ACCT207 Lecture Notes - Lecture 5: Perpetual Inventory, Income Statement, Gross Profit

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blushchimpanzee719

27 Sep 2018

School

University of Delaware

Department

Accounting

Course

ACCT207

Professor

Somerville Scott

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Document Summary

Cost of goods sold: total cost of merchandise sold. Sales revenue-cost of goods sold = gross profit. Gross profit-operating expenses = net income (loss) Flow of costs: either perpetual or periodic inventory system to account for inventory. Maintain records of the cost of each inventory purchase and sale. Records continuously show inventory that should be on hand. Company determines cost of goods sold each time a sale occurs. Beginning inventory + purchases (net) = goods available for sale. Goods available for sale - ending inventory = cost of goods sold. Record purchases under a perpetual inventory system. Made using cash or credit (on account) Normally record when goods are received from seller. Purchase invoice should support each credit purchase. Ex: sauk stereo (buyer) uses as a purchase invoice the sales invoice prepared by pw audio supply (seller). Stereo for the invoice from pw audio supply.

Related Questions

Which of the following statements about a periodic inventory system is true?

a. The increased use of computerized systems has increased the use of periodic systems.

b. The periodic system provides better control over inventories than a perpetual system

c. The company continuously maintained detailed records of the cost of each purchase and sale.

d. Companies determine the cost of goods sold only at the end of the accounting period.

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1. Inventory is classified on the balance sheet as a

a.current liability

b.long-term asset

c.current asset

d.long-term liability

2. What is the term applied to the excess of sales over the cost of goods sold?

a.net income

b.gross profit

c.operations

d.gross sales

3. The inventory system employing accounting records that continuously disclose the amount of inventory is called

a.periodic

b.retail

c.perpetual

d.physical

4. Calculate the gross profit for Jefferson Company based on the following:

Sales $764,000

Selling Expenses $42,500

Cost of Goods Sold $538,000

a.$183,500

b.$721,500

c.$495,500

d.$226,000

5. Calculate income from operations for Jonas Company based on the following data:

Sales $764,000

Selling Expenses $52,500

Cost of Goods Sold $538,000

a.$226,000

b.$711,500

c.$485,500

d.$173,500

6. The primary difference between the periodic and perpetual inventory systems is that a

a.periodic system keeps a record showing the inventory on hand at all times

b.periodic system determines the inventory on hand only at the end of the accounting period

c.periodic system records the cost of the sale on the date the sale is made

d.periodic system provides an easy means to determine inventory shrinkage

7. In credit terms of 3/15, n/45, the "3" represents the

a.percent of the cash discount

b.full amount of the invoice

c.number of days when the entire amount is due

d.number of days in the discount period

8. Which of the following accounts has a normal credit balance?

a.Inventory

b.Accounts Receivable

c.Sales

d.Delivery Expense

9. Using a perpetual inventory system, the entry to record the purchase of $30,000 of merchandise on account would include a

a.debit to Inventory

b.debit to Accounts Payable

c.credit to Sales

d.credit to Inventory

10. Which of the following accounts usually has a debit balance?

a.Sales

b.Inventory

c.Accounts Payable

d.Sales Tax Payable

11. If title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are

a.n/30

b.consigned

c.FOB shipping point

d.FOB destination

12. When goods are shipped FOB destination and the seller pays the freight charges, the buyer

a.does not take a discount

b.journalizes a reduction for the cost of the merchandise

c.makes no journal entry for the freight

d.journalizes a reimbursement to the seller

13. When the perpetual inventory system is used, the inventory sold is debited to

a.Supplies Expense

b.Cost of Goods Sold

c.Sales

d.Inventory

14. Generally, the revenue account for a merchandising business is entitled

a.Gross Sales

b.Sales

c.Gross Profit

d.Fees Earned

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	Periodic Inventory Method

	Better Bottles, Inc. uses a PERIODIC inventory system and has the following information available:

	Description	# of Units	Cost per Unit	Total Cost
	Beginning inventory	20	$20.00	$400
	Jan 5 sold	15
	Jan 15 purchase	27	$22.00	594
	Jan 18 sold	21
	Jan 20 purchase	33	$30.00	990
	Total goods available for sale	80		$1,984

	Total goods sold	36


	Required:
1	Calculate both Cost of goods sold and Ending inventory using the Periodic FIFO Method.
2	Calculate both Cost of good sold and Ending Inventory using Periodic LIFO Method.
3	Use your calculations from 1-2 and complete the Income Statement.
	The company income tax rate:	0.25

1	FIFO Cost of Goods Sold - PERIODIC
	Units Sold Taken From:	# of Units	Cost per Unit	Total Cost


	Total Cost of Goods Sold FIFO


	FIFO Ending Inventory - PERIODIC
	Inventory Available	# of Units	Cost per Unit	Total Cost
	Beginning inventory
	+Purchase
	+Purchase
	(Less Cost of Goods Sold)
	Ending Inventory FIFO



2	LIFO Cost of Goods Sold - PERIODIC
	Units Sold Taken From:	# of Units	Cost per Unit	Total Cost


	Total Cost of Goods Sold LIFO


	LIFO Ending Inventory - PERIODIC
	Inventory Available	# of Units	Cost per Unit	Total Cost
	Beginning inventory
	+Purchase
	+Purchase
	(Less Cost of Goods Sold)
	Ending Inventory LIFO



3	Income Statement - Periodic Inventory Method
		FIFO	LIFO
	Sales revenue, net	25,000	25,000
	Cost of goods sold
	Gross profit
	Operating expenses	8,000	8,000
	Operating income before tax
	Income tax expense
	Net income

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ACCT207 Lecture Notes - Lecture 5: Perpetual Inventory, Income Statement, Gross Profit

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