AC 210 Chapter 6 Notes
AC 210 Chapter 6 Notes AC 210
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This 3 page Class Notes was uploaded by Carter Cox on Monday October 10, 2016. The Class Notes belongs to AC 210 at University of Alabama - Tuscaloosa taught by Lisa McKinney in Fall 2016. Since its upload, it has received 19 views.
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Date Created: 10/10/16
AC-210 Chapter 6 Notes Operating Cycle - Series of activities that a company undertakes to generate revenues and cash - Differences o Merchandisers Report inventory as current asset Earn revenue from sales Report (CGD) Cost of Goods Sold o Service Companies Report supplies Earn revenue from services Don’t incur CGS because they don’t sell goods Inventory Systems - 3 accounts are important - Inventory o Merchandiser’s total cost of acquiring goods that it has not yet sold - Sales Revenue o Total selling price of all goods that the merchandiser did sell to customers - Cost of Goods Sold o Total cost of all goods that the merchandiser did sell to customers - (Sales Revenue) – (Cost of Goods Sold)= Gross profit - (Beginning Inventory) + (Purchases) – (Ending Inventory) = Cost of Goods Sold - (BI + P) o Represents the cost of goods available for sale - (Beginning Inventory + Purchases) = Goods Available for Sale Periodic Inventory System - Updates the inventory records for merchandise purchases, sales, and returns only at the end of the accounting period - To determine how much inventory is on hand and how much has been sold, periodic systems require that inventory be physically counted by the employees at the end of the period - Uses o BI + P – EI = CGS - Not up to date records - Cant estimate shrinkage Perpetual - Updated every time inventory is bought, sold, or returned - Uses o BI + P – CGS = EI - Combined with bar codes and optical scanners - Continuous tracking - Can estimate shrinkage Inventory Control - Periodic Inventory System o Not up to date records o Cannot estimate shrinkage - Perpetual Inventory System o Continuous Tracking o Can estimate shrinkage Recording Inventory Sales - Every merchandise sale has two components, each of which requires an entry in a perpetual inventory system - Every merchandise sale has two components (selling price and cost_ - A o Cash (Debit) o Sales Revenue (Credit) - B o Cost of Goods Sold (expense) (Debit) o Inventory (credit) Recording Inventory Sales - Merchandisers earn revenue by transferring control of merchandise to a customer either for cash or on credit - Merchandiser who is shipping goods to a customer o FOB Shipping Point The sale is recorded when the goods leave the sellers shipping department o FOB Destination The sale is recorded when the goods reach their destination (Customer) Sales Returns and Allowances - When goods sold to a customer arrive in a damaged condition or are otherwise unsatisfactory, the customer can o 1) Return them for a full refund o 2) Keep them and ask for a reduction in the selling price, called allowance
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