accounting reference desktop 2002 phần 4 pot

169 Exhibit 14-3 Average Costing Valuation Example Average Costing Part Number BK0043 Column 1 Column 2 Column 3 Column 4 Column 5 Column 6 Column 7 Column 8 Column 9 Net Net Change Extended Extended Average Date Quantity Cost per Monthly Inventory in Inventory Cost of New Inventory Inventory Purchased Purchased Unit Usage Remaining During Period Inventory Layer Cost Cost/Unit 5/3/00 500 $10.00 450 50 50 $500 $500 $10.00 6/4/00 1,000 $9.58 350 700 650 $6,227 $6,727 $9.61 7/11/00 250 $10.65 400 550 – 150 $0 $5,286 $9.61 8/1/00 475 $10.25 350 675 125 $1,281 $6,567 $9.73 8/30/00 375 $10.40 400 650 – 25 $0 $6,324 $9.73 9/9/00 850 $9.50 700 800 150 $1,425 $7,749 $9.69 12/12/00 700 $9.75 900 600 – 200 $0 $5,811 $9.69 2/8/01 650 $9.85 800 450 – 150 $0 $4,359 $9.69 5/7/01 200 $10.80 0 650 200 $2,160 $6,519 $10.03 9/23/01 600 $9.85 750 500 – 150 $0 $5,014 $10.03 We begin the illustration with a purchase of 500 units of item BK0043 on May 3, 2000. These units cost $10.00 per unit. During the month in which the units were purchased, 450 units were sent to production, leaving 50 units in stock. Since there has only been one purchase thus far, we can easily calculate, as shown in column 7, that the total inventory valuation is $500, by multiplying the unit cost of $10.00 (in column 3) by the number of units left in stock (in column 5). So far, we have a per-unit valuation of $10.00. Next we proceed to the second row of the exhibit, where we have purchased another 1,000 units of BK0043 on June 4, 2000. This purchase was less expensive, since the pur- chasing volume was larger, so the per-unit cost for this purchase is only $9.58. Only 350 units are sent to production during the month, so we now have 700 units in stock, of which 650 are added from the most recent purchase. To determine the new weighted average cost of the total inventory, we first determine the extended cost of this newest addition to the inventory. As noted in column 7, we arrive at $6,227 by multiplying the value in column 3 by the value in column 6. We then add this amount to the existing total inventory valuation ($6,227 plus $500) to arrive at the new extended inventory cost of $6,727, as noted in column 8. Finally, we divide this new extended cost in column 8 by the total number of units now in stock, as shown in column 5, to arrive at our new per-unit cost of $9.61. The third row reveals an additional inventory purchase of 250 units on July 11, 2000, but more units are sent to production during that month than were bought, so the total number of units in inventory drops to 550 (column 5). This inventory reduction requires no review of inventory layers, as was the case for the LIFO and FIFO calcula- tions. Instead, we simply charge off the 150 unit reduction at the average per-unit cost of $9.61. As a result, the ending inventory valuation drops to $5,286, with the same per-unit cost of $9.61. Thus, reductions in inventory quantities under the average costing method require little calculation—just charge off the requisite number of units at the current average cost. The remaining rows of the exhibit repeat the concepts just noted, alternatively adding units to and deleting them from stock. Though there are a number of columns noted in this exhibit that one must examine, it is really a simple concept to understand and work with. The typical computerized accounting system will perform all of these calcula- tions automatically. 14-8 RETAIL METHOD The retail method is used by resellers, such as department stores. It provides them with a simple approach for determining the valuation of inventory on hand without compiling a database of invoices that provide evidence for specific items purchased in the past. It also avoids the need for any inventory layering concepts, such as LIFO or FIFO. To implement the retail method, a company should conduct a period-end count of all inventory on hand, storing the data separately for each department from which inventory is sold. The extended retail price of these inventory items should then be compiled by multiplying the standard price of each item (not the price based on any markdowns) by the number of units on hand. It must then reduce this total inventory value at retail prices by multiplying it by the cost ratio. This is the ratio of the cost of goods available for sale to the retail price of the same goods. This ratio can be derived using the FIFO, average costing, or LIFO assumptions, but is only calculated using aggregate numbers, rather than for each individual item 170 Ch. 14 Inventory in inventory. If one is using the FIFO costing method, the calculation shown in Exhibit 14-4 should be used