ACC 201 Chapter 6

Gross Method: Sale (when goods deliver)

(A) Account Receivable 1500 (E) Sale Revenue 1500 (SE) Cost of Good Sold 980 (A) Inventory 980

Net Method: Sales When payment is received in discount period

(A) Cash 1470 (A) Account Receivable 1470

Gross Method: Sales When payment is received in discount period

(A) Cash 1470 (?) Sales Discount. 30 (L) Account Receivable 1500

Gross Method: Purchases (when goods are received)

(A) Inventory 1000 (L) Account Payable 1000

Net Method: Purchases (when goods are received)

(A) Inventory 980 (L) Accounts Payable 980 1000x98%=980

Inventory Purchase: If Walmart receives $10,500 of bikes purchases on account.

(A)Inventory 10500 (L)Account Payable 10500

Gross Method: Purchase When payment is made in the discount period.

(L) Account Payable 1000 A) Cash 980 (A) Inventory 20

Net Method: Purchase When payment is made in the discount period.

(L) Account Payable 980 (A) Cash 980

Net Method: Sale (when goods deliver)

(L) Account Receivable 1470 (E) Sales Revenue 1470 (1500x98%=1470) (SE) Cost of Goods Sold 980 Inventory 980

Purchase R&A: If Walmart returned some of the bikes to the supplier and received a $500 reduction in the balance owed.

(L)Account Payable 500 (A) Inventory 500

Actual Returns (STORE CREDIT): One bike is returns to Walmart in good condition. Customer is given $200 and Walmart original cost is $175. Walmart won't reduce Sales revenue instead uses a contra-account.

(SE)Sales Returns and Allowances 200 (A) Deferred Revenue 200 (A)Inventory 175 (SE)Cost of Goods Sold 175

Actual Returns (CASH REFUND): One bike is returns to Walmart in good condition. Customer is given $200 and Walmart original cost is $175. Walmart won't reduce Sales revenue instead uses a contra-account.

(SE)Sales Returns and Allowances 200 (A)Cash 200 (A)Inventory 175 (SE)Cost of Goods Sold 175

Three key differences in B/S and I/S of a service and merchandising company

1. Merchandisers report INVENTORY as a current asset, service companies report it as SUPPLIES. 2. In I/S service companies earn revenue from SERVICES and merchandise companies from SALE REVENUE. 3. Merchandising report an expense called COST OF GOODS SOLD.

2/30, n/60

2: Discount percentage offered 30: Number of days in discount period n: "Net" purchase 60: Maximum credit period

Perpetual Inventory System Equation

BI + P - CGS = EI

Periodic Inventory System Equation

BI + P - EI = CGS

Cost of Goods Sold Equation

Beginning inventory + purchases - ending inventory = cost of goods sold OR beginning inventory + purchases - cost of goods sold = ending inventory

Merchandising Company Cycle

Buy Inventory---> Sell Inventory---> Collect Cash---> Pay operating expenses

ABC Company had beginning inventory of $20,000, purchases of $81,000, and ending inventory of $24,000. Sales revenue was $160,000. What is ABC's gross profit percentage?

Cost of goods sold equals $77,000 (= $20,000 + 81,000 - 24,000). Gross profit percentage equals 52% (=$160,000 - $77,000)/$160,000.

FOB Shipping Cost

Term of sale indicating that goods are owned by the buyer the moment they leave the seller's premises.

Ace Electronics, which uses a perpetual inventory system, recorded a debit to Sales Returns & Allowances and a credit to Accounts Receivable, along with a debit to Inventory and a credit to Cost of Goods Sold. What business event must have taken place?

The customer received a damaged product and returned it

Acme Enterprises, which uses a perpetual inventory system, recorded a debit to Sales Returns & Allowances and a credit to Accounts Receivable. (No other accounts were affected.) What business event must have taken place?

The customer received a damaged product, but kept the product and asked for a reduction in the price.

True or False: Multistep Income Statement separates the revenues and expenses from all other items that affect net income.

True

True or False: Periodic Inventory System updates the inventory records at the end of the accounting period.

True

True or False: Perpetual Inventory System updates inventory records every time an item is bought or returned

True

Journal Entries for Purchase and Sale Discount (USING GROSS/NET)

Walmart purchases merchandise at a cost of $1000 w/terms of 2/30, n/60 byes suppliers Walmart warehouse store Sam Club sell the merchandise for $1500 w/ 2/30, n/60 offered to customer. Walmart pays its suppliers w/in the discount period and customer as well.

