Accounting Notes 5&6

Accounting Notes 5&6 - Accounting: Chapter Five...

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The primary source of revenues is referred to as sales revenue or sales . Cost of goods sold is the total cost of mer- chandise sold during the period. The operating cycle of a merchandising com- pany ordinarily is longer than that of a service company . Perpetual inventory system Flow of Costs: Maintain detailed records of the cost of each inventory purchase and sale. Records continuously show inventory that should be on hand. Company determines cost of goods sold each time a sale occurs. Traditionally used for merchandise with high unit values. Provides better control over inventories. Requires additional clerical work and additional cost to maintain inventory records. Periodic inventory system Flow of Costs: Do not keep detailed records of the goods on hand. Determine cost of goods sold only at end of accounting period. Physical inventory count to determine cost of goods on hand. Calculation of Cost of Goods Sold: Recording Purcahses of Merchandise: Made using cash or credit (on account). Normally recorded when goods are received. Purchase invoice shouldsupport each credit purchase. Freight Costs-Terms of Sale FOB Shipping Point: Seller places goods Free On Board the carrier, and buyer pays freight costs. FOB Destination: Seller places goods Free On Board to the buyer’s place of business, and seller pays freight costs. Purchase Returns & Allowances: Purchaser may be dissatisfied because goods are damaged or defective, of inferior quality, or do not meet specifications. Purchase Dis- counts: Accounting: Chapter Five Katelyn Quinn Beginning Inventory Add: Purchases, net = Cost of Goods Available for Sale Less Ending Inventory = Cost of Goods Sold.
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Credit terms may permit buyer to claim a cash discount for prompt payment. Advantages:
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Accounting Notes 5&6 - Accounting: Chapter Five...

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