to determine the cost ratio. Under this calculation, we assume that the beginning inventory was used first, and therefore is no longer on hand at the end of the period for inclusion in the cost ratio calculation. Accordingly, we only include in the cost ratio the purchases during the period. Exhibit 14-4 Cost Ratio Calculation Using FIFO Costing Actual Inventory Cost Actual Retail Price Beginning inventory $400,000 $650,000 Purchases during the period 200,000 300,000 Total inventory 600,000 950,000 Sales during the period 700,000 Ending inventory 250,000 Cost ratio (200,000/300,000) = 67% Ending inventory (250,000 ϫ 67%) = 167,500 The cost ratio calculation using average costing is shown in Exhibit 14-5. In this case, we assume that all inventory that was available during the period is to be included in the cost ratio calculation. Consequently, the total inventory line is used as the basis for the calculation, rather than just the purchases during the period. Exhibit 14-5 Cost Ratio Calculation Using Average Costing Actual Inventory Cost Actual Retail Price Beginning inventory $400,000 $650,000 Purchases during the period 200,000 300,000 Total inventory 600,000 950,000 Sales during the period 700,000 Ending inventory 250,000 Cost ratio (600,000/950,000) = 63% Ending inventory (250,000 ϫ 63%) = 157,500 The cost ratio calculation using LIFO costing is shown in Exhibit 14-6. The example assumes that this is the first year in which the calculation is made, so that there is no LIFO inventory layer from a preceding period. Even if there had been a beginning inventory, it would not be included in the calculation for the LIFO-based cost ratio. Also, the calculation should include the cost of any markups or markdowns, which are added to this exhibit. Though an ending inventory figure was derived in Exhibit 14-6, this represents only the first LIFO layer, to which additional layers can be added if the inventory level increases from year to year. To determine the amount of any additional layers in later years, we first determine the price index of product prices in the current year in comparison to those of the base year (see the next section for two ways to determine this index). We then calculate the ending inventory using the same approach shown in Exhibit 14-6. 14-8 Retail Method 171 If the new inventory level is less than the amount in the base year, then there is no new LIFO inventory layer. However, if it is higher than the amount in the preceding year, then the incremental increase becomes a new layer. If a new layer is being added, it must first be multiplied by the price index for the current year in order to convert its costs back to current costs. If inventory levels subsequently drop, then the newest layer will be the first one to be reduced to reflect the amount of the drop. Exhibit 14-6 Cost Ratio Calculation Using LIFO Costing Actual Inventory Cost Actual Retail Price Beginning inventory $0 $0 Purchases during the period 200,000 300,000 Markups 42,000 Markdowns –16,000 Total inventory 200,000 326,000 Sales during the period 250,000 Ending inventory 76,000 Cost ratio (200,000/326,000) = 61% Ending inventory (76,000 ϫ 63%) = 47,880 14-9 DOLLAR-VALUE LIFO METHOD The cost ratio calculation that we just completed for the LIFO retail method is essentially the same calculation used for the dollar-value LIFO method. This approach is specifically designed for those companies that do not wish to store the large quantity of inventory records needed to track the layered LIFO costs of each individual item in the company inventory. Instead, inventory costs are summarized into inventory pools, with changes in the cost of each pool being measured in comparison to the total base-year cost of the pool. The number of pools used to accumulate inventory costs is largely driven by the amount of effort the accountant wishes to expend in segregating and tracking costs by pool. An additional consideration is that, if inventory is aggregated into a smaller number of pools, it is less likely that there will be a reduction in the LIFO layers associated with each one, whereas segregation into a larger number of pools will probably result in more cases in which some pools will experience layer reductions, simply because there is more variability in inventory levels on an individual basis than on a group basis. This later sit- uation can mean that using a larger number of pools will result in greater changes in the cost of goods sold, since it is more likely that old LIFO layers will be tapped that contain cost levels that vary from current costs. The simplest way to determine the contents of an inventory pool is to base it on a natural business unit, which means that all of the supplies, raw materials, work-in-process, and finished goods inventory associated with a specific product line should be clustered into the same pool. The natural business unit can also be defined by the presence of separate manufacturing facilities for each business unit, or by separately reported income statements for each one. Alternatives to the use of the natural business unit to define inventory pools are the clustering together of all inventory items that are substantially similar, or clustering for wholesalers, retailers, jobbers, and distributors based on IRS regulation 1.472-8(c). 