test 2 review - Accounting Test Two Based on L Cohen's...

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Accounting Test Two Based on L Cohen’s lectures 2/15/07_____________________________________________________________________________________________________ OFFICE HRS TO SEE EXAM ACTIVITY # 5 ON TUESDAY Chapter 5 MERCHANDISING OPERATIONS THEME some assets are purchased and as they get used they become an expense. Because we use them up. Stuff gets depreciated to depreciation expense. Same thing that happens to inventory NOW focus is on MERCHANDISING not Service companies. This creates “cost of goods sold” in relation with the “matching principle”. o As often as you make a sale, you have to record the cost paid for whatever you just sold o Gross profit how much we sold it for and how much it costed us. NOT real profit PERPETUAL INVENTORY SYSTEM determines what our cost of goods sold (at point of sale) PERIODIC inventory system not that complex Recording purchase of inventory something like a receipt (to show auditors if they roll up on you) Purchase of inventory merchandise inventory is debited / accounts payable credited o That which you buy to sell to your customers , not something kept to hold on to o Cash registers for use as opposed to cash registers for sale. o SOMETIMES the stuff you buy is defective, so you can either Return it (reburse the entry just made for purchase) OR Get a discount (ie debit accts payable for price break amt, then credity merchandise inventory) adjusting cost of inventory reduce inventory by 300 dollars. Freight costs coming to us are charged to inventory
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This credits cash and debits merchandise inventory USUALLY cash is not used for purchasing wholesale. A bill is usually in box. o Benefit of credit offered credit terms (discount terms). If you pay early, pay less. o Beneficiary likes it too because it turns their accounts receivable to cash more quickly. o 2/10, net 30 pay within ten days you get 2% off, but must pay all by 30 days. o 1/10, EOM 1 percent in ten days, or by the end of the month bitch it’s always original – returns – discount (if it goes down) = net due. o Credit cash. 3430 o (discount) (2%) credit merchandise inventory o accounts payable is debited for 3500 still able to clear out entire amt owed on our books merchandise inventory total – discount + freight which of the following statements is true B Detailed records of the cost of each inventory purchase and sale are maintained continuously payment of freight costs for goods shipped to a customer does not result in an adjustment in merch inventory on perpetual REVENUE RECOGNITION PRINCIPLE when recording sales o Two journal entries for ALL sales. Cr sales, debit accts receivable. THEN credit inventory, AND debit cost of inventory (WHAT WE PAID FOR WHAT WE JUST SOLD) GROSS PROFIT o Sales returns CONTRA REVENUE ACCOUNT records sales returns and allowances. Sell towels to a customer
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This note was uploaded on 04/02/2008 for the course ACCT 200 taught by Professor Cohen during the Spring '07 term at University of Arizona- Tucson.

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test 2 review - Accounting Test Two Based on L Cohen's...

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