[ACCT 200] - Midterm Exam Guide - Everything you need to know! (36 pages long)

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7 Feb 2017
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Western Kentucky University
ACCT 200
MIDTERM EXAM
STUDY GUIDE
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Chapter 5
We are a seller of goods- we do not make the goods
Revenue Accounts
Sales- credit; amount that you sell if for
Sales return- debit; buyer gives it back
Sales allowance- debit; reduce price so the buyer keeps it Contrarevenues
Sales discount- debit; buyer paying early
Expense Accounts
Cost of Goods sold- how much a sale costs
Freight Out- shipping that we pay to ship things to buyers
Asset- recorded at cost of purchase
Inventory- goods sold to others
2 systems to record Inventory
Periodic- update inventory once at the end of the period
Perpetual- update inventory every time it changes
Periodic System
Buyer
Call accounts what they are
Ex. Buy = Purchases (have same named
adjustments too)
Purchase return, purchase allowance,
purchase discount
Seller
Need extra entry? NO
Make no entry for COGS
Only record the sale
Perpetual System
Buyer
Call EVERYTHING Inventory
Seller
Make entry for costs
1. When we sell- record the COGS, and take
it out of inventory
2. If sales return- stick it back in inventory,
and take it out of COGS
To Figure out the Discount- same if buyer or seller
Assumes making a buy or sale on account (accounts payable, accounts recievable)
Credit terms: a / b, c / d
Amount of discount / # of days discount available or else pay this / by this day
Ex. 2/10, n/30 Buyer has 10 days to pay if they want a 2% discount, otherwise they have to
pay the net amount in 30 days
COGS Schedule- For periodic (““indicates subtotals)
Inventory 1/1/16 debit
+ Purchases debit
- Purchase Return credit
- Purchase Allowance credit
- Purchase Discount credit
“Net Purchases” (Purchases – contra accounts)
+ Freight IN debit
“Cost of Goods Purchased” (net purchases + freight in)
“Cost of Goods Available” (inventory + cost of goods purchased)
Inventory 12/31/16 debit
“Cost of Goods Sold” (cost of goods available final inventory) debit expense
2 V. Important Questions
1. Are we the buyer or the seller?
2. Is the inventory a periodic system or a
perpetual system?
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Multistep Income Statement
Sales 370
Sales Return -80
Sales Allowance -10
Sales Discount -10
“Net Sales” 342
COGS -212
“Gross Profit” 130
Operating Expenses
Freight Out 7
Insurance Exp 12
S/W Expense 60
Rent Expense 32 -111
“Operating Income” 19
Other (Revenues, Gains, Losses, Expenses) 0
“Income before Tax” 19,000
Tax (.25) -4750
“Net Income” 14250\
Ratios- profitability measures using the income statement
Profit Margin = Net Income / Net Sales
So, 14250 / 342000 = .0416 4.2% for every $1 increase in sales, you generate 4 cents
Gross Profit Margin = Gross Profit / Net Sales
130/342 = .3801 = 38.0% for every $1 increase in s????
Operating Expenses (what it costs to operate)
All expenses except COGS, interest, and tax
Other: other revenues, expenses, gains, and losses
Interest expense, all revenues that aren’t sales
Gain increase to equity from peripheral transaction
selling your truck when u in baseball business
Loss- debit, decrease to equity from peripheral trans.
Basically getting rid of non-current assets
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