《會計英語第四版》課件單元3

LessonThree

CurrentAssetsAims:1.Toexplaintheimportanceofcashandtheaccountingtreatmentofcash.2.Tointroducefourinventoryvaluationmethods.3.Toexplaintwosystemsofinventoryaccounting.4.Todiscussthebaddebtandtheaccountingtreatment.5.Tomakeallowancefordoubtfulaccountreceivable.6.Towriteoffanun-collectibleaccountreceivable.3.1

IntroductiontoAssetsAssetsarefutureeconomicbenefitsobtainedorcontrolledbyanentityasaresultofpasttransactionsorevents.Assetsmaybephysical,suchasland,buildings,inventoryofsupplies,material,orfinishedproducts.Assetsmayalsobeintangible,suchaspatentsandtrademarks.Assetsarenormallydividedintotwomajorcategories:currentassetsandlong-termassets.3.2

CurrentAssetsCurrentassetsareassets:(1)intheformofcash;(2)willnormallyberealizedincash;(3)orconservetheuseofcashduringtheoperatingcycleofafirmorforoneyear,whicheverislonger.3.3

CashCashismoneyintheformofbillsorcoins,whichcanpromptpaymentforgoodsorservicesincurrencyorbycheck.Cashislistedfirstinthebalancesheet,becauseitisthemostliquidofallcurrentassets.3.4

InventoryInventoryreferstovariousassetsthatarestockedforthepurposeofsale,productionorconsumptionduringtheprocessoftheproductionandoperationforabusiness.3.5

FourCommonInventoryCostFlowMethodsThefourmethodsare:(1)Specificidentification;(2)First-in,first-out(FIFO);(3)Last-in,fast-out(LIFO);(4)Weighted-average.Specificidentificationisusuallyusedwhenacompanybuysgoodsthatareeasytoidentify.Computers,airplanes,shipscanserveasexamples.Thesecondmethod(first-in,first-out)setsthatthecostoftheitemspurchasedfirstmustbeassignedtothecostofgoodssold.Thethirdmethod(last-in,first-out)assumesthatthecostofthegoodspurchasedlastischargedtothecostofgoodssold.Thefourthmethod(weighted-average)providesthattheaverageunitcostisincludedinthecostofgoodssold.3.6

ImpactontheIncomeStatement

oftheCostFlowMethodThecostflowmethodacompanyusesinitsaccountinghasastraightinfluenceontheincomestatement,costofgoodssold,andthegrossmargin,Sotheincomemustbeinfluenced.3.7

ImpactontheBalanceSheetoftheCostFlowMethodSincethecostofinventoryisallocatedbetweenthecostofgoodssoldandtheendinginventory,thetypeofthecostflowmethodemployedbyacompanyhaseffectsonthebalancesheetaswellastheincomestatement.3.8

AnExampleofthePerpetualInventorySystemAssumethatacompanynamedYouthElectricMotorhadsuchendingbalancesinitsaccounts:Assets=ClaimsCash+Inventory=Contributed

Capital+Retained

Earnings$9

000+$3

000=$9

000+$3

000Nowconsiderthefollowingtransactionsthathappenedin2012:(1)Twopurchasesofelectricmotorweremade;(2)Onesaleofthegoodstookplace.Beginning

Inventory200

units×$15=$3

000(at

cost)Purchase

One240

units×$18=$4

320(at

cost)Purchase

Two160

units×$20=$3

200(at

cost)Sale540

units×$40=$21

600(at

selling

price)3.9

FIFOMethodInourexampleitis$21600for540electricmotorsold.Therevenuerecognitionincreasesbothassets(Cash)andequity(SalesRevenue).Thedifferenceoccurstothecostofgoodssold.UnderFIFO(first-in,first-out),thelaterisdeterminedbyaddingupthe540electricmotorthatcametothecompanyfirst.Thefirst540unitsbroughttoYouthElectricmotorconsistof:200unitsofthebeginninginventoryatthepriceof$15each,240unitsfromthefirstpurchase—$18each,and100fromthesecondpurchase—$20each.ThecalculationofthegoodssoldunderFIFOisthereforeasfollows:Beginning

Inventory200

units×$15=$3

000Purchase

One240

units×$18=$4

320Purchase

Two100

units×$20=$2

000Total$9

3203.10

LIFOMethodAsitnamesimplies(last-in,first-out),thecostofgoodssoldiscalculatedusingthecostsoftheelectricmotorthatthecompanypurchasedlast.The60unitsfromthebeginninginventoryremaininInventory.Thecomputationsarebelow:Purchase

Two160

units×$20=$3

200Purchase

One240

units×$18=$4

320Beginning

Inventory140

units×$15=$2

100Total$9

6203.11

Weighted-averageMethodTheweighted-averagecostperunitis$17.53(i.e.,$10520/600units).Inourillustration,thecosttobemovedfromInventorytotheexpenseaccountis$9466.2(i.e.,$17.53×540units).3.12

