Accounting Chapter 5 Notes

This system achieves better control over the

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Unformatted text preview: $$ Net income $$ The Operating Cycle of Merchandising Business - The operating cycle of a merchandiser: 1. It begins when the company purchases inventory from a vendor 2. The company then sells the inventory to a customer 3. Finally, the company collects cash from customers Inventory Systems: Perpetual and Periodic - There are two main types of inventory accounting systems - Periodic system - Perpetual system - Periodic Inventory System: is normally used for relatively inexpensive goods. A small, local store without optical- scanning cash registers does not keep on a running record of every loaf of bread and every key chain that it sells - Perpetual inventory system: keeps a running computerized records of inventory- that is, the number of inventory units and the dollar amounts are perpetually (constantly) updated. This system achieves better control over the inventory. A modern perpetual inventory system records the following • Units purchased and cost amount • Units sold and sales and cost amounts • Quantity of inventory on hand and its cost - The bar code systems used by businesses today can streamline Many formerly repetitive and labor- intensive processes related to inventory. These perpetual trackers of inventory not only record sales revenue and cost of goods sold, they also communicate with the company’s purchasing systems to automatically generate paper or electronic purchase orders to replenish inventory. These system allow merchandisers to keep a lean inventory system, which helps reduce the cost of acquiring, storing, and insuring inventory. Accounting for Inventory in the Perpetual System - The invoice is the seller’s RCA request for payment from the buyer. An invoice is also called a bill Purchase of Inventory - Inventory is an asset until it is sold. We record Inventory as its gross value (total invoice amount before discount) using the gross method. An alternative method, the net method, will be discussed in future accounting courses. Purchase Discounts - Many businesses offer customers a discount for early payment. This is called a purchase discount. - Term of “n/30” mean that no...
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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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