Exam 2 Prep Flashcards
What are the three types of inventory?
- Raw materials
- Work in progress
- Finished goods (distribution co.s only have these)
What are the four methods of accounting for inventory?
- Specific identification
- LIFO (last in, first out)
- FIFO (first in, first out)
- Average cost
How do you calculate gross profit?
Revenue - COGS = Gross Profit
If revenue is sales price
COGS is what it costs you
and Gross Profit is what you make
What are internal controls?
Safeguards, checks and balances, separation of duties
What is the purpose of internal controls?
Prevents mistakes (but not fraud)
What can we learn about internal controls from 2 Corinthians 8:16-20?
Paul sends Titus with “the brother who is famous among all the churches for his preaching of the gospel” “so that no one should blame us about this generous gift that is being administered by us, for we aim at what is honorable not only in the Lord’s sight but also in the sight of man” (verses 18, 20-21).
The takeaway: you need at least 2 people handling money to keep each other accountable
Which Old Testament king invented the offering plate?
King Hezekiah
Where do distributors record shipping costs?
Included in inventory
What are the two ways of determining bad debt expense (allowance method)?
- Percentage-of-Sales
- Percentage-of-Accounts Receivable
What is the matching principle?
Expenses and revenue recorded in the same period
How quickly do companies expect people to pay their accounts receivable?
Within 30 days
What is accounts receivable aging?
Accounts receivable documented for 30, 60, 90, 120 days
Explain what each of the numbers means in 2/10/net 30.
2 = % discount
10 = number of days the discount is available
net 30 = if not used in days allotted, full price at 30 days
