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chapter5notes - Ch 5 MERCHANDISE ACCOUNTING & INTERNAL...

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Ch 5 MERCHANDISE ACCOUNTING & INTERNAL CONTROL I. 2 New Accounts: 1. COGS - Cost of Goods Sold a. b. 2. Inventory - II. Income Statement Format: Sales Revenues $ xx Service Revenues xx Total Revenues $ xx Less: COGS ( xx) Gross Profit $ xx Less: Operating Exp: Salary Exp xx Depr. Exp xx Rent Exp. xx Utility Exp. xx ( xx) Income from Operations $ xx Less: Interest Exp xx Loss on Invt. xx (xx) Net Income $ xx
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III. Accounting for Inventories - (2) Methods: 1. Perpetual Method keeps a running total of the inventory on hand recognizes a loss Inventory 2. Periodic Method - update at the end of the period all items purchased for resale are debited to a"PURCHASES" account. Uses the COGS formula IV. COGS Formula: Used with the periodic method Example of Periodic vs. Perpetual Method :
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Periodic Perpetual (All items purchased for resale are debited to (All items purchased for resale go directly into a PURCHASES account. inventory. This method keeps a running total COGS formula at year-end to determine COGS. of COGS and updates inventory. When sale is Requires adj. Entry at year-end to record COGS) made, requires (2) entries…one to record sale, one to reduce inventory. This method gives more info to determine inventory losses. To Record Purchase of Inventory: Purchased 50 tennis racquets for the Pro Shop at $10 each, on account. To Record Sale of Merchandise: Sold 40 racquets at $50 each, receiving cash. End of Year Adjustments: Take a physical count of inventory. Eight racquets are on hand. Fill in the blanks: Beginning inventory 20,000 Purchases (a)
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Ending inventory 22,000 Cost of goods sold 54,000 Expenses (d) Net income (c) Beg. Retained Earnings 200,000 Dividends 8,000 End. Retained Earnings 230,000 Gross margin (b) Net sales 108,000
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Presented is information related to Baja Co. for the month of January 2006: Cost of goods sold $208,000 Rent expense $20,000 Freight-out 7,000 Sales discounts 8,000 Insurance expense 12,000 Sales returns and allowances 13,000 Salary expense 61,000 Sales 342,000 Required: Prepare a multi-step income statement.
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V. Goods to Include in Ending Inventory All goods in which the company has legal title (regardless of location) 1. Goods in Transit - goods ordered but not yet received. FOB Shipping Point Title transfers to buyer when goods are accepted by carrier . Buyer pays for shipping Freight in to buyer – include with net purchases Ex: Ship goods FOB shipping point on Dec. 28 th – goods arrive at buyers warehouse on Jan. 3 rd . Year end for both companies is Dec. 31. Who includes in ending inventory? __________________ FOB Destination – Title transfers when goods are delivered to destination of buyer. Seller pays for shipping
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This note was uploaded on 03/27/2008 for the course ACCT 229 taught by Professor Strawser during the Fall '06 term at Texas A&M.

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chapter5notes - Ch 5 MERCHANDISE ACCOUNTING & INTERNAL...

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