Quick check and quiz answers -- Chapter Six

# Quick check and quiz answers -- Chapter Six - Chapter Six...

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Chapter Six – Inventory and Cost of Goods Sold General Principles – What the company starts the period with plus what is buys has to equal what is has sold plus what it has left. Make sure you understand this!! Restated: Beginning Inventory + Purchases=Ending Inventory + Cost of Goods Sold Problem: we are trying to figure out the values to assign to the stuff we have left at the end of the period (ending inventory) and the values to assign to the stuff we sold (cost of goods sold expense). We can use flow assumptions which do not track actual flows but use an method which assumes a certain flow: FIFO: First-in First-out which assumes the earliest purchases are sold first. The newest units remain in inventory. LIFO: Last-in First-out which assumes the latest purchases are sold first. The oldest units remain in inventory. Average: We calculate how much we paid based on a weighted average for the stuff we started with plus the stuff that was purchased. This per- unit cost is used to calculate EI and CGS. Quick Check: 1. C This is definitional. Sales minus CGS = Gross profit A is false because the sales invoice is used for all sales; those on credit and those for cash. B is false because the invoice is the sellers request for collection from the customer. D is false because a service company performs services and only sells inventory. 2. E Sales discount is a “contra” revenue account. It is used to account for the discount allowed when customers pay the invoice in a shorter than regular period of time. For example the credit terms 2/10, net/30 mean that the a customer that pays the invoice within 10 days may take a 2% discount. If the discount is not taken payment is due in 30 days. Example: Company records a sale of \$100 with credit terms 2/10, net/30. Journal entry at time of sale:

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Quick check and quiz answers -- Chapter Six - Chapter Six...

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