Module 4 - Audio File Legend
Part
1
2
3
4
5
Content
Learning Objectives and Basics of
merchandising operations
Recording merchandise purchases and sales
Problem: Purchase and sale journal entries
Income Statement Formats and Using the
information - Gross Profit Ratio
Summary and Review Problems
2
Part 1 – Learning Objectives
1. Explain merchandising activities and analyze
their effects on financial statements (Level 2)
2. Determine the cost of goods sold and ending
inventory using:
– a perpetual inventory accounting system
(Level 1); and
– a periodic inventory accounting system
(Level 2)
3. Explain the ethical issues related to cash
discounts (Level1)
4. Record shrinkage adjustments for a
merchandiser (Level 2)
3
1
Part 1 – Learning Objectives
5.
6.
7.
Record the revenue from the sales of
merchandise and the collection of payment
(Level 1)
Complete a worksheet and prepare the
closing entries for a merchandising business
(Level 2)
Prepare income statements in alternative
formats(Level 1)
4
Part 1 – Basics of Merchandising Operations
What is a merchandising company?
Merchandising company - purchases merchandise
inventory and resells it at a profit
• Net sales - Cost of goods sold
= Gross profit (also called “Gross margin”)
• Gross profit - Operating expenses
= Net income (or Net loss)
Service enterprise - charges a fee for service performed
• Fee or commission revenue - operating
expenses
= Net income (or Net loss)
5
Part 1 – Basics of Merchandising Operations
What is Cost of Goods Sold?
• Cost of goods sold (COGS) is also called Cost of sales
(COS)
• It is the expense of buying and preparing
merchandise inventory for resale
Basic Formula:
COGS = Opening Balance, Inventory
Add: Purchases (net)
=
Goods Available for Sale (GAS)
Less: Closing Balance, Inventory
=
Cost of Goods Sold (COGS)
6
2
Part 1 – Basics of Merchandising Operations
Basic Formula - COGS: Example
Assume:
• opening inventory was $1,000,
• purchases during the year were $15,000 and
• the inventory count at year-end showed
inventory to be $3,000
Required: Calculate COGS for the year
7
Part 1 – Basics of Merchandising Operations
Basic Formula – COGS: Solution
OB, Inv + Purchases = Goods available for sale
Goods available for sale – CB, Inv = COGS
COGS:
GAS: $1,000 + 15,000 = $16,000
COGS $16,000 – 3,000 = $13,000
8
Part 1 - Basics of Merchandising Operations
Periodic system
• does NOT keep track of
inventory balance during
year
• records inventory based
on physical count @ yearend
• uses formula to calculate
COGS
• uses temporary
purchases account
• monthly F/S estimate
COGS/inventory balances
• Level 2 (effective 12/02)
Perpetual system
• DOES keep track of
inventory balance during
year
• purchases & COGS
update inventory per G/L
on continuous basis
• COGS recorded for each
sale
• adjust year-end inventory
per G/L based on
physical count
• Level 1 (effective 12/02)
9
3
Part 1 - Basics of Merchandising Operations
Periodic system
• does NOT keep track of
inventory balance during
year
• records inventory based
on physical count @ yearend
• uses formula to calculate
COGS
• uses temporary
purchases account
• monthly F/S estimate
COGS/inventory balances
• Level 2 (effective 12/02)
Perpetual system
• DOES keep track of
inventory balance during
year
• purchases & COGS
update inventory per G/L
on continuous basis
• COGS recorded for each
sale
• adjust year-end
inventory per G/L based
on physical count
• Level 1 (effective 12/02)
10
Part 2 – Recording Purchase Transactions
1. Merchandise inventory purchases
•
•
record transaction at purchase date
assume here that all purchases on credit
Perpetual system
Dr Merchandise inventory
Cr Accounts payable
Periodic system
Dr Purchases
Cr Accounts payable
11
Part 2 – Recording Purchase Transactions
2. Purchase returns & allowances
•
•
•
“return” if goods returned to supplier
“allowance” if goods defective, but kept for sale
at a discount, and supplier decreases purchase price
record entry at date of return/agreement with
supplier
Perpetual system
Periodic system
Dr Accounts payable
Cr Merchandise inventory
Dr Accounts payable
Cr Purchase returns
12
4
Part 2 – Recording Purchase Transactions
3.
•
•
•
•
Purchase discounts
purchaser gets a cash discount for prompt
payment of purchases made on credit
discounts reduce cost, so the cost recorded in the
merchandise inventory account must reflect prices
net of discounts
supplier receives cash early and reduces risk of
uncollectible accounts
don’t confuse with a trade discount, which is
when a merchandiser negotiates a purchase price
lower than the ‘list’ price. If trade discount
received, simply record purchase at actual invoice
price
13
Part 2 – Recording Purchase Transactions
Credit terms:
n/30: payment is due 30 days after invoice date
n = net amount (balance that is due)
/30 = # days after the invoice date that the
payment is due
if n/45 = balance due in 45 days
n/10 EOM (net 10, end of month) - payment is
due 10 days after the end of the month in
which the sale occurred
14
Part 2 – Recording Purchase Transactions
Credit terms:
2/10, n/30 - payment is due 30 days after date of
invoice, but a 2% discount can be taken if the
invoice is paid within 10 days
2
= percentage of discount
10
= # of days after the invoice date that
payment is due
n/30 = normal credit terms
3/15, n/45: can take a 3% discount if paid within 15
days, otherwise balance is due in 45 days
Ethical issue
•
when taking the discount, pay on time!
15
5
Part 2 – Recording Purchase Transactions
Recording purchase discounts – Gross Method
•
•
record the discount only when taken
in perpetual system, discount directly reduces
cost of inventory; in periodic system it is
accumulated in “purchase discounts” account
To record payment for the inventory, less purchase discount:
Perpetual system
Periodic system
Dr Accounts payable
Cr Cash
Cr Merchandise inventory
Dr Accounts payable
Cr Cash
Cr Purchase discounts
16
Part 2 – Recording Purchase Transactions
Recording purchase discounts – Net Method
• net method records the discount at the time of
purchase, not at the time of payment
• any discounts lost due to missing the payment
deadline are recorded as an operating expense
• the net method is the preferred theoretical
approach, as it highlights cost to organization of
not taking discount
• notes state that “gross method will be
emphasized” and students should be aware that
other alternatives exist. So, I think you should
just make a note of what the net method is.
17
Part 2 – Recording Purchase Transactions
4. Transportation-In costs
•
•
cost to receive inventory from supplier
does NOT include cost to ship goods to customers,
which is a selling cost
Perpetual system
Dr Merchandise inventory
Cr Accounts payable
Periodic system
Dr Transportation-in
Cr Accounts payable
18
6
Part 2 – Recording Purchase Transactions
Transportation Costs: FOB “Free On Board”
•
•
•
•
the supplier records the sale and purchaser
records the purchase at time that title to the
goods is transferred
transfer of ownership depends on WHO pays
transportation costs and determines WHEN
revenue is recognized
FOB identifies WHEN ownership has transferred
seller pays to deliver goods to specified locationeither FOB shipping point or FOB destination. At
the FOB point, title passes from seller to buyer
19
Part 2 – Recording Purchase Transactions
SELLER
BUYER
FOB Shipping Point
FOB Destination
• Ownership transfers
when goods passed to
carrier(shipping point)
• Seller records revenue
• Buyer records inventory
• Buyer pays transport costs,
which are included in
inventory
•Ownership transfers
when goods reach
buyer (destination)
•Seller records revenue
•Buyer records inventory
•Seller pays transport costs
(operating not COGS)
20
Part 2 – Recording Purchase Transactions
Example: Buyer located in Toronto
Seller located in Vancouver
Terms:



FOB, Vancouver
ownership transfers when goods delivered
to transportation company in Vancouver
buyer pays transportation costs (cost
added to inventory)
seller recognizes revenue/receivable &
buyer accrues payable/inventory on date
goods shipped
21
7
Part 2 – Recording Purchase Transactions
Example:
Terms:
Buyer located in Toronto
Seller located in Vancouver
