ACCT10002 Chapter Notes - Chapter 5: Accounts Payable, Accounts Receivable, Write-Off

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orangemole587

22 May 2018

School

University of Melbourne

Department

Accounting

Course

ACCT10002

Professor

Warren McKeown

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Finished goods inventory = manufactured items that are completed and ready for sale

Work in process/progress = portion that has been placed into production process but not yet

complete

Raw materials = basic materials that will be used in manufacturing but have not yet been placed

into the production process

In a manufacturing business, inventory is usually classified into three categories

In a periodic inventory system:

Purchases is a temporary account whose normal balance is a debit

Purchases of inventory are recorded by an increase in purchases and an increase in accounts payable

Purchase returns and allowances is a contra purchases account whose normal balance is a credit

Purchase returns and allowances are recorded by a decrease in accounts payable and an increase in

purchase returns and allowances

Freight

in is a temporary account whose normal balance is a debit

Freight costs are recorded by an increase in freight

in and a decrease in cash

Purchase discounts are recorded by a decrease in accounts payable, a decrease in cash and an increase

in discount received

Sales are recorded by an increase in accounts receivable and an increase in sales

Sales returns and allowances are recorded by an increase in sales returns and allowances and a decrease

in accounts receivable

Sales discounts are recorded by an increase in cash, an increase in discount allowed and a decrease in

accounts receivable

Classifying inventory

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Record purchases of inventory

Determine cost of goods purchased

Determine cost of goods on hand at beginning and end of accounting period

Under a periodic inventory system, cost of sales is determined by

Purchases

purchase returns and allowances = net purchases

Net purchases + freight

in = cost of goods purchased

Actually counting, weighing, measuring each type of inventory on hand

Often done when the business is closed or slow

Quantity of each type of inventory is listed on inventory summary sheets

Listing is verified by a second employee or supervisor

Counting the physical inventory

Goods in transit = purchased goods that have not yet been received or sold goods that not

yet been delivered

FOB (free on board) shipping point = ownership of the goods passes to the buyer

when the delivery entity accepts the goods from the seller



FOB destination = ownership of the goods remains with the seller until the goods

reach the buyer



Legal title is determined by the terms of the sale

Consigned goods = goods of other parties that are held for a fee but without taking

ownership

Determining the ownership of goods

Determining inventory quantities involves:

Cost of goods purchased + cost of goods on hand at the beginning of the period = cost of goods available

for sale

Cost of sales

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Document Summary

In a manufacturing business, inventory is usually classified into three categories. Finished goods inventory = manufactured items that are completed and ready for sale. Work in process/progress = portion that has been placed into production process but not yet complete. Raw materials = basic materials that will be used in manufacturing but have not yet been placed into the production process. Purchases of inventory are recorded by an increase in purchases and an increase in accounts payable. Purchases is a temporary account whose normal balance is a debit. Purchase returns and allowances are recorded by a decrease in accounts payable and an increase in purchase returns and allowances. Purchase returns and allowances is a contra purchases account whose normal balance is a credit. Freight costs are recorded by an increase in freight-in and a decrease in cash. Freight-in is a temporary account whose normal balance is a debit.

Related Questions

A new computer virus (AcctBGone) destroyed most of the companyrecords at BackupsRntUs. The computer experts at the company couldrecover only a few fragments of the companyâs factory ledger forMarch as follows:

Direct Materials Inventory
BB(3/1)	90,700

Work-In-Process Inventory
BB(3/1)	27,400

Finished Goods Inventory
EB(3/31)	66,100

Costof Goods Sold

Manufacturing Overhead Control

Accounts Payable
		54,600	EB(3/31)

Further investigation and reconstruction from other sources yieldedthe following additional information:

The controller remembers clearly that actual manufacturingoverhead costs are recorded at $19 per direct labor-hour. (Thecompany assigns actual overhead to Work-in-Process Inventory.)

