Chapter_5 - Chapter 5 The Income Statement. Fees Less:...

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Chapter 5 The Income Statement. Fees Net Sales Cost of Merchandise Sold Gross Profit Less: Operating Expenses Less: Operating Expenses Net Income Net Income The Operating Cycle Cash Accounts Inventory Receivable Inventory Periodic inventory uses an end of the period inventory count. The merchandise inventory account in changed only when a physical count is taken. Cost of Goods Sold is calculated at the same time. Perpetual inventory uses the computer to keep a running total of inventory. The inventory account is changed every time inventory is added or removed from inventory. Physical inventory counts are still necessary. Even using perpetual inventory there are some things the computer is not told. Subsidiary ledgers The subsidiary ledger is used to keep track of the individual accounts that make up the general ledger account balance. Controlling Account General Ledger: Accounts Receivable Accounts Payable Subsidiary ledger: the list of accounts that make up the general ledger balance. Purchases Merchandise is purchased with cash. Merchandise Inventory Cash Merchandise is purchased on account. Merchandise Inventory Accounts Payable
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Purchases Returns and Allowances Accounts Payable Merchandise Inventory We have returned goods that we had purchased. This reduces inventory and what we owe. Purchases Discounts 2% discount on $1,500 purchase. Merchandise Inventory 1500 Accounts Payable 1500 Accounts Payable 1500 Account paid in full. Cash 1470 Cash is lower than AP because of the discount Merchandise Inventory 30 We reduce the merchandise account because we paid less for the goods. Transportation Costs - Free On Board The seller has the responsibility to have the goods free on board the means of transit. FOB terms tell where the goods legally changed hands. This affects the ownership, insurable interest, place of sale and who pays the freight. The Seller is at the shipping point; the Buyer is at destination. To start close to home; most people have bought a pizza.
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Chapter_5 - Chapter 5 The Income Statement. Fees Less:...

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