University Of Oregon Accounting 211 Midterm

• The going concern principle assumes that a business will continue to operate indefinitely unless there is evidence to the contrary.
• Buying things "ON CREDIT" means the supplier (vendor) has given the company time to pay them, typically within 30 days
• Use the Accounts Payable (liability) account to track amounts owed to vendors
• Selling things "ON CREDIT" means the company has given a customer time to pay, typically within 30 days
• Use the Accounts Receivable (asset) account to track amounts owed to the company
• Primary activities that Increase Inventory:

  • Purchases of goods
  • Production of goods
  • Transfers from other accounts
• Primary activities that Decrease Inventory:

  • Sales of goods
  • Losses
  • Transfers to other accounts
• Sales Discounts and Sales Returns & Allowances are Contra-Revenue Accounts
• They get subtracted from Gross Sales (also called Revenues)
• LIFO stands for Last In First Out, meaning the most recent purchases are the ones that go to Cost of Goods Sold (COGS)
• FIFO stands for First In First Out, meaning the oldest purchases are the ones that go to COGS
• Average Cost Inventory method:

  • All items (beginning inventory plus purchases) get averaged
  • The average cost is applied to both COGS and Ending Inventory
• "Lower of cost or market" means inventory must be stated at the lower of its cost or the market (replacement cost), any write-down goes to COGS
• Allowance for Doubtful Accounts is a Contra-Asset Account
• It is subtracted from Accounts Receivable to get Net Accounts Receivable (Net Realizable Value)
• Journal Entry for a write-off of an Accounts Receivable:

  DEBIT - Allowance for Doubtful Accounts

  CREDIT - Accounts Receivable

  There is NO impact on Net Accounts Receivable or total Assets
• Primary activities that Increase Accounts Receivable:

  • Sales on credit
  • Interest or fees charged on overdue accounts
• Primary activities that Decrease Accounts Receivable:

  • Customer payments
  • Sales returns or allowances
• Primary activities that Increase Allowance for Doubtful Accounts (AFDA):

  • Estimates of uncollectible accounts increase
  • Adjustments based on aging of accounts receivable
• Primary activities that Decrease Allowance for Doubtful Accounts (AFDA):

  • Write-offs of accounts deemed uncollectible
  • Recoveries of previously written-off accounts
• Current Assets are amounts to be received within the next 12 months, while Current Liabilities are amounts to be paid within the next 12 months
• Sales taxes collected from customers do not count as revenue of the company, they are recorded in a liability account until remitted to the government
• Accumulated Depreciation is a Contra-Asset Account with a Normal Balance of CREDIT
• Typical adjusting journal entry for depreciation:

  DEBIT Depreciation Expense

  CREDIT Accumulated Depreciation
• Costs included as part of the total cost of a fixed asset are all costs necessary to get the asset ready for its intended use
• Ordinary repairs and maintenance are expensed, not capitalized
• Straight-Line depreciation is calculated as (Cost of Asset - Salvage Value) / Useful Life
• Costs that make equipment better or more productive are capitalized into the cost of the asset
• Estimates related to a fixed asset that can change are Salvage value and Useful life
• If there is a 'change in estimate' for a fixed asset, the steps taken are:

  1. Calculate net book value at the time of the change in estimate
  2. This value becomes the new 'cost'
  3. Calculate the new depreciation expense going forward
• Units of Production depreciation is calculated by:

  Step 1: (Cost of Asset - Salvage Value) / Total Expected Units

  Step 2: Apply the per unit value to the actual units produced in a time period, and that becomes the period's depreciation expense
• Double-Declining Depreciation method is a descriptive term for accelerated depreciation
• Journal entry when an asset is sold for cash:

  DEBIT Cash

  DEBIT Accumulated Depreciation

  CREDIT Asset Cost

  4th Row depends: If GAIN then CREDIT / If LOSS then DEBIT
• If an asset is sold for more than its Net Book Value, it results in a Gain
• If an asset is sold for less than its Net Book Value, it results in a Loss
• Goodwill is not amortized
• Cost allocation of an intangible asset (patent, copyright, trademark) is called Amortization
• COGS


  the cost of goods sold; what you pay for what you sell
• LIFO (last in, first out)


  The last you purchased is the first out. Example: I buy three books: Book 1 = $1, Book 2 = $2, Book 3 = $3. I resell them. Book 3 is the first to leave. The ending inventory is the sum of Book 1 and Book 2. COGS will be comprised of the most recently purchased inventory. Ending inventory will be the value of the oldest items left in inventory once you

  calculate COGS
• FIFO (first in, first out)


  principle under which it is assumed that the funds paid into the policy first will be paid out first. COGS will be comprised of the beginning inventory and oldest purchased items, Ending inventory will be the value of the newest items purchase that are left in

  inventory once you calculate COGS