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 Summering of chapters

Introduction

In the following chapters we will briefly discuss the main points and head
lines that we studied before such:
Inventory Cost Flow Assumptions: Companies make certain assumptions
about which goods are sold and which goods remain in inventory. This is
for financial reporting and tax purposes only and does not have to agree
with the actual movement of goods.
In this study also, we introduce you to the subject of accounting
information systems (AIS), describe the importance of AIS to your future
success
And we will discuss the Internal control procedures for the receipt of cash
help your small business prevent loss due to employee fraud and
accounting errors.
And we will discuss the main points of receivables and we will know that
the Accounts receivable are the lifeblood of a business's cash flow.
Sometimes referred to as A/R, "accounts receivable" is the accounting
term used to refer to the money that the business should receive from its
customers for the goods or services it provided.
Finally we will describe how the historical cost principle applies to plant
assets, how to compute the depletion of natural resources and
amortization of intangible assets.

2
 Second part: Topic:

Chapter 6: Inventories

Inventory refers to the assets a company (1) intends to sell in the normal
course of business, (2) has in production for future sale (work in process),
or (3) uses currently in the production of goods to be sold (raw materials).

Inventory usually is one of the most valuable assets listed in the balance
sheet for manufacturing, wholesale, and retail companies (enterprises that
produce revenue by selling goods). Similarly, cost of goods sold typically
is the largest expense in the income statement of these companies.

Types of Inventory Systems

Two accounting systems are used to record transactions involving inventory:

the perpetual inventory system and the periodic inventory system.

Periodic Inventory System

It is not designed to track either the quantity or cost of merchandise.

The merchandise inventory account balance is not adjusted as purchases

and sales are made but only periodically at the end of a reporting period.

Inventory costing methods under a Periodic system:

Specific identification method: Is used frequently by companies selling

unique, expensive products with low sales volume which makes it
relatively easy and economically feasible to associate each item with its
actual cost.

Weighted average cost: assumes that cost of goods sold and ending
inventory consist of a mixture of all the goods available for sale.

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 First In, First Out. (FIFO) assumes that units sold are the first units
acquired.

Last-In, First-Out (LIFO): assumes that the units sold are the most
recent units purchased

Effects of these methods in a period of rising and declining prices:

When rising prices FIFO will provide the lowest Cost of Goods Sold
When rising prices LIFO will provide the highest Cost of Goods Sold
When declining prices FIFO will provide the highest Cost of Goods Sold
When declining prices LIFO will provide the lowest Cost of Goods Sold
When rising prices Weighted Average will provide a Cost of Goods Sold
amount that falls between FIFO and LIFO.
Valuation of Inventory in balance Sheet
Inventory must be reported at lower of cost or market, if we use market it
is called current replacement cost.
Chapter 7: Accounting information system.
is a structure that a business uses to collect, store, manage, process,
retrieve and report its financial data so that it can be used by accountants,
finance managers, consultants, business analysts, managers.
Special Journal in Accounting
An actual accounting system employs many different types of journals.
The purpose of each journal is to record, in chronological order, the dual
effect of a transaction in debit/credit form.
Subsidiary Ledgers
The general ledger contains what are referred to as control accounts. In
addition to the general ledger, a subsidiary ledger contains a group of
subsidiary accounts associated with a particular general ledger account.

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Special journals in accounting includes:
Sales journal: for recording credit sales (sales on account).
Cash receipts journal: for recording cash receipts.
Purchase journal: for recording credit purchases.
Cash disbursements : journal: for recording cash payment.
General journal: for transactions not in special journals

Chapter 8: Fraud and internal control , and cash

Cash includes currency and coins, balances in checking accounts, and
items acceptable for deposit in these accounts, such as checks
Cash Disbursements Controls
Voucher system, Petty cash fund.
1) Voucher System A voucher is an authorization form prepared for each
expenditure. 2) Petty Cash Fund – Used to pay small amounts .If there is
a difference between a cash register and cash register records it will be
called cash over and short.
Bank reconciliation:
The factors that cause Bank statement balance differs from Depositors
(company) book balance: Outstanding checks, Deposit in transit: also
called (outstanding deposit), Deduction of uncollectible items and for
services, Additions for collections and for interest, Errors.
Chapter 9: Accounting for receivables.
Receivables resulting from the sale of goods or services on account are
called accounts receivable and often are referred to as trade receivables.
Nontrade receivables are those other than trade receivables and include
tax refund claims, interest receivable, When a receivable, is accompanied
by a formal promissory note, it is referred to as a note receivable.
Three accounting issues associated with accounts receivable are:
Recognizing, Valuing, Disposing of accounts receivable.

5
 Uncollectible accounts can be treated using two systems
Direct write-off method: Records the loss from an uncollectible account
receivable when it is determined to be uncollectible.
Allowance method: When a company directly grants credit to its
customers, it expects that some customers will not pay what they
promised
Notes receivable: Is a written promise to pay a specified amount of
money on demand or at a definite time.
Chapter 10: Plant Assets, Natural Resources, and Intangible Assets:
Plant Assets Tangible resources used in the business and Not intended for
sale. Such: Land, 2. Land improvements, 3. Buildings. 4. Equipment.
When we acquire a plant asset, it is recorded at its historical cost.
Depreciation Methods 1) Straight-line 2) Units-of-production 3)
Declining-balance
Intangible Assets Non-current assets without physical substance.
Such: 1. Patents 2. Copyrights 3. Franchises & Licenses 4.Goodwill
Natural Resources Such as: oil, coal, timber, gold, gravel, Minerals, and
a wide variety of other natural resources
Third part, Conclusion
The conclusion is we should know that the Cost flow assumptions are
timing issues. I.e., over the life of the firm the total cost of goods sold for
financial reporting and tax purposes must be equal to the total price paid
for inventory. We should know that under the periodic system, the
amount in the inventories account is not updated at the time of purchase.
Accounting information systems generally consist of six main parts:
people, procedures and instructions, data, software, information
technology infrastructure and internal controls. Any withdrawals of
company cash must be accompanied by the proper authorization from a
supervisor or manager. Your business's accounts receivable are an
important part of calculating your profitability, and provide the clearest
indicator of the business's income. They are considered an asset, as they
6
represent money coming into the company. Tangible assets are often an
essential resource for small business. They are the fixed (ie physical)
operating resources that your business uses over a long period
Reference list:
 Accounting principles, 13th edition, Kieso, Weygandt, Kimmel.
 Power point of Accounting principles 13th edition
 Online lecture Dr. Sabry Al Segeny.