172 Ch. 14 Inventory Following the formation of inventory pools, the remaining step is to calculate their LIFO value. Either of the following two approaches can be used to do so: 1. Double-extension method. This method converts pool costs for the current year directly into the base-year costs of the pool to see if another LIFO layer exists for the current year. One can run the calculation based on a representative sample of inventory items, but the base-year price records must be maintained for all inventory items. Also, IRS regulations can construe the size of the representative sample to be as large as 70% of the total inventory. A further problem is that the accountant is required to convert newly acquired inventory items to their base year costs, which can be a significant chore if the base year is many years in the past (requiring considerable historical research), if the product has been substantially modified over time (requiring reverse engineering to derive a cost), or if the product simply did not exist during the base year (in which case the most recent cost can be used). Consequently, the record keeping for this method is considerable, making it the least desirable method for calculating dollar-value LIFO. This method gets its name from the need to calculate the extended year-end inventory value twice: first at current year costs and again at base year costs. By doing so, we can divide the current-cost total by the base-year cost total to derive the index of current to base year costs. We then use the index to convert the beginning and ending inventory costs for the current period to base year costs. If there is a net gain in the inventory value at the end of the year over the beginning of the year, then we must create a new LIFO layer (which is converted back to current- year costs using the same index). If the reverse occurs, then we reduce the inventory by eliminating the most recent LIFO layers. 2. Link-chain method. This method converts current-year pool costs into base-year costs by calculating a current-year index based on cost increases in the current year, and multiplying this new index by the cumulative index that was calculated through the end of the preceding year. More specifically, we take a large sample of the inventory (50% to 75% of the total dollar value) and extend this sample at the costs existing at the beginning and end of the year. Comparing the two values yields a cost index for the current year. We then multiply this index by the cumulative index through the end of the previous year, which yields a new cumulative cost index through the end of the current year. We then divide the extended year-end inventory value by the cumulative index to determine its base year cost. If this extended base year cost is greater than the original base year cost, then the difference becomes a new LIFO layer, which must be multiplied by the cumulative index to return its value to that of current year costs. This is a much simpler technique to use than the double extension method, pri- marily because there is no need to retain actual unit costs earlier than for the current year. However, its use is greatly limited by IRS regulations, which only permit it in organizations that can demonstrate a high degree of change in their product lines over time, and where the double extension and indexing methods can be proven to be clearly impractical. It can still be used by most companies for financial reporting purposes, but this would, in most cases, require a separate calculation of inventory valuation for tax purposes. 