FOB, Toronto
 ownership transfers when goods arrive in
Toronto
 seller pays transportation costs (selling
cost)
 seller recognizes revenue/receivable &
buyer accrues payable/inventory on date
goods arrive in Toronto
22
Part 2 – Recording Purchase Transactions
5. Shrinkage
•
•
•
Loss of inventory due to theft or deterioration
In perpetual system, it is the difference between
actual inventory per count, and inventory per G/L
In periodic system, shrinkage can not be isolated
Perpetual system
Dr COGS
Cr Merchandise inventory
Periodic system
No entry
23
Part 2 – Recording Purchase Transactions
6. Closing Entries
•
•
recorded at month-end and/or year-end
entries that are specific to inventory accounts
Perpetual system
Dr Income Summary
Cr COGS
Periodic system
Dr
Dr
Dr
Dr
Inventory, CB
Purchase returns
Purchase discounts
Income Summary
Cr Purchases
Cr Transport-In
Cr Inventory, OB
24
8
Part 2 – Recording Purchase Transactions
Summary – Periodic calculations:
COGS
= Inventory, Opening Balances
+ Net Purchases
= Goods Available for Sale (GAS)
- Inventory, Closing Balance
= COGS
Net Purchases:
Purchases
- Purchase returns
- Purchase discounts
+ Transportation-In
= Net purchases
25
Part 2 – Recording Sale Transactions
1. Gross sales and cost of sales
•
•
Gross sales revenue from cash and credit sales is
recorded when earned - usually when the goods are
delivered (refer to FOB)
Cost of sales are recorded at the time of sale in the
perpetual system only
Perpetual system
Dr Accounts Receivable
Cr Sales Revenue
Dr COGS
Cr Merchandise Inventory
Periodic system
Dr Accounts
Receivable
Cr Sales Revenue
No entry for COGS
26
Part 2 – Recording Sale Transactions
2. Sales returns and allowances
•
•
goods returned by customer(sales return) or kept at
a reduced sales price(sales allowance) – contra
revenue account
cost of sales related to returns (not allowances!) are
recorded in the perpetual system only
Perpetual system
Periodic system
1. Return AND allowance
Dr Sales Returns & Allow
Cr Accounts Receivable
2. Return only
Dr Merchandise Inventory
Cr COGS
1. Return AND allowance
Dr Sales Returns & Allow
Cr Accounts Receivable
2. Return only
No entry
27
9
Part 2 – Recording Sale Transactions
3. Sales discounts
•
•
•
same concept as purchase discounts where a
discount is offered for prompt payment of accounts
receivable
record discount when cash payment is received
sales discounts is a contra-revenue account
Perpetual system
Dr Cash
Dr Sales Discounts
Cr Accounts Receivable
Periodic system
Dr Cash
Dr Sales Discounts
Cr Accounts Receivable
28
Part 2 – Recording Sale Transactions
Summary
Sales (net)
- COGS
= Gross Profit (or Gross Margin)
Sales (net): Sales
- Sales returns and allowances
- Sales discounts
= Net Sales
29
Part 3 – Problem: Purchase & Sale Journal Entries
Refer to Module 4 Handout #1
Problem – Purchase and Sale Journal entries
REQUIRED:
The handout lists sales and purchase transactions
which occurred during the year. For each transaction,
prepare the required journal entry under both the
perpetual & periodic systems.
Complete handout then
come back for solution
30
10
Part 3 – Problem: Purchase & Sale Journal Entries
The following sales and purchase transactions occurred during
the year. For each transaction, prepare the required journal
entry under both the perpetual & periodic systems.
TRANSACTION # 1:
Make purchase of $10,000, terms 2/10 net 30
JOURNAL ENTRY – Perpetual system
Inventory
10,000
Accounts Payable 10,000
JOURNAL ENTRY – Periodic system
Purchases
10,000
Accounts Payable 10,000
31
Part 3 – Problem: Purchase & Sale Journal Entries
TRANSACTION # 2:
Return $2,000 of purchases to supplier
JOURNAL ENTRY – Perpetual system
Accounts Payable
Inventory
2,000
2,000
JOURNAL ENTRY – Periodic system
Accounts Payable
Purchase return
2,000
2,000
32
Part 3 – Problem: Purchase & Sale Journal Entries
TRANSACTION # 3:
Pay for purchases within discount period
JOURNAL ENTRY – Perpetual system
Accounts Payable
8,000(i)
Cash
7,840
Inventory
160(ii)
JOURNAL ENTRY – Periodic system
Accounts Payable
8,000(i)
Cash
7,840
Purchase discount
160 (ii)
(i) Accounts Payable: $10,000 – 2,000 = $8,000
(ii) Purchase discount: $8,000 * 2% = $160
33
11
Part 3 – Problem: Purchase & Sale Journal Entries
TRANSACTION # 4:
Pay transportation-in costs
JOURNAL ENTRY – Perpetual system
Inventory
Cash
300
300
JOURNAL ENTRY – Periodic system
Transportation-in
Cash
300
300
34
Part 3 – Problem: Purchase & Sale Journal Entries
TRANSACTION # 5:
Sell ½ the inventory for $12,000; terms 1.5/15 net 30
JOURNAL ENTRY – Perpetual system
Accounts Receivable 12,000
Sales Revenue
12,000
Cost of goods sold
4,070(i)
Inventory
4,070
(i) Inventory: $10,000 – 2,000 – 160 +300 = $8,140
Therefore, COGS: $8,140 X ½ = $4,070
JOURNAL ENTRY – Periodic system
Accounts Receivable 12,000
Sales Revenue
12,000
No entry for Cost of goods sold
35
Part 3 – Problem: Purchase & Sale Journal Entries
TRANSACTION # 6:
10% of sales returned for credit
JOURNAL ENTRY – Perpetual system
Sales returns
1,200
Accounts receivable
1,200
Inventory
407(i)
Cost of goods sold
407
(i)10% of sales returned, cost: $4,070* 10%
JOURNAL ENTRY – Periodic system
Sales returns
1,200
Accounts Receivable
1,200
No entry for Cost of goods sold
36
12
Part 3 – Problem: Purchase & Sale Journal Entries
TRANSACTION # 7:
Cash received within discount period
JOURNAL ENTRY – Perpetual system
Cash
10,638
Sales discounts
162 (i)
Accounts receivable
10,800
JOURNAL ENTRY – Periodic system
Cash
10,638
Sales discounts
162 (i)
Accounts receivable
10,800
(i) A/R: $12,000 – 1,200 = 10,800 * 1.5% = $162
37
Part 3 – Problem: Purchase & Sale Journal Entries
TRANSACTION # 8:
Do year-end inventory count: $4,400
JOURNAL ENTRY – Perpetual system
Cost of goods sold 77
Inventory
77 (i)
(i) Inventory: Per general ledger $4,070 + 407 = $4,477
Per count
4,400
Shrinkage
$ 77
JOURNAL ENTRY – Periodic system
No entry
38
Part 3 – Problem: Purchase & Sale Journal Entries
TRANSACTION # 9:
Do closing entries:
JOURNAL ENTRY – Perpetual system
Sales revenue
12,000
Sales returns
1,200
Sales discounts
162
Income summary 10,638
Income summary
3,740
COGS
3,740(i)
(i) COGS: $4,070 – 407 – 77 = $3,740
39
13
Part 3 – Problem: Purchase & Sale Journal Entries
TRANSACTION # 9: Do closing entries, continued:
JOURNAL ENTRY – Periodic system
Sales revenue
12,000
Sales returns
1,200
Sales discounts
162
Income summary 10,638
Inventory, CB
4,400
Income summary 3,740
Purchase discount
160
Purchase return
2,000
Purchases
10,000
Transportation-in
300
40
Part 4 - Income Statement Formats
Income Statement Formats
Turn to Text
Page 283
1. Classified, Multiple-Step:
Text pg 283
• details net sales: sales-returns-discounts &
gross profit
• details operating expenses: selling are
classified separately from general and
administrative expenses
• for internal reporting only
41
Part 4 - Income Statement Formats
2. Multi-Step: Text pg 284
• similar to classified except eliminates detail
of net sales and combines costs of selling &
general and administration
3. Single-Step: Text pg 284
• groups all revenues together and all
expenses together (including COGS), and
usually shows a very summarized listing of
operating expenses
42
14
Part 4 - Using the Information- Gross Profit Ratio
Gross Profit Ratio = Gross Profit x 100
Net sales
Gross Profit (or Gross Margin) = Net sales – COGS
• a strong gross profit ratio is important to ensure that
the merchandising company’s operating expenses
are covered and net income is earned;
• usually compare gross profit ratio to prior years and
to industry standards.
43
Part 4 - Using the Information- Gross profit ratio
Gross profit ratio
=
Gross profit
Net sales
Example:
Sales
Sales discounts
Net sales
Less: Cost of goods sold
Gross profit
Gross profit ratio (5,000/10,000)
$10,200
200
$10,000
5,000
$ 5,000
50%
44
Part 4 – Exercise: Income Statements & Ratio
Exercise 6 – 15 , pg 318
Required:
a. Prepare a multi-step income statement;
b. Calculate the gross profit ratio;
c. Prepare a single-step income statement;
Stop Presentation
Complete required
Then come back for solution!
