current-assets-part-ii

Com 34 perpetual inventory systems current assets

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Unformatted text preview: sulting financial statements: ACCOUNT: Inventory Let’s Date see how these entries impact certain ledger accounts and the resulting financial statements: Description Debit Credit Balance Jan. 1, 20XX Balance forward Mar. 5, 20XX Purchase transaction Apr. 17, 20XX Sale transaction Sept. 7, 20XX Purchase transaction Nov. 11, 20XX Sale transaction G ONZALES CHEMICAL COMPANY Income Statement For the Year Ending December 31, 20XX $ 48,000 $ 96,000 144,000 $ 96,000 48,000 136,000 184,000 99,000 Net sales Cost of goods sold Gross profit Expenses 85,000 $304,000 195,000 $109,000 ... **** ACCOUNT: Sales Date Jan. 1, 20XX Description Debit Credit Balance forward Balance $ - Apr. 17, 20XX **** Sale transaction $154,000 154,000 Nov. 11, 20XX Sale transaction 150,000 304,000 G ONZALES CHEMICAL COMPANY Balance Sheet December 31, 20XX Assets ... ACCOUNT: Cost of goods sold Date Jan. 1, 20XX Description Debit Balance forward Credit I nventory Balance $ 85,000 - Apr. 17, 20XX Sale transaction $ 96,000 96,000 Nov. 11, 20XX Sale transaction 99,000 195,000 If you are very perceptive, you will note that this is the same thing that resulted under the periodic FIFO approach introduced earlier. So, another general observation is in order: The FIFO method will produce the same financial statement results no matter whether it is applied on a periodic or perpetual basis.perceptive, you will note beginning inventory thing that purchases are peeled away If you are very This occurs because the that this is the same and early resulted under the periodic and charged to cost of goods sold -- whether the associated calculations order: The FIFO method FIFO approach introduced earlier. So, another general observation is in are done “as you go” (perpetual) orthe sameend of the statement results no matter whether it is applied on a periodic or will produce “at the financial period” (periodic). perpetual basis. This occurs because the beginning inventory and early purchases are peeled away 7.3 Perpetual of goods sold -- whether the associated calculations are done “as you go” and charged to cost LIFO (perpetual) or be applied on a perpetual basis. This LIFO can also“at the end of the period” (periodic). time, the results will not be the same as the periodic LIFO approach (because the “last-in” layers are constantly being peeled away, rather than waiting until the end LIFOperiod). The following table reveals the application of a perpetual LIFO 7.3 Perpetual of the approach. also beitapplied on a perpetual basis. This time, the resultsresultnot a peeling away thethe LIFO can Study carefully, this time noting that sales transactions will in be the same as of most recent purchase layers. The journal entries are not repeated here for the LIFO approach. Do periodic LIFO approach (because the “last-in” layers are constantly being peeled away, rather than note, however, that the accounts would be the same (as with FIFO); application of a perpetual LIFO waiting until the end of the period). The following table reveals the only the amounts would change. approach. Study it carefully, this time noting that sales transactions result in a...
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This note was uploaded on 06/07/2013 for the course BA 201 taught by Professor Cuongvu during the Fall '13 term at RMIT Vietnam.

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