Review for Exam 2 Chapter 5: Be familiar with both the income statement and balance sheet accounts that are affected when we make a sale: Sales, Sales R&A, Sales Discounts, Cash, A/R Understand how to read credit terms related to sales and purchase discounts. Know how to record a sales discount. Know the Cost of Goods Purchased model. Know the Cost of Goods Sold model. Know how to record a purchase discount. Know the difference between a perpetual and periodic inventory system. Understand FOB shipping point and FOB destination. Understand the effects of incorrect inventory counts – overstated vs. understated Know what the specific identification method is used for. Know how to calculate ending inventory and COGS for FIFO, LIFO and weighted average cost methods. Know the journal entries for perpetual vs. periodic and the differential effects of the two methods. Chapter 6: Know what cash and cash equivalents are and how they are classified on the balance sheet. Know the steps in preparing a bank reconciliation. This includes knowing what is added to and subtracted from both the books and the bank, as well as finding an adjusted balance and making journal entries for adjustments to the books. Chapter 7: Know what the direct write-off method of accounting for bad debts is and why it is wrong. Know the two approaches for the allowance method of accounting for bad debts and how to use them as well as associated journal entries. Know how to record accrued interest on a note receivable, as well as the journal entry when the note matures.
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