TheDifferencesintheFinancialStatements

undertheThreeMethodsIncome

StatementFIFOLIFOWeighted-averageSales$21

600$21

600$21

600Cost

of

Goods

Sold(9

320)(9

620)(9

466)Gross

Margin12

28011

98012

134Operating

Expenses000Income

before

Taxes12

28011

98012

134Income

Tax

Expense(3

684)(3

594)(3

640)Net

Income$8

596$8

386$8

494Balance

SheetAssets

Cash

Inventory$19

3961

200$19

486900$19

4401

054Total

Assets$20

596$20

386$20

494Liabilities$0$0$0Equity

Contributed

Capital

Retained

Earnings$9

00011

596$9

00011

386$9

00011

494Total

Equity$20

596$20

386$20

494Statement

of

Cash

FlowsOperating

Activities

Cash

Inflow

from

Sales

Cash

Outflow

for

Inventory

Cash

Outflow

for

Tax$21

600(7

520)(3

684)$21

600(7

520)(3

594)$21

600(7

520)(3

640)Net

Cash

Flow

from

Operating

Activities$10

396$10

486$10

440Investing

Activities$0$0$0Financing

Activities$0$0$0Net

Increase

in

Cash$10

396$10

486$10

440Beginning

Cash

Balance$9

000$9

000$9

000Ending

Cash

Balance$19

396$19

486$19

4403.13

TheDifferenceintheIncome

beforeTaxesundertheThreeMethodsYouhavepossiblynoticedthattheamountofincomebeforetaxesisthebiggestforFIFO($12280),andthelowestforLIFO($11980).Whyso?Considerthattheendinginventoriesarejustviseversaforthetwomethods(respectively,$1200and$900).So,thecostofgoodssoldforFIFOislower($9320)thanthatforLIFO($9620).Asaresult,wecanseethedifferenceintheincomebeforetaxes.3.15

PeriodicSystemUnderperiodicsysteminventoryrecordsarenotchangedwhenpurchasesandsalesoccur.Theamountofendinginventoryisdeterminedbyaphysicalcountofthegoodsremainingonhandattheendofanaccountingperiod.Thecostofgoodssoldiscomputedthenbysubtractingtheamountofendinginventoryfromthegoodsavailableforsale.3.16

TheUseoftheLowerofCostorMarketRuleOncethecostofendinginventoryiscomputed,itisrequiredtocompareitwiththecurrentmarketvalue.Ifthemarketvalueofendinginventoryislowerthanthebookvalueofsuchinventory,theresultantlossmustberecognizedinthecurrentperiod.3.17

InventoryLossIfthemarketvalueofanitem(oritemsinaggregate)islowerthanitscost,thecompanyhastoreduceitsendinginventorybytheamountofdifference.3.18

AccountReceivable(or:Debtors)Accountsreceivableareveryliquidassets,usuallybeingconvertedintocashwithinaperiodof30to60days.Mostbusinessessellgoodsoncredittermsi.e.totradedebtors.Itmustberecognized,however,thatthereisariskthatsomedebtorswillfailtopaytheirdebtsi.e.thatthedebtsmaybeuncollectible.3.19

HowtoCreateanAccountsReceivable?Thecustomerpurchasesaproduct,butagreestopayforitlater.Insuchsituations,theamountofmoneythatacompanyexpectstogetinthefuturefromacustomeriscalledanaccountreceivable.3.20

TheAllowanceMethodofAccounting

forBadDebts:anExampleUsuallyacompanycannotknowforsurehowmuchofaccountsreceivablewillbedoubtfulinthefuture.Insuchacase,nevertheless,itisreasonabletomakeanestimate.TheamountofaccountsreceivablethatisexpectedtobeuncollectibleisrecordedinaspecialcontraassetaccountcalledAllowanceforDoubtfulDebts.3.21

TheGeneralJournalandT-accountsThetransactionsandtheclosingentryareshowninthegeneraljournalandT-accountsasfollows:DateAccount

TitlesDebitCredit1Accounts

Receivable

Service

Revenue6

0006

0002Cash

Accounts

Receivable3

6003

6003Bad

Debts

Expense

Allowance

for

Doubtful

Debts

400

400ClosingEntryService

Revenue

Bad

Debts

Expense

Retained

Earnings6

000

4005

600Assets=Liabilities+EquityCash0Retained

Earnings(2)3

600(cl.)5

600

Bal.

3

600Bal.

5

600Accounts

ReceivableServices

Revenue(1)6

000(2)3

600

(cl.)6

000(1)6

000

Bal.

2

400Bal.

0Allowance

for

DoubtfulDebtsBad

Debts

Expense(3)400(cl.)400(3)400Bal.

0

Bal.

4003.22

ThreeFinancialStatementsFinancial

Statements

for

2012Income

StatementBalance

SheetStatement

of

Cash

FlowsService

Revenue6

000Assets

Cash

Accounts

Receivable

Less:

Allowance

Net

Realizable

Value3

6002

400(400)2

000Operating

Activities

Cash

Receipts3

600Bad

Debts

Expense(400)Net

Income5

600Investing

Activities0Total

Assets5

600Financing

Activities0Equity

Retained

Earnings5

600Net

Change

in