Gross Method

a company does not regularly take purchase discount

Merchandising Companies

a company that sells goods that have been obtained from a supplier ex. Walmart and Costco

Service Companies

a company that sells services rather than physical good. EX. Planet Fitness

Purchase Returns and Allowances

a reduction in the cost of purchases associated w/ unsatisfactory good

Perpetual Inventory System

a system in which a detailed inventory record is maintained by recording each purchase and sale of inventory during the accounting period

Periodic Inventory system

a system in which ending inventory and cost of good sold are determined only at the end of accounting period based on physical inventory count.

Sales returns and allowances ______.

are typically recorded after the initial sale when the actual return or allowance occurs are adjusted for at the end of the accounting period for estimated returns and allowance expected to occur in the following months reduce the amount the seller expects to receive from customers

FOB Shipping Point: In Transport and Unloading

buyer responsibility (t&u)

FOB Destination: Unloading

buyer responsibility (u)

Sales Discount

cash discount offered to customers to encourage prompt payment of an account receivable such as 2/30, n/60 normal credit balance contra-account

Purchase Discounts

cash discount received for prompt payment of an account.

Merchandisers record revenue when they

fulfill their performance obligations by transferring control of the goods to customers

Consignment inventory

goods a company is holding on behalf of the good's owners on b/s of the owner

Inventory

goods held for sale in the normal course of business or used in producing other goods for sale.

Gross Profit Percentage

indicated how much above cost a company sell its products net sales - cgs / net sales

Net Method

is a company is routinely offered and take advantage of purchase discount

Operating Cycle

is a series of activities that a company undertakes to generate revenues, which ultimately lead to collecting cash

Expected returns - Inventory Estimated Returns

is the inventory has not been returned. To record this use INVENTORY- ESTIMATED RETURNS

Expected returns - Refund Liability

is the refund or store gift card has been given (only expected). To record this REPLACE cash or deferred Revenue with an increase called REFUND LIABILITY (credit)

Periodic inventory systems uses

purchases as a debit credits accounts payable

If a seller sells its merchandise with the shipping terms FOB destination, it credits Revenue when the merchandise is _______.

received by the customer

Sales Returns and Allowances

reduction of sales revenue of or allowances for unsatisfactory goods

Cost (perpetual inventory system)

removed from inventory and reported as an expense called Cost of Good Sold

Multistep Income Statement

reports alternative measures of income by calculating subtotals for core and peripheral business activities.

Selling price(perpetual inventory system)

sale price is recorded as an increase in sale revenue amp same increase in either cash (for cash sale) or account receivable (for sale on account)

Retailers

sell directly to individuals consumers

Wholesalers

sell their inventory to retail business for resale

FOB Destination: Loading and In Transport

seller responsibility (l&t)

FOB Shipping Point: Loading

seller responsibility (l)

Income from Operations equation

selling, general and administrative - gross profit

If a seller sells its merchandise with the shipping terms FOB shipping point, it credits Revenue when the merchandise is _______.

shipped from the seller's place of business

Gross Profit

subtotal on the income statement produced by subtracting Cost of Goods Sold from Sales Revenue (Sales Revenue - Cost of Goods Sold= Gross Profit)

FOB Destination

term of sale indicating that goods are owed by the seller until delivered to the buyer

Shrinkage

the cost of inventory lost to theft, fraud, and error

If sales returns and allowances are a large dollar amount relative to initial sales revenue, it may mean ______.

there are product quality issues

True or false: Gross Profit is a stockholders' equity account and is credited when goods are delivered to customers.

False, Gross Profit is a subtotal, not an account, found on the income statement.

Which of the following are found on the income statement of a merchandiser?

Gross Profit Sales Revenue Cost of Goods Sold

Goods in transit

Inventory being transport on b/s of the owner

Three accounts that is important to Merchandising Companies

Inventory, Sales Revenue, and Cost of Goods Sold

A _________ inventory system records the Cost of Goods Sold with a debit to Cost of Goods Sold and a credit to Inventory at the time of the sale.

Perpetual

Net Sales Equation

Sales Revenue - Sale Returns & Allowances - Sale discounts = NET SALES

The order on the income statement

Sales Revenue, gross Sale Returns, Allowances and Discounts Sale Revenue, net Cost of Goods Sold Gross Profit

Service Company Cycle

Sell services---> Collect Cash---> Pay operating expenses