14-9 Dollar-Value LIFO Method 173 14-10 GROSS MARGIN METHOD The gross margin method is a simple calculation that is used to approximately determine the amount of ending inventory without going through the period-end inventory counting process. Given its approximate nature, it is not acceptable for year-end reporting or tax reporting, but can be used for interim financial reporting, where it is not possible to more accurately derive the ending inventory. To calculate it, add beginning inventory to purchases during the period to obtain the total amount of inventory available for sale. Then subtract out the estimated cost of goods sold (actual sales dollars during the period, multiplied by one minus the estimated gross margin), which yields the estimated ending inventory figure. Clearly, the weak link in this calculation is the estimated gross margin percentage, which is typically based on historical performance. However, historical rates may no longer be valid, or there may be an unusual number of markups or markdowns in the current period that skew the historical gross margin percentage, or the mix of products sold in the current period may be so different from historical results that their associated gross margins result in a substantially different actual gross margin percentage. For these reasons, the gross margin method should be used in only a limited number of situations. 14-11 THE LOWER OF COST OR MARKET RULE The accountant should regularly review the contents of the inventory to see if there are any items whose fair market value (assumed to be replacement cost) has fallen below their cost as recorded in the accounting books. If so, each item should be marked down to its fair market value. However, there are some restrictions on the use of this rule. First, there can be no mark up to fair market value if the market value is currently higher than the recorded cost of the inventory item. Second, inventory that has been marked down as per this rule cannot subsequently be marked back up to its initial cost if the fair market value subsequently increases to that point. Third, if an inventory item must have additional costs added to it before it can be prepared for sale, then the lower of cost or market comparison should be between the completed cost and the fair market value, unless a fair market value can reasonably be determined for the uncompleted inventory item. Finally, the lowest amount to which an inventory item can be written down is its net realizable value, less its profit percentage; this last rule is used to prevent a company from being forced to record a loss on inventory items, even when it has a ready market for them at a higher price. If a small loss is recognized based on this rule, it is typically recorded within the cost of goods sold category. If the loss is significant, it should be itemized separately. 14-12 OVERHEAD IDENTIFICATION AND ALLOCATION TO INVENTORY Some overhead costs can be charged off to inventory, rather than being recognized in the cost of goods sold or some other expense category within the current period. Since the proper allocation of these costs can have a large impact on the level of reported income in any given period, it is important for the accountant to fully understand which costs can be shifted to a cost pool for eventual allocation, and how this allocation is to be accomplished. The first question is answered by Exhibit 14-7, which itemizes precisely which costs can 174 Ch. 14 Inventory be shifted into a cost pool. The only cost category about which there is some uncertainty is rework labor, scrap, and spoilage. The exhibit shows that this cost can be charged in either direction. The rule in this case is that any rework, scrap, or spoilage that falls within a nor- mally expected level can be charged to a cost pool for allocation, whereas unusual amounts must be charged off at once. This is clearly a highly subjective area, where some historical records should be maintained that will reveal the trend of these costs, and which can be used as the basis for proving the charging of costs to either category. With Exhibit 14-7 in hand, one can easily construct a cost pool into which the cor- rect costs can be accumulated for later distribution to inventory as allocated overhead costs. The next problem is how to go about making the allocation. This problem is com- prised of four issues, which are: Exhibit 14-7 Allocation of Costs Between Cost Pool and Expense Accounts Description Cost Pool Expense Advertising expenses XXX Costs related to strikes XXX Depreciation and cost depletion XXX Factory administration expenses XXX General and administrative expenses related to overall operations XXX Income taxes XXX Indirect labor and production supervisory wages XXX Indirect materials and supplies XXX Interest XXX Maintenance XXX Marketing expenses XXX Officers’ salaries related to production services XXX Other distribution expenses XXX Pension contribution related to past service costs XXX Production employees’ benefits XXX Quality control and inspection XXX Rent XXX Repair expenses XXX Research and experimental expenses XXX Rework labor, scrap, and spoilage XXX XXX Salaries of officers related to overall operations XXX Selling expenses XXX Taxes other than income taxes related to production assets XXX Tools and equipment not capitalized XXX Utilities XXX Adapted with permission: Bragg, The Controller’s Function, John Wiley & Sons, 2000, p. 147. 