ACCOUNTING CYCLE.docx - ACCOUNTING CYCLE MERCHANDISING...

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ACCOUNTING CYCLE - MERCHANDISING BUSINESS End of Period Adjustments and Completion of the Accounting Cycle Adjusting Journal Entries (Periodic Inventory System) COST OF GOODS SOLD METHOD DIRECT EXTENSION METHOD also known as CLOSING ENTRY METHOD Setting up Ending Inventory Under the periodic inventory system, the account Purchases is used to record purchases of merchandise. To determine the cost of inventory on hand, it is necessary to take a physical count of inventory The account Merchandise Inventory is used to record the cost of inventory on hand (ending inventory) at the reporting date. This amount becomes the beginning inventory for the next accounting period. Cost of Goods Sold and Gross Profit Computing Cost of Goods Sold (Periodic Inventory System) 1. Add the cost of goods purchased to the cost of
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Unformatted text preview: goods at the beginning of the period ( Merchandise Inventory, beginning ) to obtain cost of goods available for sale. 2. Subtract the cost of goods on hand at the end of the period ( Merchandise Inventory, end ) from the cost of goods available for sale. To determine gross profit, the cost of goods sold is deducted from net sales (sales revenue less sales returns and sales discounts). It is not a measure of the overall profitability of a company, because operating expenses have not yet been deducted. Using the cost data from the previous illustration, additional information are as follows: Sales, P2,000,000; Sales returns and allowances, P30,000; and Sales discounts, P20,000. Compute the gross profit....
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