ACG 2021

Review for Test Two

Chapter 4

Merchandise businessMerchandise inventory

Asset account

Cost of goods soldExpense account

SalesRevenue account

Sales discountExpense account

Sales returnsContra revenue account

Cost of goods sold

Beginning inventory

+Purchases

= Total available

- Ending inventory

= Cost of goods sold

Sales – COGS = Gross profit

Transactions

Purchase of merchandiseMerchandise inventory

Accounts payable

Return of merchandise purchasedAccounts payable

– Merchandise inventory

Payment within discountAccounts payable

– Merchandise inventory– Cash

Transactions

SalesAccounts receivable

Sales

Cost of goods soldMerchandise inventory

Sales returnsSales returns

Accounts receivable

Merchandise inventoryCost of goods sold

Transactions

Sales discountCash

Sales discountAccounts receivable

Chapter 5

Perpetual inventory systemsEffect of incorrect inventory values

Specific identification

FIFO

LIFO

Lower of cost or market

Chapter 6

Internal controlsWhat is control environment?

Cash short and overExpense or revenue account depending on balance at end of yearCash short

Debit cash short and over for difference

Cash overCredit cash short and over for difference

Chapter 6

Petty CashAsset account

Reflects original investment in account

ReimbursementExpenses are debited

Cash credited

Chapter 6

Bank reconciliationOutstanding checks

Outstanding deposits

NSF checks

Service charge

Chapter 6

Entries for bank reconciliationNSF check

Accounts receivableCash

Service chargeBank charges

Cash

Note collectedCash

Interest incomeNotes receivable