MGT 6201 ACCOUNTING CORE TIPS ANSWERS AND
QUESTIONS SET A+
✔✔Investing Activities - ✔✔Cash transactions involved in the purchase and sale of PPE
(property, plant, equipment), other long-term assets and making/collecting loans (an
investment to our firm)
✔✔What is used in all of these financial statements: Balance Sheet, Statement of
Equity, Income Statment - ✔✔Retained Earnings
✔✔Relationships of Financial Statements - ✔✔· Financial statements are linked within
and across time
· Balance sheet and income statement are linked via retained earnings
· Balance sheet and statement of cash flow are linked by changes in cash
· The operating section of the statement of cash flows is a cash-basis income statement
✔✔Revenue Recognition - ✔✔Companies recognize revenue when goods or services
are transferred to customers for the amount the company expects to be entitled to
receive in exchange for those goods or services.
· Recognize revenue when the "performance obligation is satisfied"
✔✔5 Steps to recognize revenue - ✔✔1. Identify the contract with a customer.
2. Identify the performance obligation(s) in the contract.
3. Determine the transaction price.
4. Allocate the transaction price to each performance obligation.
5. Recognize revenue when (or as) each performance obligation is satisfied.
✔✔Cash - ✔✔includes money or currency the firm has on hand or in checking
accounts, and items acceptable for deposit in these accounts, such as checks and
money orders.
✔✔Cash Equivalents - ✔✔include items such as money market funds, short-term
certificates of deposit, and treasury bills. Companies typically classify investments with
maturity dates of three months or less when purchased as cash equivalents.
, ✔✔Restricted Cash - ✔✔cash that is restricted and not available for current use usually
is reported as investments or other assets.
✔✔Accounts Receivable - ✔✔• Funds owed to our firm from the sale of goods or
services
• When companies sell to other companies, they offer credit terms, which are called
sales on credit (or credit sales or sales on account).
• Initial valuation of A/R is at the amount of the credit sale
• Subsequent valuation of A/R is at the amount expected to be received, called the net
realizable value.
✔✔Two things must be estimated to determine the net realizable value - ✔✔(Gross A/R
- Amount not collected = Net A/R):
(1) The amount that will not be collected because some customers are unable to pay -
called uncollectibles
(2) The amount that will not be collected because of sales returns
✔✔Uncollectible A/R - ✔✔• Bad Debts: Customers who don't pay the amount they owe
✔✔Allowance for Uncollectible Accounts (also called the Provision Method): - ✔✔•
Estimate future bad debts and match that expense against the related revenues in the
same period as the revenues are recognized.
• Write-off accounts receivable when it becomes uncollectible.
• The amount of expected uncollectible accounts is usually computed based on an
aging analysis or a simple percentage
• Matches expenses to the same period as revenues
✔✔Inventory - ✔✔Inventories are assets consisting of goods owned by the business
and held for resale or for future use in the manufacturing of goods for sale.
✔✔What costs should be included in inventory? - ✔✔Inventory should include costs of
the goods plus all costs required to obtain physical possession and to put the
merchandise in saleable condition.
✔✔Two types of inventory: - ✔✔Merchandising Inventory
Manufacturing Inventory
✔✔Merchandising Inventory - ✔✔• physical form of the goods is not altered prior to the
sale.
Cost = purchase price + [taxes, duties, freight, storage, insurance during transit, etc] -
[discounts & allowances, purchase returns, purchase discounts]
✔✔Manufacturing Inventory - ✔✔• physical form of the goods is altered prior to the sale.
Typically includes three categories:
QUESTIONS SET A+
✔✔Investing Activities - ✔✔Cash transactions involved in the purchase and sale of PPE
(property, plant, equipment), other long-term assets and making/collecting loans (an
investment to our firm)
✔✔What is used in all of these financial statements: Balance Sheet, Statement of
Equity, Income Statment - ✔✔Retained Earnings
✔✔Relationships of Financial Statements - ✔✔· Financial statements are linked within
and across time
· Balance sheet and income statement are linked via retained earnings
· Balance sheet and statement of cash flow are linked by changes in cash
· The operating section of the statement of cash flows is a cash-basis income statement
✔✔Revenue Recognition - ✔✔Companies recognize revenue when goods or services
are transferred to customers for the amount the company expects to be entitled to
receive in exchange for those goods or services.
· Recognize revenue when the "performance obligation is satisfied"
✔✔5 Steps to recognize revenue - ✔✔1. Identify the contract with a customer.
2. Identify the performance obligation(s) in the contract.
3. Determine the transaction price.
4. Allocate the transaction price to each performance obligation.
5. Recognize revenue when (or as) each performance obligation is satisfied.
✔✔Cash - ✔✔includes money or currency the firm has on hand or in checking
accounts, and items acceptable for deposit in these accounts, such as checks and
money orders.
✔✔Cash Equivalents - ✔✔include items such as money market funds, short-term
certificates of deposit, and treasury bills. Companies typically classify investments with
maturity dates of three months or less when purchased as cash equivalents.
, ✔✔Restricted Cash - ✔✔cash that is restricted and not available for current use usually
is reported as investments or other assets.
✔✔Accounts Receivable - ✔✔• Funds owed to our firm from the sale of goods or
services
• When companies sell to other companies, they offer credit terms, which are called
sales on credit (or credit sales or sales on account).
• Initial valuation of A/R is at the amount of the credit sale
• Subsequent valuation of A/R is at the amount expected to be received, called the net
realizable value.
✔✔Two things must be estimated to determine the net realizable value - ✔✔(Gross A/R
- Amount not collected = Net A/R):
(1) The amount that will not be collected because some customers are unable to pay -
called uncollectibles
(2) The amount that will not be collected because of sales returns
✔✔Uncollectible A/R - ✔✔• Bad Debts: Customers who don't pay the amount they owe
✔✔Allowance for Uncollectible Accounts (also called the Provision Method): - ✔✔•
Estimate future bad debts and match that expense against the related revenues in the
same period as the revenues are recognized.
• Write-off accounts receivable when it becomes uncollectible.
• The amount of expected uncollectible accounts is usually computed based on an
aging analysis or a simple percentage
• Matches expenses to the same period as revenues
✔✔Inventory - ✔✔Inventories are assets consisting of goods owned by the business
and held for resale or for future use in the manufacturing of goods for sale.
✔✔What costs should be included in inventory? - ✔✔Inventory should include costs of
the goods plus all costs required to obtain physical possession and to put the
merchandise in saleable condition.
✔✔Two types of inventory: - ✔✔Merchandising Inventory
Manufacturing Inventory
✔✔Merchandising Inventory - ✔✔• physical form of the goods is not altered prior to the
sale.
Cost = purchase price + [taxes, duties, freight, storage, insurance during transit, etc] -
[discounts & allowances, purchase returns, purchase discounts]
✔✔Manufacturing Inventory - ✔✔• physical form of the goods is altered prior to the sale.
Typically includes three categories:
