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Management 1A Lecture Notes (7)

Management 1A Lecture Notes (7) - Management 1A Lecture...

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Management 1A Lecture Notes Professor Gardner-Treloar Week 7-9
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Perpetual vs Periodic Inventory Definitions from the course reader Periodic – the inventory account is updates once a year or on some other regular interval Perpetual – the inventory account is constantly updates, therefore every time the company buys/sells inventory, the inventory account is updated Example Beginning Inventory 5 cars Purchases 200 cars Ending Inventory 10 cards So, by the COGS equation, you sold 195 cars (COGS=BI+Purch.-EI-5+200-10=195) Journal Entries Perpetual (Update record with each transaction) Periodic Purchase $1500 on Account (Terms: 2/10, N/30) Dr Inventory 1500 Cr A/P 1500 Dr Purchases 1500 Cr A/P 1500 Return $300 Dr A/P 300 Cr Inventory 300 Dr A/P 300 Cr Purch. A&R 300 Payment with Discount Dr A/P 1200 Cr Cash 1176 Cr Inventory 24 Dr A/P 1200 Cr Cash 1176 Cr Purchase Disc. 24 Sell Inventory on Account at $2800, Cost = $850 Dr A/R 2800 Cr Sales 2800 Dr COGS 850 Cr Inventory 850 Dr A/R 2800 Cr Sales 2800 Count Inventory Actual Beginning Inventory 21,000 Actual Ending Inventory 24,000 Per Inventory Count
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Year-End Journal Entry for Periodic Recording Dr Income Summary 21,000 Cr Merch. Inventory 21,000 Dr Merch Invetory 24,000 Cr Income Summary 24,000 Year-End Journal Entry for Perpetual Recording Dr COGS 300 Cr Merch. Inventory 300 Merchandise Inventory 21,000 xxxx xxxx xxxx xx xxx 24,300 300 24,000 Note: You cannot detect theft with the period method In recent history, the perpetual systems is more common as it has been made easier by computers Income Statement for Periodic Inventory Method General Format Income Statement Net Sales* -- COGS** Gross Profit -- Selling General & Administrative Expenses Net Income *Calculating Net Sales Sales -- Sales Discounts -- Sales, returns and allowance Net Sales **Calculating COGS Beginning Merchandise Inventory + Net Purchases*** Cost of Goods Available for Sale -- Ending Merchandise Inventory COGS
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***Calculating Net Purchases Purchases -- Purchases Discount -- Purchases, Returns, and Allowance + Freight In Net Purchases Long Format Income Statement Sales xx Less: Sales discounts xx Less: Sales, returns, and allowances xx Net Sales xx Beginning Inventory xx Plus: Purchases xx Less:
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