45
15
Part 4 – Exercise: Income Statements & Ratio
Exercise 6 – 15 , Part (a) solution
Compu-Soft
Income Statement (Multi-Step)
For the month ended November 30, 2005
Net sales(27,700 – 45 - 720)
$26,935
Cost of goods sold
14,800
Gross profit from sales
12,135
Operating expenses:
Wages
$4,200
Utilities
2,100
Amortization
120 6,420
Income from operations
5,715
Other revenue and expense
Rental revenue
850
Net income
$ 6,565
46
Part 4 – Exercise: Income Statements & Ratio
Exercise 6 – 15 , Part (b) solution
Gross Profit Ratio:
$12,135
$26,936
= 45%
•
Need to compare this ratio to
 prior years
 industry averages
47
Part 4 – Exercise: Income Statements & Ratio
Exercise 6 – 15 , Part (c) solution
Compu-Soft
Income Statement(Single-Step)
For the month ended November 30, 2005
Revenues:
Net sales
Rent revenue
Total revenues
Expenses:
Cost of goods sold
Other operating costs
Total expenses
Net income
$26,935
850
14,800
6,420
$ 27,785
21,220
$ 6,565
48
16
Part 5 - Summary
1. Under a perpetual inventory system (level 1)
• purchases are recorded as a debit to merchandise
inventory and a credit to accounts payable
• purchase returns and allowances, purchase
discounts, and transportation-in are all recorded
directly to the merchandise inventory account
• as sales are recorded, the cost of goods sold is taken
out of the merchandise inventory account
• the merchandise inventory account is continually
updated
• at the end of the year,when a physical count is
performed, the actual inventory is reconciled to the
inventory recorded in the general ledger and any
shrinkage is charged/credited to cost of goods sold.
49
Part 5 - Summary
2. Under a periodic inventory system (level 2):
•
purchases are recorded as a debit to purchases
and a credit to accounts payable
•
purchase returns and allowances, purchase
discounts, and transportation-in are all recorded in
separate accounts that net against purchases
•
when sales are recorded, NO cost of goods sold is
recorded. Cost of goods sold is determined at the
end of the period based on a physical count
•
the merchandise inventory account is only updated
at the end of the year when the physical count is
performed
50
Part 5 - Summary
3. Useful formulas for merchandising companies:
•
Gross profit = Net sales - Cost of goods sold
•
Cost of goods sold = Beginning inventory +
Cost of goods purchased - Ending inventory
•
Net income = Gross profit - Operating expenses
4. Sales, Sales returns and allowances, and Sales
discounts are recorded in separate accounts.
Under the perpetual system, sales returns that are
returned to inventory must be also be recorded in
the inventory account, and cost of goods sold
must be adjusted.
51
17
Part 5 - Summary
5. FOB, or Free On Board, is term that identifies who is
responsible for shipping costs and consequently,
when ownership transfers from the seller to the
buyer. FOB shipping pt – buyer pays shipping
FOB destination – seller pays
6. The closing process for a merchandise company is
identical to that for a service company. The only
difference is that there are additional temporary
accounts to close.
7. The gross profit ratio = Gross Profit/Net sales. It is
used to assess a company’s profitability before
deducting operating expenses.
52
Part 5 - Review Questions
Refer to Module 4 Handout #2
March 2004 Exam, Question 3 (13 marks)
REQUIRED:
a. Prepare journal entries;
b. Calculate closing inventory
Complete handout then
come back for solution
53
Part 5 - Review Questions
March 2004 Exam, Question 3 (13 marks)
The following selected events and transactions relate
to Needer Ltd. for the year ended December 31,
2003. The company uses a perpetual inventory
system using the gross method of accounting for
purchase discounts.
1.
Purchases of merchandise, all on account, totaled
$590,000. The company’s suppliers offer purchase
discounts with the terms of 1/10, n/30.
Inventory
590,000
Accounts payable
590,000
54
18
Part 5 - Review Questions
March 2004 Exam, Question 3 (13 marks)
2.
Needer incurred transportation-in costs of
$6,000. The transportation costs were paid
for in cash.
Inventory
Cash
6,000
6,000
55
Part 5 - Review Questions
March 2004 Exam, Question 3 (13 marks)
3.
Needer paid for $560,000 of the inventory
purchased, taking advantage of the purchase
discount of 60% of the inventory paid for.
Accounts payable
Inventory
Cash
560,000
3,360
556,640
56
Part 5 - Review Questions
March 2004 Exam, Question 3 (13 marks), con’t
4.
Inventory, purchased at a cost of $20,000,
was returned to the supplier in exchange for
cash. The inventory had already been paid for
and Needer did not take advantage of the
purchase discount when it paid for the
inventory.