The production superintendentâs cost sheets showed only one jobin Work-in-Process Inventory on March 31. Materials of $15,700 hadbeen added to the job, and 300 direct labor-hours had been expendedat $34 per hour.

The Accounts Payable are for direct materials purchases only,according to the accounts payable clerk. He clearly remembers thatthe balance in the account was $35,600 on March 1. An analysis ofcanceled checks (kept in the treasurerâs office) shows thatpayments of $252,900 were made to suppliers during the month.

The payroll ledger shows that 5,400 direct labor-hours wererecorded for the month. The employment department has verified thatthere are no variations in pay rates among employees (thisinfuriated Steve Fung, who believed that his services wereunderpaid).

Records maintained in the finished goods warehouse indicate thatthe finished goods inventory totaled $109,000 on March 1.

The cost of goods manufactured in March was $564,100.

Required:

Determine the following amounts:

a. Work-in-process inventory, March 31.

b. Direct materials purchased during March.

c. Actual manufacturing overhead incurredduring March.

d. Cost of goods sold for March.

viridianhound793

12 ACCOUNTING QUESTIONS

4. Using a perpetual inventory system, the buyer'sjournal entry to record the return of merchandise purchased onaccount includes a:

Select one:

A. Credit to Cost of Goods Sold

B. Credit to Accounts Payable

C. Credit to Purchase Returns

D. Credit to Inventory

6.Using a perpetual inventory system, the buyerâsjournal entry to record the payment for merchandise within thediscount period includes a:

Select one:

A. Debit to Accounts Payable

B. Debit to Cost of Goods Sold

C. Debit to Purchases

D. Debit to Inventory

7.Which of the following statements regarding cost flows istrue?

Select one:

Cost of goods available for sale is equal to beginning inventoryminus cost of goods purchased.

CGAS = beginning inventory minus ending inventory.

Cost of goods available for sale is equal to beginning inventoryplus cost of goods purchased.

CGAS = cost of goods sold minus cost of goods purchased.

10. Using a perpetual inventory system, the buyerâsjournal entry to record the purchase of merchandise on creditincludes a:

Select one:

A. Debit to Inventory

B. Debit to Freight In

C. Debit to Cost of Goods Sold

D. Debit to Purchases

11. Which of the following is not shown in thestatement of stockholder's equity?

Select one:

A. Unearned revenue

B. Common stock

C. Retained earnings

D. Dividends

13. Using a perpetual inventory system, the sellerâsjournal entry to record the sale of merchandise on account includesa:

Select one:

A. Debit to Accounts Receivable

B. Credit to Cost of Goods Sold

C. Credit to Purchases

D. Debit to Inventory

14. A merchandising company's multi-step income statementdiffers from that of a service company in what way?

Select one:

A service company does not include a line for cost of goodssold.

A service company has a line for selling expenses whereas amerchandising company does not.

There is no difference.

A merchandising company will have a line for income fromoperations whereas a service company will not.

16.Using a perpetual inventory system, the sellerâs journalentry to record the return, by the buyer, of merchandise purchasedon account includes a:

Select one:

A. Credit to Purchase Returns

B. Debit to Cost of Goods Sold

C. Debit to Accounts Receivable

D. Debit to Sales and Allowances

20. For a firm that uses the perpetual inventory system, theSales Returns and Allowances account:

Select one:

A. Is not a contra account

B. Is not used

C. Is debited by the firm receiving returned goods from acustomer

D. Has a normal credit balance

21. Current assets are cash and other assets that will beconverted into cash or used up within:

Select one:

A. One year

B. The normal operating cycle of the business

C. The normal operating cycle of the business or one year,whichever is longer

D. The normal operating cycle of the business or one year,whichever is shorter

22. The balance sheet format that reports assets first and then,beneath the assets, reports the liabilities and stockholders'equity is called the:

Select one:

A. Account form

B. Report form

C. Stack form

D. Classified form

23. Safari Monkey Company sold $2,400,000 worth of merchandise,had $200,000 returned, and then the balance was received during the2% discount period.

