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Date Created: 11/16/15
Week 3 Assignment 1 Week 3 Assignment Decision Case 1 Darlene Solano ACC205 Principles of Accounting 1 Instructor Robert Carr October 7 2010 Week 3 Assignment 2 Week 3 Assignment Decision Case 1 Chapter 6 page 344 Decision Case 1 Assume you are opening a Bed Bath amp Beyond store To Finance the business you need a 500000 loan and your banker requires a set of forecasted financial statements Assume you are preparing the statements and must make some decisions about how to do the accounting for the business Answer the following questions refer back to Chapter 5 if necessary 1 Which type of inventory system will you use Give your reason p 255 There are two main inventory systems perpetual and periodic I would use the perpetual inventory system ifI were starting a new business My reason for this choice is that in a perpetual inventory system the system will keep a running record of inventory and the cost of goods sold Creating a system that has better control over the inventory totals I will have at my finger tips the number of units purchased units sold and the quantity of inventory on hand Horngren amp Harrison 2007 p 256 2 Show how to compute net purchases and net sales How will you treat the cost of transportation pp 260263 Net purchases would be recorded as follows when purchased on account a debit to inventory and a credit to accounts payable A net purchase is when the business buys merchandise from another company for resale When this is done you are increasing your inventory and increasing your accounts payable Now if you are purchasing merchandise with cash paying up front at the time of purchase then you would debit inventory to increase your inventory and credit cash decreasing your asset cash balance Horngren amp Harrison 2007 pp 257 258 Net sales would be recorded as follows when merchandise is paid up front debiting cash and crediting sales revenue This increases your balance in the cash and increases your revenue balances Next you would debit cost of goods sold and credit Week 3 Assignment 3 inventory to record the cost of goods sold Now if you sold merchandise on account you would debit accounts receivable and credit sales revenue You would also need to do the second recording of debit cost of goods sold and credit inventory When payment is received debit cash and credit accounts receivable Horngren amp Harrison 2007 pp 261 262 In order to account for the transportationin costs for the business you would need to account for the cost of freight in with the cost of inventory just purchased Under the ledger for inventory you would make an accounting of freight and add that to the cost of inventory For example if you paid the freight bill in advance Inventory June 3 Purchase 700 June 3 Freight in 60 Bal Net cost 760 Total amount of bill for the merchandise the business just purchased and is owed This is the same procedure a business would use to account for the transportation costs when they sell merchandise to another business or to any other customer when shippingtransportation charges are involved Horngren amp Harrison 2007 p 259 3 How often do you plan to do a physical count of inventory on hand What will the physical count accomplish pp 266267 From past experiences with the companies that I have worked with inventory is done once a month quarterly or once a year However our textbook states Theft damage and errors occur For this reason businesses take a physical count of inventory at least once a year Horgren amp Harrison 2007 p 267 usually at the end of the year when they are balancing the books and closing accounts A physical count of inventory will give you a much clearer picture of your losses due to theft damage or accounting errors I have worked with several companies in the Week 3 Assignment 4 past who wanted to stay on top of their losses due to theft The physical inventory at the end of each month helped to account for actual losses during the month 4 Inventory costs are rising Which inventory costing method will you use in order to a Maximize net income pp 320321 b Pay the least amount of income tax pp 320321 A To maximize net income I would use the FistIn FirsOut FIFO method Our textbook states that FIFO produces the lowest cost of goods sold and the highest gross profit Horngren amp Harrison 2007 p 320 B To pay the least amount of income tax I would use the LastIn FirstOut LIFO method In our textbook it stated LIFO results in the highest cost of goods sold and the lowest gross profit That lets companies pay the lowest income taxes Horngren amp Harrison 2007 p 320 Reference Homgren C amp Harrison W 2007 Accounting 7thed Upper Saddle River NJ Pearson Prentice Hall
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