3.24 - Today’s Topic PLEASE TURN OFF CELL PHONES...

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Unformatted text preview: Today’s Topic PLEASE TURN OFF CELL PHONES Financial Accounting Information System This class will describe GAAP for: Balance Sheet: Inventory Income Statement: Cost of Goods Sold, Period Expenses Statement of Cash Flow effect Purchasing inventory often involves: • Cash discounts • Inventory returns • Transportation costs Fig 171 Other Topics Let’s look at these transactions for JPS. Event 1: JPS purchased merchandise inventory on account with a list price of $8,000. The payment terms are 2/10 n/30. Before analyzing this transaction, let’s learn a little about cash discounts. A deduction from the invoice price granted to induce early payment of the amount due. Terms Time Due Discount Period Full amount less discount Credit Period Full amount due Purchase or Sale Purchase or Sale Fig 172 Cash Discounts Inventory Cost = Full Price – Cash Discount 2/10, n/30 Percentage of Discount # of Days Discount Is Available Otherwise, the Full Amount Is Due # of Days when Full Amount Is Due Fig 173 Cash Discounts Event 1: JPS purchased merchandise inventory on account with a list price of $8,000. The payment terms are 2/10 n/30. Cash + Accts. Rec. + Inventory = Accts. Pay. + Common Stock + Retained Earnings Revenue- Expenses = Net Income n/a + n/a + = + n/a + n/a n/a- n/a = n/a n/a Cash Flow Price Cost 8,000 $ × 98% = 7,840 $ Net Method Merchandise Inventory 7,840 Accounts Payable 7,840 1. Increase assets (inventory) 2. Increase liabilities (accounts payable) Asset Source Transaction Event 2: JPS returned some of the inventory purchased in Event 1. The list price of the returned merchandise was $1,000. Cash + Accts. Rec. + Inventory = Accts. Pay. + Common Stock + Retained Earnings Revenue- Expenses = Net Income n/a + n/a + = + n/a + n/a n/a- n/a = n/a n/a Cash Flow Accounts Payable 980 Merchandise Inventory 980 1. Decrease assets (inventory) 2. Decrease liabilities (accounts payable) Asset Use Transaction Price Cost 1,000 $ × 98% = 980 $ Net Method Event 3: JPS paid cash to settle the account payable due on the inventory purchased in Event 1. The payment was made after the end of the discount period. 1. Decrease assets (cash). 2. Decrease liabilities (accounts payable). 3. Decrease equity (interest expense). Asset Use Transaction Cash + Accts. Rec. + Inventory = Accts....
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This note was uploaded on 03/31/2008 for the course ACIS 2115 taught by Professor Jayardley during the Spring '07 term at Virginia Tech.

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3.24 - Today’s Topic PLEASE TURN OFF CELL PHONES...

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