Intuit Certified Bookkeeping Professional Domain 2 Lesson 2 PDF

Domain 2 Lesson 2 29 | Domain 2 Lesson 2: Adjust Inventory Balances Intuit Certified Bookkeeping Professional Project Workbook, First Edition Fill-in-the-Blanks Instructions: While watching Domain 2 Lesson 2, fill in the missing words according to the information presented by the instructor. [Re...

Domain 2 Lesson 2 29 | Domain 2 Lesson 2: Adjust Inventory Balances Intuit Certified Bookkeeping Professional Project Workbook, First Edition Fill-in-the-Blanks Instructions: While watching Domain 2 Lesson 2, fill in the missing words according to the information presented by the instructor. [References are found in the brackets.] 1. depreciates the asset at an equal amount over its useful life. [Service Life and Depreciation] 2. To record depreciation, an accountant would make a to increase depreciation expenses and the associated asset account to decrease a long-term asset’s value. [Depreciation Expense on Income Statements] 3. Assets must always liabilities owner’s equity. [Sales Transaction Effects] 4. Merchandise inventory is an asset, so a cash purchase does not affect the balance of the accounting equation, but a credit purchase raises both while owner’s equity stays the same. [Merchandise Inventory Effects] 5. PP&E stands for property, , and equipment. [Common Property and Equipment] 6. income is earned by allowing someone to use intellectual property or resources. [Other Asset Transaction Effects] 30 | Domain 2 Lesson 2: Fill-in-the-Blanks Intuit Certified Bookkeeping Professional Project Workbook, First Edition Service Life and Depreciation Project Details Project file on Income Statements N/A Estimated completion time Service life is another word for useful life, the amount of time an asset will be 5 minutes helpful to a company. Depreciation is the value an asset loses with time and use. Video reference A company can use many forms of depreciation for its reporting, but the IRS Domain 2 accepts only one method: Modified Accelerated Cost Recovery System (MACRS). Topic: Depreciation Concepts and Other methods include straight-line, sum-of-the-years digits, units-of- Terminology production, and double-declining balance. Subtopic: Service Life and Depreciation; Depreciation Expense Depreciation expenses are listed on the income statement alongside other on Income Statements expenses. Assets being depreciated are listed according to categories alongside Objectives covered other business expenses having similar purposes. Expenses have natural debit 2 Accounting for Assets and Sales balances. Income statements present revenues first, expenses second, and net Transactions profit or loss last. 2.3 Define depreciation concepts and terminology Purpose 2.3.1 Describe principles relating to service life and depreciation Upon completing this project, you will better recognize terms referring to 2.3.2 Identify how depreciation depreciation. expense is reported on income statements Steps for Completion Notes for the teacher If time permits, list assets companies 1. Depreciation reduces the owner’s equity. Why? would need to depreciate and the a. Because expenses lower net income probable expense categories. For example, Franky’s Fritters would b. Because expenses are liabilities depreciate freezers with other operational expenses but computers 2. Net profit/loss is the difference between revenues and expenses. with administrative expenses. Why? a. Because revenue equals the cash in the bank b. Because revenue is income from sales, and expenses are costs 3. Expenses are listed on the income statement according to purpose. Why? a. Because grouping expenses helps owners control cost categories b. Because grouping expenses is easier for bookkeepers than listing them alphabetically 4. Operating, administrative, and other expense categories can contain depreciation expenses for different assets. Why? a. Because bookkeepers should divide expenses evenly by department b. Because assets are used for different purposes throughout the company 31 | Domain 2 Lesson 2: Service Life and Depreciation on Income Statements Intuit Certified Bookkeeping Professional Project Workbook, First Edition Sales Transactions and Project Details Project file Merchandise Inventory N/A Estimated completion time Sales transactions can occur in one of two ways, a cash sale or on account. The 5-10 minutes accounts affected are a revenue account, and either the cash account or an Video reference account receivable billed to the customer. Cash and accounts receivable are Domain 2 assets with a natural debit balance. Sales would increase the amount in the cash Topic: Effects on the Accounting account or increase the value of the receivable account. Revenue accounts have Equation natural credit balances. A sale would increase the value of the revenue account Subtopic: Sales Transaction Effects; Merchandise Inventory Effects as well. A sales transaction entry would be a debit to cash or account receivable and a credit to the revenue account of equal value. Objectives covered 2 Accounting for Assets and Sales Once a sale is completed, another transaction is recorded to remove items sold Transactions from inventory. Merchandise Inventory accounts have natural debit balances as 2.4 Describe the effect of asset and inventory is an asset. The cost of goods sold expense account also has a natural sales transactions on the accounting debit balance. These accounts are both increased with debits and decreased by equation 2.4.1 Describe the effect of sales credits. A sale is recorded as a credit to merchandise inventory and a debit to transactions on the accounting the cost of goods sold in the amount of inventory valuation as calculated by equation FIFO, LIFO, WAC, or another valuation method. 2.4.2 Describe the effect of merchandise inventory on the Purpose accounting equation Upon completing this project, you will better understand the record-keeping Notes for the teacher procedures for the sale of inventory. Discuss the difference between inventory sales and property sales. Steps for Completion Inventory sales exchange goods for money as part of daily business. 1. When Franky’s Fritters opened on March 3, 2021, they had 1,842 fritters Property sales exchange goods for in inventory, each costing $1.25 for a total inventory value of $2,302.50. money outside regular business, such as selling a company vehicle or an old The fritter shortage had caused the storefront to have a dramatic computer. increase in walk-in sales. The phones were also busy with orders from customers hoping to have fritters delivered. By the end of business Tera reported they had cash sales of $4,347 and total receivable sales of $2,400; $2,000 to Minnie’s Mall and $400 to Mood Food. Freddy ran to check the freezers; there were only two fritters left. Using the journal below, finish recording the day’s business. Date Account Debit Credit 3/3/21 $4,347.00 $0.00 $2,000.00 $0.00 $400.00 $0.00 Fritter Sales Revenue Cost of Fritters Sold Frozen Fritter Inventory 32 | Domain 2 Lesson 2: Sales Transactions and Merchandise Inventory Intuit Certified Bookkeeping Professional Project Workbook, First Edition Common Property, Equipment, Project Details Project file and Other Assets N/A Estimated completion time Property and equipment are inventoried in accounts separate from merchandise 5 minutes inventory. Merchandise is intended to be sold, while property and equipment Video reference are intended to be used. Property and equipment often carry a high cost and Domain 2 are a company’s fixed assets. Topic: Effects on the Accounting Equation Other items to consider include interest income and expense, royalty income, Subtopic: Common Property and and how passive changes affect the financial statements. Equipment Purpose Objectives covered 2 Accounting for Assets and Sales Upon completing this project, you will better understand the effect of assets and Transactions passive financial changes. 2.4 Describe the effect of asset and sales transactions on the accounting equation Steps for Completion 2.4.3 Describe the effect of 1. is received as compensation for the use common property and equipment entries on the accounting equation of intellectual property. 2.4.4 Describe the effect of other asset transactions on the 2. happen when companies pay interest on accounting equation money they owe. Notes for the teacher 3. is a return generated by money held in Please note for students the distinction banks or by receivable credit issued to customers. between expenses and liabilities. Liabilities are money owed to others, 4. is money companies earn without sales and expenses are money spent. and services. 5. are money spent by companies while doing business. 33 | Domain 2 Lesson 2: Common Property, Equipment, and Other Assets Intuit Certified Bookkeeping Professional Project Workbook, First Edition