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End of chapter 6- Chapter 7

by: Annie Danyluk

End of chapter 6- Chapter 7 ACCT 2010

Marketplace > Clemson University > Accounting > ACCT 2010 > End of chapter 6 Chapter 7
Annie Danyluk
GPA 3.31
Financial Accounting Concepts
Professor Annieka C Philo

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About this Document

9-28-15 through 9-30-15 Notes on Sales returns and allowances/Discounts, Perpetual inventory system, gross profit analysis, types of inventory, Cost of goods sold equation, computing inventory cos...
Financial Accounting Concepts
Professor Annieka C Philo
Class Notes
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This 6 page Class Notes was uploaded by Annie Danyluk on Monday October 12, 2015. The Class Notes belongs to ACCT 2010 at Clemson University taught by Professor Annieka C Philo in Fall 2015. Since its upload, it has received 24 views. For similar materials see Financial Accounting Concepts in Accounting at Clemson University.


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Date Created: 10/12/15
Chapter 7 09302015 Remember these entries Ch 6 January 52013 0 Buy inventory from a vendor 0 Entry 0 Debit inventory Credit cash or accounts payable 0 Sell inventory from your company to your customer 0 Debit cash or accounts receivable Credit Sales revenue 0 Debi cost of goods sold Credit inventory Objective 0 Describe the issues in managing different types of inventory Inventory management decisions 0 The primary goals of inventory managers are to 0 Maintain a suf cient quantity of inventory to meet customers needs 0 Ensure quality meets customers expectations and company standards 0 Minimize the costs of acquiring and carrying the inventory Types of inventory Merchandisers 0 Buy nished goods 0 Sell nished goods 0 Merchandise inventory 0 Manufacturers 0 Buy raw materials 0 Produce and sell nished goods 0 lRaw materials Materials waiting to be processed 0 Work in progress Partially complete products 0 lFinished goods Completed products awaiting sale Learning objective 72 0 Explain how to report inventory and cost of goods sold Balance sheet and Income statement reporting 0 Inventory is on the balance sheet and is current asset Cost of goods sold is on the income statement Cost of goods sold equation MEMORIZE THIS 0 Beginning inventory 0 Add purchases Subtract cost of goods sold 0 ending inventory Your turn 0 Winter inc Provided the following data 0 Sales 600000 0 Beginning inventory 50000 0 Ending inventory 55000 0 Gross margin 250000 0 What was the amount of inventory purchased during the year 0 50000purchasescost of goods sold55000 o SalesCost of goods soldGross margin 600000Cost of goods sold250000 Cost of goods sold350000 50000purchases35000055000 o purchases355000 Learning objective 0 Compute inventory costs in perpetual systems Inventory costing methods 0 Speci c identi cation 0 Firstin Firstout FIFO 0 Inventory ows out in the order that they are received 0 The oldest cost in our system to be used to calculate cost of goods sold 0 Lastin Firstout LIFO o The last items received in are the rst items to be sold 0 The last cost in your inventory system is the rst to be used Weighted average 0 Calculate an average cost Remember these entries 0 The ones in the beginning of the notes 0 On the second journal entry part 2 we need to gure out how to calculate the amount that goes into entry 2 How much of that inventory used Example Perpetual inventory OOO 09282015 Learning objective Analyze sales transactions under a perpetual inventory system What affects inventory 0 Purchase price 0 Transportation returns and allowances Discount Cost of inventory ALWAYS EFFECT THE INVENTORY ACCOUNT Terms of shipment Date shippedln transitDate received 0 Who owns the inventory during this time Recording Inventory sales Merchandisers earn revenues by transferring control of merchandise to a customer either for cash or on credit FOB shipping point freight on board The sale is recorded when the goods leave the sellers shipping department 0 Recorded as soon as it is in transit 0 We can take it out of our inventory now FOB destination The sale is recorded when the goods reach their destination the customer 0 Not recorded until it arrives In this course we will assume it is FOB shipping point Ex Speed co sells merchandise to brock Inc for a total of 30000 The merchandise is shipped on 122814 and reaches Brock Inc on 1715 The terms of shipment were FOB shipping point Which statement is false 0 Brock inc increases inventory on 1715 0 Speed co reduces inventory on 122814 0 Speed co increases cost of goods sold on 122814 0 A is wrong Recording inventory sales 0 Every merchandise sale has two components Each of which requires an entry in a perpetual inventory system The rst entry is for the selling price 0 Debit Cash or accounts receivable 0 Credit Sales revenue 0 Based on selling price The second entry is to record the cost 0 Debit the cost of goods sold this is an expense 0 Credit inventory 0 Based on cost the company What is the difference between selling price and cost called 0 Gross marginPro t margin Sales returns and allowances When goods sold to a customer arrive in damaged condition or are otherwise unsatisfactory the customer can 0 Return them for a full refund or 0 Keep them and ask fro a reduction in the selling price caed allowance 0 Why do these transactions utilize a contrarevenue account versus recording directly to revenue 0 We never debit a revenue 0 What is the difference on the balance sheet and income statement when recording a return versus an allowance 0 0 First debit saes returns and allowances contrarevenue increases which decreases revenue 0 Credit cash or accounts receivable Second is for returns ONLY 0 Debit inventory increase assets 0 Credit cost of goods sold Sales on account and sales discounts Sales discounts with terms 315 n45 means 0 3 percent discount for payment received within 15 days or the full amount less returns is due within 45 days Sales discount 0 Debit cash 0 Debit saes discounts contra account 0 Credit accounts receivable Purchase vs Sales discounts 0 Example 0 Assume Co a buys 10000 of inventory from co b with terms 210 n30 and the inventory is paid for within the discount period Purchaser 0 Debit inventory Credit accounts payable 0 Debit accounts payable Credit inventory Credit cash 0 Seller 0 Debit accounts receivable Credit revenue 0 Debit cash 0 Debit saes discount Credit accounts receivable Gross pro t analysis 0 Gross pro t Gross pro tNet saes x 100 0 Higher percentagethe company is selling their products at a higher mark up over its cost EXHIBIT 68 in the textbook heps on page 266


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