121_06 - CHAPTER 6 MERCHANDISE INVENTORY AND COST OF GOODS...

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CHAPTER 6 MERCHANDISE INVENTORY AND COST OF GOODS SOLD MERCHANDISING COMPANY Finished goods inventory purchased Merchandise Purchased Cost of Goods Sold Merchandise Inventory Inventory MANUFACTURING COMPANY Finished goods inventory manufactured Raw Materials Direct Labor Factory Overhead Raw Materials Inventory Work in Process Inventory Finished Goods Inventory Cost of Goods Sold Inventory INVENTORY COST Include all costs incurred to make asset ready for sale Invoice price Freight charges Import duties Stocking fees MERCHANDISE INVENTORY Balance sheet ± Inventory major asset Income statement ± Cost of goods sold (cost of sales) major expense Service Co. Income Statement Year ended June 30, 20XX Service revenue $xxx Expenses Salary expense x Depreciation expenses x Income tax expense x Net income $ x Service Co. Balance Sheet June 30, 20XX ASSETS Current assets: Cash $ x Short-term investments x Accounts receivable, net x Prepaid expenses x Merchandising Co. Income Statement Year Ended June 30, 20XX Sales revenue $xxx Cost of goods sold x Gross profit x Operating expenses: Salary expense x Depreciation expense x Income tax expense x Net income $ x Merchandising Co. Balance Sheet June 30, 20XX ASSETS Current assets: Cash $ x Investments x Accounts receivable x Inventory x Prepaid expenses x
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JOURNAL ENTRIES Purchased inventory, $560,000 560,000 Accounts payable 560,000 Inventory Credit Debit Description Date Inventory (Asset) Decreased when inventory sold Increased when inventory purchased JOURNAL ENTRIES Purchased inventory, $560,000 560,000 Accounts payable 560,000 Inventory Credit Debit Description Date Inventory (Asset) 560,000 JOURNAL ENTRIES Sold inventory on account, $900,000 cost of inventory sold, $540,000 540,000 Cost of goods sold 540,000 Inventory 900,000 Sales 900,000 Accounts receivable Credit Debit Description Date Match expense to revenue JOURNAL ENTRIES 540,000 Cost of goods sold 540,000 Inventory 900,000 Sales 900,000 Accounts receivable Credit Debit Description Date Inventory (Asset) Decreased when inventory sold Increased when inventory purchased Cost of goods sold (Expense) Increased when inventory sold JOURNAL ENTRIES 540,000 Cost of goods sold 540,000 Inventory 900,000 Sales 900,000 Accounts receivable Credit Debit Description Date Inventory (Asset) 540,000 Cost of goods sold (Expense) 540,000 560,000 PRACTICE HOMEWORK Question 1
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GROSS PROFIT ± Also called mark-up ± Excess of sales over CGS ± Operating expenses not subtracted Sales Cost of goods sold Gross profit GROSS PROFIT ± Also called mark-up ± Excess of sales over CGS ± Operating expenses not subtracted $30 (selling price) 20 (purchase cost) 10 (gross profit) PRACTICE HOMEWORK Question 2 COST OF GOODS SOLD ± BEGINNING INVENTORY ± Balance left over from preceding period ± PURCHASES ± Inventory purchased during period ± ENDING INVENTORY ± Balance on hand at end of period INVENTORY FLOW Beginning Inventory Purchases for the Period Ending Inventory (Balance Sheet) Goods available for Sale Cost of Goods Sold (Income Statement) Beginning inventory + Purchases – Ending inventory = Cost of goods sold INVENTORY FLOW Beginning $20 Purchases $100
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121_06 - CHAPTER 6 MERCHANDISE INVENTORY AND COST OF GOODS...

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