Accounting Principles

Terms and Definitions

• Requiring one employee to receive cash and another to record it exemplifies separation of duties.
• Preventive control in cash handling involves separating responsibilities.

Account Types and Financial Statements

• Determine how many accounts increase with a debit versus a credit from a provided list.
• Identify the number of assets, liabilities, and stockholders' equity accounts in a list.
• Ascertain on which financial statement specific accounts appear such as the income statement or balance sheet.

Net Sales Calculation

• KHSR sold $100,000 of inventory on account on 1/1.
• $5,000 of inventory was returned on 1/15 to KHSR for credit.
• The "net" sales KHSR should recognize on their income statement as of 1/31 needs to be calculated.

Bad Debt Expense: Percentage of Accounts Receivable Aging Method

• ABC Company estimates $10,000 of accounts receivable as uncollectible using the % of A/R aging technique.
• The Allowance for Uncollectible Accounts has a $3,000 credit balance.
• Bad debt expense at the end of 20xx needs to be determined.

Journal Entry for Writing Off Uncollectible Accounts Receivable

• The correct journal entry when writing off an accounts receivable that cannot be collected needs identifying.
• Credit to Allowance for Uncollectible Accounts for $870.
• Debit to Accounts Receivable for $870.
• Credit to Uncollectible-Account Expense for $870.
• Debit to Allowance for Uncollectible Accounts for $870.

Adjusting Entry for Uncollectible Accounts

• Sales: $60,000; accounts payable: $10,000; accounts receivable: $7,000; debit balance in allowance for uncollectible accounts: $400 at year-end.
• Using the percent-of-aging method, Lightning estimates $800 uncollectible.
• The adjusting entry for uncollectible accounts and the adjustment amount to the allowance need calculation.

Ending Inventory: FIFO Method

• Beginning Inventory on 1/1: 150 units at $9.00 each.
• Inventory Purchases on 1/5: 100 units at $10.00 each.
• On 1/15, 200 units were sold at $30 per unit.
• Calculate the ending inventory using the FIFO (First-In, First-Out) inventory costing method.

Gross Profit: LIFO Method

• Beginning Inventory on 1/1: 150 units at $9.00 each.
• Inventory Purchases on 1/5: 100 units at $10.00 each.
• On 1/15, 200 units were sold at $30 per unit.
• The gross profit using the LIFO (Last-In, First-Out) inventory costing method should be calculated.

Recording Land and Building Purchase

• Ryann's Diner purchased land and a building for $800,000.
• The land's estimated fair market value is $250,000.
• The building's estimated fair market value is $750,000.
• Determine at what amount Ryann would record the building.

Straight-Line Depreciation Calculation

• On January 1, 20xx, ABC company acquired equipment for $100,000.
• The equipment's estimated life is 4 years or 50,000 hours.
• The estimated salvage value is $20,000.
• ABC Company used the asset for 4,000 hours.
• Determine the depreciation expense on 12/31/20xx using the straight-line calculation method.

Amortization Expense for Copyright

• ABC Company purchased a copyright for $90,000 with a 70-year legal life.
• The copyright is expected to generate revenue for 5 years.
• Calculate the annual amortization expense for the copyright.

Sales Discount Journal Entry

• Walmart sold 1,000 bookcases to UCF for $100 each on January 1 with terms 2/10, n45.
• UCF paid on January 8 and took the discount.
• The journal entry Walmart should record on January 8 needs determining, considering the cash discount.

Double-Declining Balance Depreciation

• On 1/1, McDonalds purchased a new oven for $50,000 with a five-year life and $5,000 residual value.
• Determine the depreciation expense for the first year on 12/31 using the double-declining balance method.

Net Accounts Receivable (Net Realizable Value)

• The account receivable has a debit balance of $1,000,000.
• The allowance for uncollectible accounts has a credit balance of $50,000.
• Determine the "net accounts receivable (net realizable value)" shown on the balance sheet.

Financial Statements

• Prepare financial statements such as a Multi-Step Income Statement, Statement of Stockholders' Equity, and Balance Sheet.
• Calculate net income, total current assets, total long-term assets, total current liabilities, total stockholders' equity, or the new ending balance for retained earnings.

Additional Financial Information

• Beginning Balance of Common Stock on 1/1/20xx $10,000
• Beginning Balance of Retained Earnings on 1/1/20xx $50,000

Inventory Costing Methods

• Calculations of FIFO, LIFO, and Weighted Average methods.
• Calculations of ending inventory, cost of goods sold (COGS), or gross profit.

Test Content Topics

• Matching principle.
• Revenue recognition principle.
• Objectives of internal controls.
• Fraud Triangle: Opportunity, motivation, and rationalization.
• Internal control activities (Preventative + Detective).
• Sales discounts (contra revenue account).
• Sales returns (contra revenue account).
• Calculate net sales (formula).
• Journal entry to record the estimated uncollectible A/R using the percent of A/R aging method.
• Bad Debt Expense.
• Allowance for Uncollectible Accounts (Contra asset account).
• Write off the A/R that becomes uncollectible.
• Calculate the net accounts receivable.
• Inventory purchases at cost.
• Inventory Purchase returns.
• Inventory Purchase discounts.
• Inventory Sales – record revenue and reduction to inventory.
• Cost of Goods Sold, Gross profit, & ending inventory using LIFO, FIFO, Weighted Average methods.
• Calculate gross profit on the multi-step income statement.
• Produce a multi-step income statement.
• Long-term tangible asset purchases (cost): Land, Land Improvements, or Equipment.
• Basket purchases - Calculate lump-sum purchases of assets (Basket).
• Straight line depreciation calculation.
• Activity based depreciation calculation.
• Double declining balance (DDB) depreciation calculation - (calculate for first two years only).
• Amortization expense for Patents or Copyrights.

Terms and Definitions

• Internal Controls are a company plan to safeguard assets and improve accounting accuracy/reliability.
• Separation of duties involves dividing responsibilities for authorizing, recording, and maintaining assets.
• First-in, first-out (FIFO) assumes the first units purchased are the first ones sold.
• Last-in, first-out (LIFO) assumes the last units purchased are the first ones sold.
• Multi-step income statement reports multiple levels of income.
• Residual (Salvage) value is the expected amount from selling assets at the end of their life.
• Straight line depreciation allocates an equal amount of depreciation each year.
• Double declining balance depreciation accelerates depreciation in early years.
• Intangible assets lack physical substance and are often based on legal contracts.
• Net accounts receivable is the difference between total accounts receivable and the allowance for uncollectible accounts.
• Net revenues are total revenues less discounts, returns, and allowances.
• Gross profit is sales revenue less cost of goods sold.
• Book value is the original cost of an asset less accumulated depreciation.
• Contra revenue account has a balance opposite its related revenue account.
• Allowance for uncollectible accounts is a contra asset account for estimated uncollectible receivables.
• Sales allowance is a seller's reduction of a customer's balance owed due to product deficiency.
• Sales discount is a reduction for early payment by a credit customer.
• Sales return is when a customer returns a product.
• Bad Debt Expense is the adjustment to the allowance for uncollectible accounts which shows the cost of future bad debts.
• Cost of goods sold is the cost of inventory sold during the period.
• Amortization Expense is the allocation of the cost of an intangible asset over its service life.