14-12 Overhead Identification and Allocation to Inventory 175 1. How to smooth out sudden changes in the cost pool. It is quite common to see an unusual expenditure cause a large jump or drop in the costs accumulated in the cost pool, resulting in a significant difference between periods in the amount of per-unit costs that are allocated out. This can cause large changes in overhead costs from period to period. Though perfectly acceptable from the perspective of generally accepted accounting principles, one may desire a more smoothed-out set of costs from period to period. If so, it is allowable to average the costs in the cost pool over several months, as long as the underlying inventory is actually in stock for a similar period of time. For example, if the inventory turns over four times a year, then it is acceptable to allocate overhead costs each month based on a rolling average of the costs for the preceding three months. 2. What basis to use when allocating costs. The accounting literature has bemoaned the allocation of costs based on direct labor for many years. The reason for this judgment is that direct labor makes up such a small component of total product cost that small swings in the direct labor component can result in a large corresponding swing in the amount of allocated overhead. To avoid this issue, some other unit of activity can be used as the basis for allocation that not only comprises a larger share of total product cost, but that also relates to the incurrence of overhead costs. Another criterion that is frequently overlooked is that the accounting or manufacturing system must have a means of accumulating information about this activity measure, so that the accountant does not have to spend additional time manually compiling the underlying data. An example of an activity measure that generally fulfills these three criteria is machine hours, since standard machine hours are read- ily available in the bill of materials or labor routing for each product, many overhead costs are related to machine usage, and the proportion of machine time used per product is commonly greater than the proportion of direct labor. An even better alternative than the use of machine hours (or some similar single measure) as the basis for allocation is the use of multiple cost pools that are allocated with multiple activity measures. This allows a company to (for example) allocate building costs based on the square footage taken up by each product, machine costs based on machine time used, labor costs based on direct labor hours used, and so on. The main issue to be aware of when using this approach is that the financial statements must still be produced in a timely manner, so one should not go overboard with the use of too many cost pools that will require an inordinate amount of time to allocate. 3. How to calculate the overhead allocation. When allocating overhead costs, they are not simply charged off in total to the on-hand inventory at the end of the month, since the result would be an ever-increasing overhead balance stored in the on-hand inventory that would never be drawn down. On the contrary, much of the overhead is also related to the cost of goods sold. In order to make a proper allocation of costs between the inventory and cost of goods sold, the accountant must determine the total amount of each basis of activity that occurred during the reporting period, and divide this amount into the total amount of overhead in the cost pool, yielding an overhead cost per unit of activity. This cost per unit should then be multiplied by the total amount of the basis of activity related to the period-end inventory to determine the total amount of overhead that should be charged to inventory. This is then com- pared to the amount of overhead already charged to inventory in the previous report- 176 Ch. 14 Inventory ing period to see if any additional overhead costs should be added or subtracted to arrive at the new allocated overhead figure. All other overhead costs, by default, are charged to the cost of goods sold. For example, if there is a cost pool of $100,000 to be allocated, and a total of 25,000 machine hours were used in the period, then the overhead cost per hour of machine time is $4. According to the standard labor routings for all inventory items in stock, it required 17,250 hours of machine time to create the items currently stored in inventory. Using the current cost per machine hour of $4, this means that $69,000 (17,250 hours ϫ $4/hour) can be charged to inventory. However, the inventory overhead account already contains $52,000 of overhead that was charged to it in the preceding month, so the new entry is to debit the inventory overhead account for $17,000 ($69,000 – $52,000), and to debit the cost of goods sold for the remaining amount of overhead, which is $83,000, while the cost pool is credited for $100,000. 