Accounting Concepts and Calculations: A Comprehensive Guide
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Accounting Concepts and Calculations
1. Income Statement
- Gross Sales: Total sales before any deductions.
- Returns: Deducted from gross sales to calculate net sales.
- Cash Discounts: Deducted from gross sales to calculate net sales.
- Net Sales: Gross sales minus returns and cash discounts.
- Cost of Goods Sold (COGS): The cost of the goods sold during the period.
- Other Expenses: Expenses not related to COGS.
- Profit Before Tax: Net sales minus COGS and other expenses.
- Tax Expense: Taxes owed on profit before tax.
- Net Income: Profit before tax minus tax expense.
2. Balance Sheet
- Accounts Receivable: Money owed to the company by customers for goods or services sold on credit.
- Allowance for Doubtful Accounts (ADA): An estimate of the amount of accounts receivable that will not be collected.
- Net Accounts Receivable: Accounts receivable minus ADA.
3. Inventory Management
- FIFO (First-In, First-Out): Assumes that the oldest inventory is sold first.
- AV W (Average Weighted): Calculates the average cost of goods sold based on the cost of all inventory purchased during the period.
- Ending Inventory: The value of the inventory on hand at the end of the period.
4. Depreciation
- Straight-Line Depreciation: Allocates the cost of an asset evenly over its useful life.
- Accumulated Depreciation: The total amount of depreciation that has been recorded for an asset.
- Book Value: The cost of an asset minus accumulated depreciation.
- Depreciation Expense: The amount of depreciation recorded for an asset during a period.
5. Double-Declining Balance Method (DDM)
- Calculates depreciation based on a fixed percentage of the book value of an asset.
- Results in higher depreciation expense in the early years of an asset's life.
6. Units of Production Method
- Calculates depreciation based on the number of units produced by an asset.
- Results in more accurate depreciation expense allocation for assets that are used unevenly over their useful life.