Spr10-CH 8&9

Spr10-CH 8&9 - Inventory Spiceland Chapters 8 and 9...

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Unformatted text preview: Inventory Spiceland, Chapters 8 and 9 Inventory Types Merchandise inventory Firms that purchase their inventory from a manufacturer. Manufacturing inventory Firms that produce their own inventory which they sell to customers. Raw materials Work-in-process Finished goods Perpetual Inventory System The “Inventory” account is immediately updated for all purchases, sales and returns. Ex: ABC Company purchase $600,000 of merchandise on account that it intends to resale to customers. Inventory 600,000 Accounts Payable 600,000 Perpetual Inventory System “COGS” is used to account for the expense related to the inventory sold. ABC Co. sells goods, on account, for $820,000. The goods had a cost basis of $540,000. A/R 820,000 Sales Revenue 820,000 Cost of goods sold 540,000 Inventory 540,000 Periodic Inventory System The “Inventory” account is updated at the end of each accounting cycle. In the meantime, the company uses a “Purchases” account to keep track of inventory purchased. COGS and Inventory accounts are not affected until the end of the accounting cycle. Periodic Inventory System Using the same details from the ABC Company: A/R 820,000 Sales Revenue 820,000 Purchases 600,000 Accounts Payable 600,000 What’s the difference between the perpetual and periodic systems’ journal entries? Purchase Discounts Purchase Discounts Date Description Debit Credit 10/5/09 Purchases 20,000 Accounts payable 20,000 10/14/09 Accounts payable 14,000 Purchase discounts 280 Cash 13,720 11/4/09 Accounts payable 6,000 Cash 6,000 10/5/09 Purchases 19,600 Accounts payable 19,600 10/14/09 Accounts payable 13,720 Cash 13,720 11/4/09 Accounts payable 5,880 Interest expense 120 Cash 6,000 Net Method Gross Method Discount terms are 2/10, n/30. $14,000 x 0.02 $ 280 Partial payment not made within the discount period Periodic Inventory System Periodic Inventory System Beginning Inventory + Net Purchases Cost of Goods Available for Sale- Ending Inventory = Cost of Goods Sold “Net Purchases” = Purchases – Purchase returns and allowances Periodic Inventory System Periodic Inventory System Beginning inventory 120,000 $ Plus: Purchases 600,000 Cost of goods available for sale 720,000 Less: Ending inventory (180,000) Cost of goods sold 540,000 $ Calculation of Cost of Goods Sold Date Description Debit Credit 12/31/09 Cost of Goods Sold 540,000 Inventory (ending) 180,000 Inventory (beginning) 120,000 Purchases 600,000 Adjusting entry to determine Cost of Goods Sold | 1. Beginning inventory (100 units at $7 = 700) | 2. Purchase 900 units at $7: | | Inventory 6,300 | Purchases 6,300 Accounts payable 6,300 | Accounts payable 6,300 | 3. Sale of 600 untis at $14: | | Accounts receivable 8,400 | Accounts receivable...
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Spr10-CH 8&9 - Inventory Spiceland Chapters 8 and 9...

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