4. How to adjust for any unallocated or over-allocated costs. It was recommended earlier in this section that one could smooth out the cost totals in a company’s overhead cost pools by averaging the costs on a rolling basis over several months. The only problem with this approach is that the amount of costs allocated each month will differ somewhat from the actual costs stored in the cost pools. How do we rec- oncile this difference? The annual financial statements should not include any dif- ferences between actual and allocated overhead costs, so the variance should be allocated between inventory and the cost of goods sold at that time, using the usual bases of allocation. If shareholder reporting occurs more frequently than that (such as quarterly), then the accountant should consider making the same adjustment on a more frequent basis. However, if the amount in question will not have a material impact on the financial statement results, the adjustment can be completed just once, at the end of the fiscal year. 14-13 SUMMARY An examination of a company’s flow of costs will result in the decision to value its inven- tories based on the LIFO, FIFO, retail, dollar-value LIFO, or average costing concepts. The LIFO method is the most complex, results in reduced profit recognition and a lower income tax liability in periods of rising inventory costs. The FIFO method is almost as complex, but tends to result in fewer inventory cost layers; it reports higher profits in periods of rising inventory costs, and so has higher attendant tax liabilities. The retail and dollar-value LIFO methods are useful for avoiding the detailed tracking of individual costs for inventory items. The average costing concept avoids the entire layering issue by creating a rolling average of costs without the use of any cost layers; it tends to provide reported profit figures that are between those that would be described using either the LIFO or FIFO methods. As more companies reduce their inventory levels with advanced manufacturing techniques such as material requirements planning and just-in-time, they will find that the reduced amount of inventory left on hand will make the choice of cost flow concept less relevant. 14-13 Summary 177 178 15-1 INTRODUCTION The accounting for accounts receivable appears to be quite straightforward—just convert credit sales into accounts receivable and then cancel them when the corresponding cash is collected. Actually, in a number of instances where this simple process becomes more complicated—credit card transactions, factoring of receivables, sales returns, early payment discounts, long-term receivables, and bad debts. The following sections discuss the proper accounting steps to take when dealing with these special situations. 15-2 DEFINITION OF ACCOUNTS RECEIVABLE The accounts receivable account tends to accumulate a number of transactions that are not strictly accounts receivable, so it is useful to define what should be stored in this account. An account receivable is a claim that is payable in cash, and that is in exchange for the services or goods provided by the company. This definition excludes a note payable, which is essentially a return of loaned funds, and for which a signed note is usually available as documentary evidence. A note payable should be itemized in the financial statements under a separate account. It also excludes any short-term funds loaned to employees (such as employee advances), or employee loans of any type that may be payable over a longer term. These items may more appropriately be stored in an Other Accounts Receivable or Accounts Receivable from Employees account. Also, an accountant should CHAPTER 15 Accounts Receivable 15-1 INTRODUCTION 178 15-2 DEFINITION OF ACCOUNTS RECEIVABLE 178 15-3 THE ACCOUNTS RECEIVABLE TRANSACTION FLOW 179 15-4 CREDIT CARD ACCOUNTS RECEIVABLE 179 15-5 ACCOUNTING FOR FACTORED ACCOUNTS RECEIVABLE 179 15-6 ACCOUNTING FOR SALES RETURNS 181 15-7 ACCOUNTING FOR EARLY PAYMENT DISCOUNTS 181 15-8 ACCOUNTING FOR LONG-TERM ACCOUNTS RECEIVABLE 181 15-9 ACCOUNTING FOR BAD DEBTS 182 15-10 SUMMARY 182 [...]