Financial Accounting Exam Prep

subject Type Homework Help
subject Pages 5
subject Words 637
subject School Norwich University
subject Course 40002

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Accounting financial
Multi Step Income Statement
o Gross Sales Sales returns and Allowances = Net Sales
o Net Sales minus Cost of Goods Sold = Gross Margin/Income
o Operating Expenses = Sales Expenses + General and Admin Expenses = Total Operating
Expenses
o Gross Margin/Income Total Operating Expenses = Income from Operations
o Non-Operating Expenses and Revenues = Interest Income Interest Expense =
Difference
o Total Operating Expenses Non-Operating Expenses and Revenues difference = Net
Income
Cost of Goods Sold
o Beginning inventory
o Plus purchases, minus purchase returns and allowances = net purchases
o Plus freight in, plus goods available for sale
o Minus ending inventory = Cost of Goods Sold
Ratios
o Profit margin (net income/revenue), current ratio (assets/liabilities), asset turnover (Net
income/avg total assets), return on equity (net income/avg. O.E.)
o Inventory turnover
Cost of Goods Sold/ Average Inventory
o Day’s Inventory on hand
365/ Inventory Turnover
Types of Inventory Systems
o Perpetual is a type of inventory system where the inventory account is constantly being
updated and the expenses are accounted for in the Cost of Goods Sold account. Popular
with expensive and low inventory count. It is bad because it takes a long time to update,
and lots of entries so it’s not good for high volume. It is good because you can know if
someone stole from your business
o Periodic is when you update inventory accounts every year or so. You don’t have an
exact account for inventory ever, unless you just finished an inventory audit. This is a
popular method for stores where there is a high amount of low costing items. This
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method is bad because you don’t know when someone stole from you, and audits take
longer.
Perpetual making a sale and receiving Cash (Change cash to acc. Receivable when applicable) :
Cash
Sales
Cost of Goods Sold
Inventory
Periodic making a sale and receiving cash
Cash
Sales
Perpetual making a purchase of inventory
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