ACCT10 Accounting | Organization and Sales Account Management
Questions:
Q1. Explain the inventory system followed by merchandiser.
Q2.Assume that Guardian Company uses a periodic inventory system and has these account balances: Purchases $600,000; Purchase Returns and Allowances $25,000; Purchase Discounts $11,000; and Freight-in $19,000; beginning inventory of $45,000; ending inventory of $55,000; and net sales of $750,000.
3.Deloy Company gathered the following condensed data for the year ended December 31, 2016
Cost of goods sold $ 690,000
Net sales 1,250,000
Administrative expenses 234,000
Interest expense 58,000
Dividend revenue 38,000
Loss from employee strike 233,000
Selling expenses 45,000
Answers:
Q1. Explain the inventory system followed by merchandiser.
Answer:
A merchandiser can follow any of inventory system out of perpetual inventory system and periodic inventory system. Under a perpetual inventory, system merchandiser needs to maintain inventory data on real time basis and update inventory account on every sale and purchase made by the business. On the other hand, periodic inventory system advocates recording inventory levels at the end of financial periods.
Periodic system of inventory maintains purchases account for recording purchases made by the organization and sales account for recording sales (Stevenson & Hojati 2007). Under this system cost of goods sold calculated by adding opening stock and a total of all purchases and subtracting closing stock. This is an easy system of maintaining and recording inventory transactions. This system has a constant balance of inventory during the whole financial period. Under this system, cost of purchases is also recorded in the purchases account. This system can choose first in first out or last in first out or average cost as an assumption for cost flow.
Under this system following journal entries are required
|
Recording purchases | |
|
Purchases |
Debit |
|
Accounts payable |
Credit |
|
Recording sales | |
|
Sales |
Debit |
|
Accounts receivables |
Credit |
|
End of the period | |
|
Cost of goods sold |
Debit |
|
Opening inventory |
Credit |
|
Closing inventory |
Debit |
|
Cost of goods sold |
Credit |
The perpetual system of inventory maintains inventory to account for recording purchases made by the organization, sales account for recording sales at sale value and cost of goods sold account for recording cost of goods sold (Weygandt et al. 2010). Under this system cost of goods sold calculated by y making a total of cost of goods sold the account. This is an innovative system of maintaining and recording inventory transactions it reduces frauds and thefts of inventory.
Under this system following journal entries are required
|
Recording purchases | |
|
Inventory |
Debit |
|
Accounts payable |
Credit |
|
Recording sales | |
|
Sales |
Debit |
|
Accounts receivables |
Credit |
|
Cost of goods sold |
Debit |
|
Inventory |
Credit |
Q2.Assume that Guardian Company uses a periodic inventory system and has these account balances: Purchases $600,000; Purchase Returns and Allowances $25,000; Purchase Discounts $11,000; and Freight-in $19,000; beginning inventory of $45,000; ending inventory of $55,000; and net sales of $750,000.( 3 marks)
Required: Determine the cost of goods sold.
Answer:
|
Purchases |
$ 600,000.00 |
|
Purchase Returns and Allowances |
$ (25,000.00) |
|
Purchase Discounts |
$ (11,000.00) |
|
Freight-in |
$ 19,000.00 |
|
Beginning inventory |
$ 45,000.00 |
|
Goods available for sale |
$ 628,000.00 |
|
Less: | |
|
Ending inventory |
$ 55,000.00 |
|
Cos of goods sold |
$ 573,000.00 |
3.Deloy Company gathered the following condensed data for the year ended December 31, 2016(4 marks)
Cost of goods sold $ 690,000
Net sales 1,250,000
Administrative expenses 234,000
Interest expense 58,000
Dividend revenue 38,000
Loss from employee strike 233,000
Selling expenses 45,000
You are required to prepare multi step income statement for the year ended December 31, 2016.
Answer:
|
Net sales |
$ 1,250,000.00 | ||
|
Less: Cost of goods sold |
$ 690,000.00 | ||
|
Gross profit |
$ 560,000.00 | ||
|
Other revenue | |||
|
Dividend revenue |
$ 38,000.00 | ||
|
Total income |
$ 598,000.00 | ||
|
Administrative expenses | |||
|
Administrative expenses |
$ 234,000.00 | ||
|
Loss from employee strike |
$ 233,000.00 | ||
|
$467,000.00 | |||
|
Selling and distribution expenses | |||
|
Selling expenses |
$ 45,000.00 | ||
|
$45,000.00 | |||
|
Financial expenses | |||
|
Interest expense |
$ 58,000.00 | ||
|
$58,000.00 | |||
|
Total expenses |
$ 570,000.00 | ||
|
Net Profit |
$ 28,000.00 |
References
Stevenson, W & Hojati, M 2007, Operations management, McGraw-Hill/Irwin, Boston.
Weygandt, J, Kimmel, P, KIESO, D & Elias, R 2010, 'Accounting principles', Issues in Accounting Education, vol 25, no. 1, pp. 179-180.
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