how to compute all
Be able to explain how an inventory error affects Net income in current year and
future year.
o Know what happens in an overstatement and an understatement
What are the 3 types of companies?
o Service
o Merchandising
o Manufacturing
Ch 8 Questions:
 Be able to compute Bad Debt Expense
Adjusting Entry: Bad Debt Expense X
Allowance for Doubtful Accounts X
Write off Entry: Allowance for Doubtful Accounts X
Accounts Receivable
 Be able to calculate the interest on a note issued.
Interest = P * R * T
X
Ch 9 Questions:
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Be able to calculate depreciation expense using all 3 methods.
o Straight-line: (Cost – Salvage Value) / (Estimated Useful Life)
o Units of Production: (Cost – Salvage Value) / (Estimated Total units of
production)
*This gives you a unit cost
o Double Declining: (Cost – Accumulated Depreciation ) * (2 / Estimated
Useful Life)
What is the difference between capital expenditures and revenue expenditures?
o Capital expenditures: Anything that adds value to the asset or increases the
life of the asset or increases the efficiency
o Revenue expenditures: Ordinary expense items
Know the difference between tangible assets and intangible assets.
o Tangible assets: Examples- Building, land, equipment
o Intangible assets: Examples- Trademarks, patents, goodwill, etc.
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Be able to calculate the gain or loss on disposal of an asset.
Review Ratios Too!!