Cash
20,000
Inventory
20,000
57
19
Part 5 - Review Questions
March 2004 Exam, Question 3 (13 marks), con’t
5.
Sales for the year amounted to $920,000, all of
which were cash. The cost of inventory is equal to
50% of its selling price.
Cash
920,000
Sales Revenue
920,000
COGS
460,000*
Inventory
460,000
* Cost of sales: $920,000 * 50%
58
Part 5 - Review Questions
March 2004 Exam, Question 3 (13 marks), con’t
6.
At year-end, an inventory count revealed that
actual inventory on hand was $13,000 less
than the amount showing in the general ledger
inventory account.
COGS
13,000
Inventory
13,000
59
Part 5 - Review Questions
March 2004 Exam, Question 3 – solution, con’t
b. Inventory balance – December 31, 2003: $179,640
Inventory
OB $ 80,000
(1) 590,000
(2) 6,000
(3) 3,360
(4) 20,000
(5) 460,000
(6) 13,000
CB $179,640
60
20
Part 5 - Review Questions
Complete EXERCISE 6 – 18 , pg 320
Required: Note – B & C are extra!
a.
b.
c.
Journalize transactions using both the periodic and
perpetual systems; AND
Assume that opening inventory was $1,200 and the
month-end inventory count showed actual inventory on
hand was $1,850. Prepare any month-end
adjustments, if required; AND
Compute COGS under periodic & perpetual systems.
Stop Presentation
Complete above required
Then come back for solution!
61
Part 5 - Review Questions
Exercise 6 – 18 , solution
TRANSACTION # 1: November 1st
Purchase merchandise for $1,400, 2/10 n30
JOURNAL ENTRY – Periodic system
Purchases
1,400
Accounts Payable 1,400
JOURNAL ENTRY – Perpetual system
Inventory
1,400
Accounts Payable 1,400
62
Part 5 - Review Questions
TRANSACTION # 2: November 5th
Pay for purchases within discount period
JOURNAL ENTRY – Periodic system
Accounts Payable
Cash
Purchase discount
1,400
1,372
28 (i)
JOURNAL ENTRY – Perpetual system
Accounts Payable
1,400
Cash
1,372
Inventory
28(i)
(i) Purchase discount: $1,400 * 2% = $28
63
21
Part 5 - Review Questions
TRANSACTION # 3: November 7th
Receive payment for returned inventory
JOURNAL ENTRY – Periodic system
Cash
Purchase return
98(i)
98
JOURNAL ENTRY – Perpetual system
Cash
Inventory
98
98
(i) Payment net of 2% discount :$100 * 98%
64
Part 5 - Review Questions
TRANSACTION # 4: November 10th
Pay transportation-in costs
JOURNAL ENTRY – Periodic system
Transportation-in
Cash
80
80
JOURNAL ENTRY – Perpetual system
Inventory
Cash
80
80
65
Part 5 - Review Questions
TRANSACTION # 5: November 13th
Sell inventory for $1,500 that cost $750
JOURNAL ENTRY – Periodic system
Accounts Receivable 1,500
Sales Revenue
1,500
No entry for Cost of goods sold
JOURNAL ENTRY – Perpetual system
Accounts Receivable 1,500
Sales Revenue
1,500
Cost of goods sold
750
Inventory
750
66
22
Part 5 - Review Questions
TRANSACTION # 6: November 16th
$200 of sales returned that cost $100
JOURNAL ENTRY – Periodic system
Sales returns
200
Accounts Receivable
200
No entry for Cost of goods sold
JOURNAL ENTRY – Perpetual system
Sales returns
200
Accounts receivable
200
Inventory
100
Cost of goods sold
100
67
Part 5 - Review Questions
b.
Month-end adjustments
Inventory
OB $ 1,200 (5)
(1) 1,400 (7)
(10)
80 (13)
(16)
100 (30)
28
98
750
54
CB $ 1,850
Periodic:
Inventory per G/L (i)
Before adjustment $1,904
Inventory per count 1,850
Required AJE
54
No AJE required
Perpetual: COGS
54 (i)
Inventory
54
To record shrinkage at Nov 30th
68
Part 5 - Review Questions
c. COGS under periodic & perpetual systems
Periodic
OB Inventory
$1,200
Purchases
1,400
-Purchase discounts 28
-Purchase returns
98
+ Transport-in
80
Net purchases
1,354
GAS
2,554
-CB Inv
1,850
COGS
$ 704
Perpetual
COGS
(13) 750
(30) 54
(16) 100
704
69
23