03_Chapters5,6

03_Chapters5,6 - BUS 214, Financial Accounting Chapters 5...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Ch5&6OL BUS 214, Financial Accounting Chapters 5 and 6 — Inventories Outline A. Operating Cycles. An operating cycle is the time that it takes to complete the following: 1. For Services. Perform service Incur and pay Accounts payable and Spend cash to perform the services Bill the customer and establish an Account receivable Receive cash from customer 2. For Merchandising. Buy inventory Incur and pay Accounts payable and Spend cash to acquire inventory items Sell inventory to customers and establish an Account receivable Receive cash from customer B. Inventory Systems. 1. Perpetual — Used for Physical count purposes. QQ Q Q Beginning Inventory + Purchases - Sold = Ending Inventory 2. Periodic — Used for dollar accounting purposes. $$ $ $ Beginning Inventory + Purchases - Ending Inventory = Sold C. Purchase Details — Two systems (See T-Account examples). 1. Purchases. 2. Freight-In. 3. Purchase Returns and Allowances. 4. Purchase Discounts. D. Sales Details (see T-account example). 1. Sales Revenue. 2. Sales Returns and Allowances. 3. Sales Discounts.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Ch5&6OL NOTE: Freight-Out is an Expense. E. FOB — Free-On-Board This is where title passes. The owner of the item always pays the freight. F. Gross Margin = Net Sales - Cost of Goods sold. G. Inventory Turnover Ratio = Cost of Goods Sold/Average Inventory H. Inventory Flow Assumptions. 1. Specific Identification. 2. FIFO — First-In, First-Out 3. LIFO — Last-In, First-Out 4. Weighted Average I. LIFO Reserve = Difference between Inventory at FIFO and Inventory at LIFO. J. Lower of Cost or Market. 1. Market means wholesale (not selling) price. 2. Entry to write inventory down to market. Cost of goods sold Inventory
Background image of page 2
Beginning Inventory xx,xxx (c) xxx,xxx (1) xxx,xxx xxx,xxx (c) (2) x,xxx x,xxx (c) (c) x,xxx x,xxx (3) Journal entry for sold merchandise Cost of goods sold (c) x,xxx x,xxx (4) Inventory Beginning Inventory xx,xxx (1) Purchases xxx,xxx x,xxx Purchase Returns & Allowances (3) (2) Freight-In x,xxx x,xxx Purchase Discounts (4) Journal entry for sold merchandise Cost of goods sold Inventory Purchases Freight-In & Allowances Purchase Returns Inventory Ending Inventory xx,xxx xxx,xxx = Sold = BI +Net Purchases - EI Options Regarding Detail When Accounting for Inventory and Purchases Option 1 Option 2 Purchase Discounts Inventory Ending Inventory xx,xxx xxx,xxx = Sold = BI +Net Purchases - EI
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
xx,xxx Beginning balance x,xxx xxx,xxx Gross sales x,xxx x,xxx Sales Revenue and Related Accounts Retained Earnings Sales discounts Freight-out expense Sales revenue allownaces Sales returns &
Background image of page 4
1 ExamplePur/Sale Example Journal Entries for Purchases and Sales 1. Purchase of merchandise on credit. Purchases 3,800 Accounts payable 3,800 2. Purchase returns and allowances. Accounts payable 300 Purchase returns and allowances 300 3. Freight cost on purchases.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 10/25/2011 for the course BUS 214 taught by Professor Waker during the Fall '08 term at Cal Poly.

Page1 / 34

03_Chapters5,6 - BUS 214, Financial Accounting Chapters 5...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online