What were the companyâs net sales?

Select one:

A. $1,800,000

B. $1,760,000

C. $2,156,000

D. $2,040,000

turquoisesea-lion93

Analyzing Manufacturing Cost Accounts

Big Wave Company manufactures surf boards in a wide variety of sizes and styles. The following incomplete ledger accounts refer to transactions that are summarized for July:

Materials
July 1	Balance	36,400	July 31	Requisitions	(A)
July 31	Purchases	146,400

Work in Process
July 1	Balance	(B)	July 31	Completed jobs	(F)
July 31	Materials	(C)
July 31	Direct labor	(D)
July 31	Factory overhead applied	(E)

Finished Goods
July 1	Balance	0	July 31	Cost of goods sold	(G)
July 31	Completed jobs	(F)

Wages Payable
			July 31	Wages incurred	116,300

Factory Overhead
July 1	Balance	21,700	July 31	Factory overhead applied	(E)
July 31	Indirect labor	(H)
July 31	Indirect materials	19,500
July 31	Other overhead	58,700

In addition, the following information is available:

Materials and direct labor were applied to six jobs in July:

Job No.	Style	Quantity	Direct Materials		Direct Labor
No. 21	X-10	200		$25,600		$15,000
No. 22	X-20	390		40,620		26,000
No. 23	X-50	170		14,500		7,000
No. 24	T-20	250		39,250		25,000
No. 25	X-40	180		26,380		16,000
No. 26	T-10	130		9,390		4,000
	Total	1,320		$155,740		$93,000

Factory overhead is applied to each job at a rate of 130% of direct labor cost.

The July 1 Work in Process balance consisted of two jobs, as follows:

Job No.	Style	Work in Process, July 1
Job 21	X-10	$5,900
Job 22	X-20	15,800
Total		$21,700

Customer jobs completed and units sold in July were as follows:

Job No.	Style	Completed in July	Units Sold in July
No. 21	X-10	X	160
No. 22	X-20	X	312
No. 23	X-50		0
No. 24	T-20	X	210
No. 25	X-40	X	149
No. 26	T-10		0

1. Determine the missing amounts associated with each letter and complete the following table. If required, round amounts to the nearest dollar. If an answer is zero, enter in "0". Enter all amounts as positive numbers.

Job No.	Quantity	July 1 Work in Process	Direct Materials	Direct Labor	Factory Overhead	Total Cost	Unit Cost	Units Sold	Cost of Goods Sold
No. 21		$ 5,900	$ 25,600	$ 15,000	$	$	$			$
No. 22		15,800	40,620	26,000
No. 23			14,500	7,000
No. 24			39,250	25,000
No. 25			26,380	16,000
No. 26			9,390	4,000
Total		$21,700	155,740	93,000	$	$				$

a. Materials Requisitions $

b. Work in Process Beginning Balance $

c. Direct Materials $

d. Direct Labor $

e. Factory overhead applied $

f. Completed jobs $

g. Cost of goods sold $

h. Indirect labor $

2. Determine the July 31 balances for each of the inventory accounts and factory overhead. Use the minus sign to indicate any credit balances.

Materials:	$
Work in Process:	$
Finished Goods:	$
Factory Overhead:	$

Feedback

1
a & c. Direct and Indirect materials are requisitioned. Direct materials are recorded in Work in Process and Indirect materials are recorded in Factory overhead.

b. The beginning work in process information is given.

d, e & h. Direct labor cost information is given. Overhead is applied based on direct labor cost.

f & g. Beginning Work in Process balances plus all current period manufacturing costs are included in the cost of completed jobs and jobs sold.

2. Insert your amounts calculated in (1) into the T accounts. Then determine the ending balances.

Learning Objective 2.

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ACCT10002 Chapter Notes - Chapter 5: Accounts Payable, Accounts Receivable, Write-Off

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