1
What does COGS stand for?
Cost of Goods Sold
What are the two inventory systems?
Periodic and Perpetual inventory systems
Give one real world store that uses the PERIODIC inventory system.
Answers may vary: convenience store, art galleries, car dealerships
Merchandise inventory = purchased and meant to be RESOLD
Supplies = purchased to be used in running a business
What is the main difference between a service business and a merchandising business?
Merchandise business = sells merchandise
Service business = provides services
When using the PERPETUAL inventory system, all "purchase related accounts" must be replaced by...
"Merchandise Inventory" or "Inventory"
Whenever you journalize a SALES transaction using the PERPETUAL inventory system, how many journal entries are required?
Two (2)
What makes the PERPETUAL inventory system different from the PERIODIC inventory system?
The perpetual inventory system keeps track of inventory on a continuous basis while the periodic inventory system occasionally counts inventory levels.
How does the income statement for a service business differ from a merchandising business?
2) No Gross Profit
List the accounts that affected by this transaction, along with the amounts. The PERPETUAL inventory system is used.
You give back $400 (they purchased on account) to Toys R' Us for their return of merchandise purchased on a previous date because it was damaged. Your cost of the merchandise returned by Stellar Stores was $176. However, since the merchandise was damaged, it was thrown out.
Debit: Sales Returns and Allowances
Credit: Accounts Receivable
Define what "Freight-In" is
"Freight-in" is the cost of having goods delivered or shipped to a business for resale.
"You purchased a set of hockey sticks for $500. You paid in cash".
This transaction uses the PERPETUAL inventory system.
1) What are the debit and credit accounts in this transaction?
Debit: Merchandise Inventory
Credit: Cash
- Beginning inventory: $43,000
- Ending Inventory: $32,400
- Freight-in: $4,000
- Purchases: $200,000
- Purchase discounts: $15,000
- Purchase returns and allowances: $8,000
Calculate NET PURCHASES
$177,000
List the accounts that affected by this transaction, along with the amounts. The PERPETUAL inventory system is used.
You give back $2,000 cash to Cars R' Us for their return of merchandise (due to it being the wrong colour). Your cost of the goods returned by Cars R' Us cost $500. As the merchandise was not damaged, it was returned to your inventory.
Debit: Sales Returns and Allowances, Merchandise Inventory
Credit: Cash, Cost of Goods Sold