Accounting Chapter 5 Notes

Service businesses have no inventory financial

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Unformatted text preview: vendor. I.E Net Sales Revenue- Cost of Goods Sold= Gross Profit - Key Takeaway: All sales transactions are between the company and a customer. In a perpetual system, each sales transaction has two entries. The first entry records the sales price to the customer. The second entry updates the Inventory Account. When customers return goods, two entries are made. The first entry records the returned goods from the customer at their sales price. The second entry updates the Inventory account. When customers pay early to take advantage of terms offered, it reduces the amount of cash the company receives and a Sales Discount is recorded. Adjusting and Closing the Accounts of a Merchandiser Adjusting Inventory Based on a Physical Count - Inventory account should stay current at all times in the perpetual inventory system. However, the actual amount of inventory on hand may differ from what the books show. Theft, damaged goods, and error occur. For this reason, businesses take a physical count of inventory at least once a year. The business then adjusts the Inventory account based on the physical count. Inventory Balance before adjustment – Actual inventory on hand = Adjusting Entry to inventory $40,500 - $ 40,200 = Credit of $300 EX: Adjusting entry for inventory shrinkage Dec 31 Cost of Goods Sold 300 Inventory (40,500- 40,200) 300 Adjustment for inventory shrinkage Closing the Accounts of a Merchandiser - Closing still means to zero out all accounts that aren’t on the balance sheet Closing Entries for a Merchandiser- Amounts Assumed Date 1. Dec 31 2. 31 3. 31 4. 31 Accounts Sales Revenue Sales Discount Sales Returns and allowances Income Summary Income Summary Cost of goods sold Wage expense Rent expense Depreciation expense Insurance expense Supplies expense Interest Expense Income Summary Retained earnings Retained earnings Dividends Debit 169,000 112,800 53,100 54,100 Credit 1,400 2,000 165,900 90,800 10,200 8,400 600 1,000 500 1,300 53,100 54,100 Income Summary Close 2 (expenses) 112,500 Close 1 (revenue) 165,900 Close 3 53,330 Bal 53,100...
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This note was uploaded on 04/08/2014 for the course ECON 121 taught by Professor Ronald during the Spring '11 term at UMBC.

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