3achapter5

3achapter5 - Financial Accounting: 1 11 Tools for Business...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
1 5-1 Financial Accounting: Tools for Business Decision Making, 4th Ed. Kimmel, Weygandt, Kieso CHAPTER 5 5-2 Differences Between a Service Company and a Merchandising Company Primary Source of Revenue Service Company- performs services Barber, electrician, plumber, attorney, CPA Merchandise Company- sale of merchandise Cars, clothing, food, office supplies 11 1 Income Measurement for Merchandise Companies Total cost of merchandise sold during the period Selling and Administrative Operating Cycles
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 Inventory Systems - Perpetual Computers and electronic scanning equipment make perpetual inventory cost effective! 5-6 PERPETUAL VS. PERIODIC If your business is such that you can track your inventory in detail, then you can use a computer for a “perpetual” count… each time there is a sale, the computer knows. What if your business does not allow for item by item tracking? You need to count what you have from time to time and this is called “Periodic” inventory. 5-7 ALGEBRA= PERIODIC INVENTORY Beginning inventory +P u r c h a s e s - Sold (= cogs) =E n d i n g True? B+P-S=E We know what we started with, we know what we bought, and we can go count what we have left…. Can we solve for COGS? B+P-E=COGS!!!! Review If beginning inventory is $60,000, cost of goods purchased is $380,000, and ending inventory is $50,000, what is cost of good sold under the periodic system? a. $390,000 d. $420,000 c. $330,000 b. $370,000 $60,000 +$380,000- $50,000= $390,000
Background image of page 2
3 Inventory Systems - Perpetual Maintain detailed records of purchases and sales Cost of goods sold is determined with each sale Compute and record Cost of goods sold 5-10 PERPETUAL- COUNT? Is there any good reason to count inventory if you are using a perpetual system? YES- Measure shrinkage, verify that system is working etc. We call them “Cycle Counts” Inventory Systems - Periodic No detailed records Cost of goods sold determined at end of the period by taking a physical count and pricing it. 5-12 Recording Purchases of Merchandise Purchase of merchandise is recorded when goods are received from the seller– AND IS CALLED PURCHASES… UNTIL THE COUNT IS MADE AND THEN MOVED TO INVENTORY IF PERPETUAL, IT IS “INVENTORY” WHEN PURCHASED! Every purchase should be supported by business documents Cash purchases have receipts or cancelled checks Credit purchases are supported by purchase invoices 11 2
Background image of page 3

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

View Full DocumentRight Arrow Icon
4 Seller Invoice date Buyer Credit terms I t e m d a i l s T o Purchase of Merchandise Debit Credit May 4 Merchandise Inventory 3,800 Accounts Payable 3,800 To record goods purchased on account 3,800 Accounts Payable Merchandise Inventory May 4 May 4 3,800 Sauk purchased $ 3,800 of goods on account.
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 13

3achapter5 - Financial Accounting: 1 11 Tools for Business...

This preview shows document pages 1 - 5. Sign up to view the full document.

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