... press costing $ 24, 000 is scheduled to be depreciated over five years The sum of the years digits is 15 (Year 1 + Year 2 + Year 3 + Year 4 + Year 5) The depreciation calculation in each of the five years is: Year 1 = (5/15) ϫ $ 24, 000 = $8,000 Year 2 = (4/ 15) ϫ $ 24, 000 = $6 ,40 0 Year 3 = (3/15) ϫ $ 24, 000 = $4, 800 Year 4 = (2/15) ϫ $ 24, 000 = $3,200 Year 5 = (1/15) ϫ $ 24, 000 = $1,600 $ 24, 000 16- 14 UNITS OF PRODUCTION... 18-1 18-2 18-3 18 -4 18-5 18-6 18-7 INTRODUCTION 200 BONDS DEFINED 200 BASIC BOND TRANSACTIONS 201 ACCOUNTING FOR BOND PREMIUM OR DISCOUNT 202 ACCOUNTING FOR NON-INTEREST BEARING NOTE PAYABLE 203 ACCOUNTING FOR NON-CASH DEBT PAYMENT 203 ACCOUNTING FOR EARLY DEBT RETIREMENT 2 04 18-8 18-9 18-10 18-11 18-12 18-13 18- 14 ACCOUNTING FOR CALLABLE DEBT 2 04 ACCOUNTING FOR DEFAULTED DEBT 205 ACCOUNTING FOR SHORT-TERM... 17-2 17-3 17 -4 17-5 17-6 17-7 INTRODUCTION 193 DEFINITION OF CURRENT LIABILITIES 193 THE ACCOUNTS PAYABLE TRANSACTION FLOW 1 94 ACCOUNTING FOR THE PERIOD-END CUTOFF 195 ACCOUNTING FOR ADVANCE PAYMENTS FROM CUSTOMERS 195 ACCOUNTING FOR ACCRUED EXPENSES 196 ACCOUNTING FOR UNCLAIMED WAGES 197 17-8 17-9 17-10 17-11 17-12 17-13 17- 14 ACCOUNTING FOR INTEREST PAYABLE 197 ACCOUNTING FOR DIVIDENDS 197 ACCOUNTING. .. Double Declining Balance Method Year Beginning Cost Basis Straight-Line Depreciation 200% DDB Depreciation Ending Cost Basis 1 $ 24, 000 $3,333 $6,667 $17,333 2 17,333 2,889 5,778 11,555 3 11,555 1,926 3,852 7,703 4 7,703 1,2 84 2,568 5,135 5 5,135 856 1,712 3 ,42 3 6 3 ,42 3 571 1, 142 2,281 190 Ch 16 Fixed Assets Note that there is still some cost left at the end of the sixth year that has not been depreciated... would be 649 9 (see Appendix C) This would give the debt a present value of $ 649 ,900, at which it should be recorded The difference between the face amount of $1,000,000 and the present value of $ 649 ,900 should be recorded as interest expense payable, with that portion of the expense due within the next year being recorded as a current liability and the remainder as a long-term liability 18-6 ACCOUNTING. .. estimated life of the asset For example, a candy wrapper machine has a cost of $40 ,000 and an expected salvage value of $8,000 It is expected to be in service for eight years Given these assumptions, its annual depreciation expense is: = (Cost – salvage value)/number of years in service = ( $40 ,000 – $8,000)/8 years = $32,000/8 years = $4, 000 depreciation per year 16-12 DOUBLE DECLINING BALANCE DEPRECIATION... UNCLAIMED WAGES 197 17-8 17-9 17-10 17-11 17-12 17-13 17- 14 ACCOUNTING FOR INTEREST PAYABLE 197 ACCOUNTING FOR DIVIDENDS 197 ACCOUNTING FOR TERMINATION BENEFITS 198 ACCOUNTING FOR ESTIMATED PRODUCT RETURNS 198 ACCOUNTING FOR CONTINGENT LIABILITIES 199 ACCOUNTING FOR LONG-TERM PAYABLES NEARING PAYMENT DATES 199 SUMMARY 199 17-1 INTRODUCTION The treatment of accounts payable is somewhat more complicated than... transaction The receiving staff compares the delivery to the referenced purchase order, and accepts the delivery if it matches the purchase order The receiving staff then sends a copy of the receiving documentation to the accounts payable department Meanwhile, the supplier issues an invoice to the company’s accounting department Once the accounting staff receive the invoice, they match it to the initiating... allowed, or if rapid obsolescence is a possibility Given that few companies wish to delay the recognition of revenue for a potentially long period, the accountant will be under some pressure to calculate a reasonably justifiable product return percentage 17- 14 Summary 199 17-12 ACCOUNTING FOR CONTINGENT LIABILITIES A contingent liability is one that will occur if a future event comes to pass, and that... by the creditor), a guarantee of indebtedness, an expropriation threat, a risk of damage to company property, or any potential obligations associated with product warranties or defects If any of these potential events exists, then the accountant is under no obligation to accrue for any potential loss until the associated events come to pass, but should disclose them in a footnote However, if the conditional . $6,567 $9.73 8/30/00 375 $10 .40 40 0 650 – 25 $0 $6,3 24 $9.73 9/9/00 850 $9.50 700 800 150 $1 ,42 5 $7, 749 $9.69 12/12/00 700 $9.75 900 600 – 200 $0 $5,811 $9.69 2/8/01 650 $9.85 800 45 0 – 150 $0 $4, 359 $9.69 5/7/01 200 $10.80 0 650 200 $2,160. 179 15 -4 CREDIT CARD ACCOUNTS RECEIVABLE 179 15-5 ACCOUNTING FOR FACTORED ACCOUNTS RECEIVABLE 179 15-6 ACCOUNTING FOR SALES RETURNS 181 15-7 ACCOUNTING FOR EARLY PAYMENT DISCOUNTS 181 15-8 ACCOUNTING. Cost/Unit 5/3/00 500 $10.00 45 0 50 50 $500 $500 $10.00 6 /4/ 00 1,000 $9.58 350 700 650 $6,227 $6,727 $9.61 7/11/00 250 $10.65 40 0 550 – 150 $0 $5,286 $9.61 8/1/00 47 5 $10.25 350 675 125 $1,281

Định dạng
Số trang	64
Dung lượng	231,17 KB