Vocabulary
Requires a physical count of inventory to determine inventory on hand.
Periodic inventory system
The shipping terms where the buyer pays the freight.
FOB Shipping Point (Freight-In)
Net sales revenue formula
Net Sales Revenue = Sales Revenue - Sales Discounts - Sales Returns and Allowances
On March 2, Bright Co. purchased $5,000 of merchandise inventory on account from Delta Supply.
Debit Inventory $5,000
Credit Accounts Payable $5,000
On June 5, Apex Co. sold $3,500 of merchandise on account to Green Co. The cost of the goods was $2,000
Record sale
Debit Accounts Receivable $3,500
Credit Sales Revenue $3,500
Record COGS
Debit Cost of Goods Sold $2,000
Credit Inventory $2,000
What is an expense used only by merchandisers?
Cost of Good Sold
Transportation costs added to the cost of inventory under the perpetual system.
Freight-In
How do we calculate Gross Profit?
Gross Profit = Net Sales Rev - COGS
On March 6, Bright Co. returned $800 of damaged merchandise to Delta Supply.
Debit Accounts Payable $800
Credit Inventory $800
On June 8, a customer returned $600 of merchandise that originally cost $350.
Reverse the sale
Debit Sales Returns and Allowances $600
Credit Accounts Receivable (or Cash) $600
Return inventory
Debit Inventory $350
Credit Cost of Goods Sold $350
This account represents goods that a company owns but not yet sold.
Merchandise inventory
Shipping terms where the seller pays the transportation costs.
FOB Destination (Freight-Out)
How do we calculate Operating Income?
Operating Income = Gross Profit - Operating Expenses
On March 10, Bright Co. paid the remaining balance within the 2/10, n/30 discount period.
Remaining balance:
5,000 − 800 = 4,200
Discount:
2% × 4,200 = 84
Debit Accounts Payable $4,200
Credit Cash $4,116
Credit Inventory $84
On June 10, Apex Co. sold merchandise on account for $5,000, terms 2/10, n/30. Cost of the goods was $3,100.
Record sale
Debit Accounts Receivable $5,000
Credit Sales Revenue $5,000
Record COGS
Debit Cost of Goods Sold $3,100
Credit Inventory $3,100
Keeps a running computerized record of merchandise inventory.
Perpetual inventory system
STL paid $50 to ship a good to a customer.
Debit Delivery Expense for 30
Credit Cash for 30
What is the "Income before Tax Expense" formula?
Income before Tax Expense = Operating income +/- other income and expenses
Journal entry when the payment is received within discount period.
Debit Cash
Debit Sales Discount
Credit Acc Receivable
On June 15, the customer from June 10 paid within the discount period.
Discount =
2% × 5,000 = 100
Debit Cash $4,900
Debit Sales Discounts $100
Credit Accounts Receivable $5,000
What type of account is COGS, and type of account of sales discounts?
COGS -> expense
Sales Discounts -> contra-revenue
STL paid $100 for freight on the inventory purchased previously.
Debit Merchandise Inventory for 100
Credit Cash for 100
Calculate Net Income
Net Income = Income before Income Tax Expense - Income Tax Expense
On June 3, Apex Co. sold merchandise for $4,000 cash. The cost of the merchandise was $2,600.
2 ENTRIES!!
Record the sale
Debit Cash $4,000
Credit Sales Revenue $4,000
Record cost of goods sold
Debit Cost of Goods Sold $2,600
Credit Inventory $2,600
On July 6, Titan Co. granted a $500 allowance to a customer for damaged goods. (Customer previously purchased the goods on account).
Debit Sales Returns and Allowances $500
Credit Accounts Receivable $500