ACFI1002 Lecture Notes - Lecture 4: Financial Statement, Capital Account, Accounts Receivable
29 Jun 2018
School
Department
Course
Professor
Retailing Operations (Week 4)
LO1: Describe retailing operations and perpetual and periodic
inventory systems and understand how to account for GST.
Retailing operations ultimately include the operations surrounding the buying and selling of goods,
rather than services. It includes new items in the balance sheet and income statement, such as
inventory, sales revenue and cost of sales. The operating cycle begins when a business purchases
inventory from a vendor, and then sells the inventory to a customer for cash.
GST
GST is a tax levied on the supply of goods and services, currently a flat percentage charge (10%).
Each firm registered for GST collects tax on goods and services it supplies and pays tax on the goods
and services it buys. The firm then deducts the tax it pays on purchases from the tax it charges on
sales, paying the balance to the ATO. The GST amount included in purchases and sales is recorded in
the GST Clearing Account.
Inventory Systems
The periodic inventory system:
Normally used for relatively inexpensive goods.
Doesn’t keep detailed inventory records of goods on hand; counted periodically to
determine quantity.
Entries in Inventory ledger account only made at end of accounting period.
Account for purchase by:
oVendor submits invoice for payment
oInventory account increased with each purchase
oMethod of payment credited.
The perpetuity inventory system:
Keeps running record of inventory.
Number of inventory and dollar amounts are perpetually updated.
Records units purchased and cost amounts, units sold and sales and cost amounts.
Account for
LO2: Account for the purchase of inventory using a perpetual system.
Date Account Debit Credit
Jul 15 Inventory (770/1.1) (A+)
GST clearing (770/11) (A+)
Accounts Payable (L+)
700
70
770
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Purchased inventory on credit
Many businesses offer customers a settlement discount for early payment. RCA’s credit terms of
3/15, NET 30 DAYS’ means Smart Touch can deduct 3%from total bill if business pays within 15 days
of invoice date; otherwise full amount due in 30 days.
Date Account Debit Credit
Jul 15 Accounts Payable (L-)
Cash ($770 x 0.97) (A-)
Inventory ($770 x 0.03 x 10/11) (A-)
GST Clearing ($770 x 0.03 x 1/11) (A-/L+)
Paid within discount period.
770.00
746.90
21.00
2.10
Businesses allow customers to return goods that are defective, damaged or unsuitable. The seller
may also deduct an allowance from amount buyer owes (purchase allowance).
Date Account Debit Credit
Jul 4 Accounts Payable (L-)
Inventory (110/1.1) (A+)
GST Clearing (110/11) (A-/L+)
Returned inventory to seller.
110
100
10
If a purchase agreement specifies FOB (free on board) terms, to determine when title to the good
transfers to the purchaser and who pays freight.
FOB delivery point means the buyer takes ownership of goods at delivery point.
FOB destination means buyer takes ownership to goods at delivery destination point.
‘Freight in’ is the transportation cost to ship goods into the purchaser’s warehouse- freight
on purchased goods.
oFreight in increases the cost of inventory.
‘Freight out’ is the transportation cost to ship goods out of the warehouse and to the
customer- freight on sold goods.
oFreight out is a selling expense.
LO3: Account for the sale of inventory using a perpetual system.
After a business buys inventory, they must sell it. The amount business earns from selling inventory
is called sales revenue.
At time of sale, two entries must be recorded in perpetual system:
One entry records sale (credit revenue) and cash or receivable (debit asset) at time of sale.
Second entry records cost of sales (debit the expense) and reduces the inventory (credit the
asset).
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Lo1: describe retailing operations and perpetual and periodic inventory systems and understand how to account for gst. Retailing operations ultimately include the operations surrounding the buying and selling of goods, rather than services. It includes new items in the balance sheet and income statement, such as inventory, sales revenue and cost of sales. The operating cycle begins when a business purchases inventory from a vendor, and then sells the inventory to a customer for cash. Gst is a tax levied on the supply of goods and services, currently a flat percentage charge (10%). Each firm registered for gst collects tax on goods and services it supplies and pays tax on the goods and services it buys. The firm then deducts the tax it pays on purchases from the tax it charges on sales, paying the balance to the ato. The gst amount included in purchases and sales is recorded in the gst clearing account.
