Asset liability equity inventory retained earnings

Info icon This preview shows pages 5–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Asset Liability Equity Inventory Retained earnings - -cost of good sold Multi-step income statement Sales revenue $100,000 Sales returns and allowances Sales Discount -$5,000 -$1,000 Net Sales $94,000 3-5
Image of page 5

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

View Full Document Right Arrow Icon
Chapter 03 - Accounting for Merchandising Businesses Cost of good sold -$40,000 Gross profit (margin) $54,000 (94-40) Operating expenses Selling or Administrative -$30,000 Operating income $24,000 (54-30) Non-operating items Interest expense Gain on sale of land -$1,000 +$2,000 Net Income $25,000 (24-1+2) Summary at end of types of accounts: Balance sheet accounts Inventory Income statement accounts Sales (revenue) goods are delivered to the customer Sales returns & allowances Sales Discounts Cost of Goods sold (expense) Subtotal on multi-step income statements Net Sales Gross profit (sales – COGS) Operating income Appendix (Pg. 106) Periodic Inventory System -This is a system that is used when perpetual system is not cost effective or reasonable -All transactions go to “purchases” account -Must stop and count inventory at least once a year This is how we determine cost of goods sold + Beginning inventory + purchases - purchase returns - purchase discounts + freight in (transportation in) 3-6
Image of page 6
Chapter 03 - Accounting for Merchandising Businesses = cost of goods available for sale - ending inventory = cost of goods sold (periodic method) 3-7
Image of page 7

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

View Full Document Right Arrow Icon
Chapter 03 - Accounting for Merchandising Businesses Demonstration Problem 3-2: Perpetual Inventory Transactions Lisa’s Dress Shop (LDS) experienced the following events in 2011, its first year of operations. The dress shop uses the perpetual inventory method. 1. LDS was started when it issued common stock for $60,000 cash. 2. LDS purchased on account inventory with a list price of $54,000. Payment terms were 2/10, n/30. LDS records inventory transactions net of discounts. 54,000 * .02 3. The freight terms for the merchandise delivered in Event No. 2 were FOB shipping point. LDS paid the freight cost of $1,000 in cash. 4. An inspection revealed that merchandise with a list price of $4,000 purchased in Event No. 2 was defective. LDS returned this merchandise to the supplier for credit. 4000 * .02 = 80 4000-80=3920 5. LDS paid within the discount period for the inventory purchased in Event No. 2. 6. LDS sold inventory on account. LDS offers customers payment terms of 1/15, n/30. The list price for the sale was $68,000. The net cost of the inventory sold was $42,140. 7. Customers returned some goods LDS had sold in Event No. 6. The goods had been sold for a net price of $3,960 and had a net cost of $2,940. 8. LDS paid in cash freight cost of $1,200 for goods delivered to customers FOB destination.
Image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern