AC 210 Lecture Notes - Lecture 23: Accounts Payable, Purchase Order, Operating Expense

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silvercicada472

5 Jun 2018

School

University of Alabama

Department

Accountancy

Course

AC 210

Professor

Lisa Mc Kinney

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Inventory Systems

There are two systems to account for inventory: the perpetual system and the periodic

system. With the perpetual system, the inventory account is updated after every

inventory purchase or sale. Before computers became widely available, only companies

that sold a relatively small number of high‐priced items used this system. Under

the periodic system, a careful evaluation of inventory occurs only at the end of each

accounting period. At that time, each product available for sale is counted and multiplied

by its per unit cost, and the total of all such calculations equals the value of inventory.

Recording Purchases

Under the periodic system, a temporary expense account named merchandise

purchases, or simply purchases, is used to record the purchase of goods intended for

resale. The source documents used to journalize merchandise purchases include the

seller's invoice, the company's purchase order, and a receiving report that verifies the

accuracy of the inventory quantities. When Music World receives a shipment of

merchandise worth $1,000 on account from Music Suppliers, Inc., Music World

increases (debits) the purchases account for $1,000 and increases (credits) accounts

payable for $1,000.

For reference purposes, the journal entry's description usually includes the invoice

number.

When a seller pays to ship merchandise to a purchaser, the seller records the cost as a

delivery expense, which is considered an operating expense and, more specifically, a

selling expense. When a purchaser pays the shipping fees, the purchaser considers the

fees to be part of the cost of the merchandise. Instead of recording such fees directly in

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Document Summary

There are two systems to account for inventory: the perpetual system and the periodic system. With the perpetual system, the inventory account is updated after every inventory purchase or sale. Before computers became widely available, only companies that sold a relatively small number of high priced items used this system. Under the periodic system, a careful evaluation of inventory occurs only at the end of each accounting period. At that time, each product available for sale is counted and multiplied by its per unit cost, and the total of all such calculations equals the value of inventory. Under the periodic system, a temporary expense account named merchandise purchases, or simply purchases, is used to record the purchase of goods intended for resale. The source documents used to journalize merchandise purchases include the seller"s invoice, the company"s purchase order, and a receiving report that verifies the accuracy of the inventory quantities.

Related Questions

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

lemonpug879

Periodic inventory system. Each of the following four horizontal lines represents data taken from a separate multiple-step income statement. Insert the missing amounts in the space (empty box) provided. Indicate any net loss by placing brackets around the amount.

Hint: Not all parts of the income statement are shown, so be careful with your arithmetic.

	Beginning Inventory	Purchases	Cost of Goods Available for Sale	Ending Inventory	Cost of Goods Sold
a.	$180,000		$325,000	$80,000

	Sales (Revenue)	Cost of Goods Sold	Gross Profit	Operating Expenses	Net Income
b.	$240,000	$145,000			$32,000

	Revenue (Sales)	Cost of Goods Available for Sale	Ending Inventory	Cost of Goods Sold	Gross Profit	Operating Expenses	Net Income
c.	$515,000	$240,000		$145,000		$225,000	$145,000

. For each question below, circle the best answer from the choices given. (

1 : Under the periodic inventory system the purchases of merchandise are recorded at their selling prices.
a. True b. False

2 : Inventory shrinkage does not include the loss of merchandise through shoplifting.
a. True b. False

3 : Only under the periodic inventory system is a physical count of the inventory necessary.
a. True b. False

4 : It is not possible to have more inventory at the end of a period then at the beginning of a period.
a. True b. False

5) True and false. Indicate whether each of the following is True (T) or False (F). (5 POINTS)

T F 1. US Treasury bills that mature within 120 days are cash equivalents.

T F 2. Financial assets describe not just cash, but all assets that are easily and directly convertible into known amounts of cash.

T F 3. Good cash mgmt. dictates that any cash and checks received each day should be deposited the same day.

T F 4. The income statement approach to estimating Bad debts Expense emphasizes the aging of accounts receivable and the adjustment of the Allowance for Doubtful Accounts account to the level of the estimated uncollectible amount.

T F 5. When I use the allowance method for accounts receivable, I will recognize a Bad Debt Expense at the same time the account is taken off the Accounts Receivable Subsidiary Ledger.

. For each question below, circle the best answer from the choices given.

1. Which of the following items would cause the ending balance on the bank statement to be larger than the ending balance of cash shown in the accounting records (checkbook)?

A) Bank service charges.

B) Deposits in transit.

C) Outstanding checks.

D) NSF check from one of the depositor's customers.

2. When a bank reconciliation has been satisfactorily completed, the only related entries to be made in the companyâs records are:

A) To correct errors made by the bank in recording the dollar amounts of cash transactions during the period.

B) To reconcile items explaining the difference between the balance per books and the balance per bank stmt.

C) To record outstanding checks and bank service charges.

D) To record items explaining the difference between the balance per accounting records and the adj. cash bal.

3. The Allowance for Doubtful Accounts represents:

A) Cash set aside to make up for bad debt losses.

B) The amount of uncollectible accounts written off to date.

C) The difference between total credit sales and collections on credit sales.

D) The difference between the face value of A/R and the net realizable value of A/R.

4. In preparing a bank reconciliation, a service charge shown on the bank statement should be:

A) Added to the balance per the bank statement.

B) Deducted from the balance per the bank statement.

C) Added to the balance per the depositor's records.

D) Deducted from the balance per the depositor's records.

5. During preparation of a bank reconciliation, outstanding checks should be:

A) Added to the balance per the bank statement.

B) Deducted from the balance per the bank statement.

C) Added to the balance per the depositor's records.

D) Deducted from the balance per the depositor's records.

Bank reconciliation. Indicate what effect each situation will have on the bank reconciliation process (Match the situation with the bank reconciliation process below by placing the number of the process next to the situation). Note that there are more situations than processes, so some processes may be used more than once, but not all processes have to be used. Only one process is required for each situation. Hint: Determine if Cash is increasing or decreasing

Process

Deduct from bank balance 2. Add to bank balance

3. Deduct from checkbook balance 4. Add to checkbook balance

Situation

_______ Bank received $2,750 from one of your customers (Terms: Cash in advance)

_______ Bank collection (wire) fee was $15

_______ Check number 111 was outstanding for $55

_______ A $400 check was written, but recorded on the books as $40

_______ Interest received from your bank for the month was $16.55

ceriseraccoon894

TRANSACTIONS FOR THE MONTH OF JANUARYâNote that wewill ignore Sales Tax for this project. Normally, one would have toprovide an explanation for each general journal entry. However,since we are recording all entries in the general journal,explanations will not be necessary.

Jan 2 Issued abond, face value $100,000, to Daniel Scheriâs Investment Companyfor $91,000 cash. Terms of the bond is 5 years and the statedinterest rate is 9.6%. Interest and amortization will be recordedas an adjusting entry the end of the month.

2 Issued6,000 shares of common stock for $50,000. Remember that commonstock is always recorded at par value.)

3 Sold aYamaha Waverunner for $8,000 on account to Buena by the Shore,).Issued Invoice No. 719. (Note that we are using FIFO forinventory)

(Note that when making a saleusing a perpetual inventory system, you always need two entries,one recognizing the sale, and one reducing inventory.)

Cash or/and AccountsReceivable XX

Sales XX

Cost of GoodsSold XX

MerchandiseInventory XX

3 Purchased a SnyderCraft for $16,800 on account from Szumowskiâsâs Boats, Invoice No.630, terms 3/10, n/60. Note that since we are using a perpetualinventory system, all purchases and sales need an entry in theaccount MerchandiseInventory.

4 Purchasedvarious boat merchandise of $3,000 from Szumowskiâsâs Boats onAccount, Invoice No. 631, terms 3/10, n/60.

4 Issued Check No. 292 toSzumowskiâsâs Boats in full settlement of our December accountbalance --Invoice No. 580, terms n/30.

Issued credit memorandum No. 75 to Parth Patelâs Boats for$1,000 for miscellaneous merchandise previously purchased. Our costand value is 500. (Reverse the entry listed above on the2^nd but use Sales Returns and Allowance instead of theaccount Sales and the numbers given in this entry.)

4 IssuedCheck No. 293 to Copier Repair Co. for copier repairs, $500.

5 Receivedpayment in full from Parth Patelâs Boats on sale made in December.(Do not forget the credit memorandum on the 4th.)

5 Sold aSeahawk to Evan Hughes Boats, for $36,000. We received $10,000 as adown payment. Issued Invoice No. 720.

Returned defective merchandise from the December 3^rdpurchase to Szumowskiâsâs Boats and received a $500 creditmemorandum. (Credit Merchandise InventoryâBoatSupplies)

6 Sold all the old warehouse storage equipment for $22,000. Thewarehouse equipment has a five-year life and a salvage value of$4,000. Assume the company uses the straight-line method todepreciate Warehouse Equipment. (Step 1âBring the depreciationup to date by depreciating the warehouse for one month. Step2âRemove the asset and accumulated depreciation and debit cash.Step 3âPlug to a realized gain or loss account-- 701.)

7 Sold boatmerchandise on account to Paige Connery Best Buys for $900, ourcost $450. Invoice no. 720.

8 IssuedCheck No. 294 to Amanda Muetterâs Contractors to purchase aBuilding for $150,000. Straight-line method will be used over 20years without any salvage value. At this time, you only will needto make the entry for the purchase of the building. (Note, that amonthâs depreciation will have to be recorded as an adjusting entryat the end of the period.)

10 IssuedCheck No. 295 to the Internal Revenue Service in payment of FICAtaxes accrued as of December 30 (FICA Taxes Payableâ look atbeginning trial balance for amount.)

10 IssuedCheck No. 296 to the Internal Revenue Service in payment of federalincome taxes withheld as of December 30. (Employeesâ FederalIncome Taxes Payableâlook at beginning trial balance foramount.)

Issued Check No. 297 to Kyj and Cheatem Investment Company for$3,000 of

equity marketable securities to hold excess cash. (Thisshould be debited

to Investments--Available for Sale Securities âAccount number109.)

11 IssuedCheck No. 298 to Mathew Hamiltonâs Distributors in full settlementof the December 30 purchase, Invoice No. 1002, terms n/20.

11 IssuedCheck No. 299 to Szumowskiâsâs Boats in full settlement of ouraccount for the two purchases early this month. (Recall the creditmemorandum on the 5th.) (Note that when paying suppliers withina discount period, one must credit Merchandise Inventory.)

15 Check No.300 voided. (No entry needed.)

15 Sold boatsupplies on account to Parth Patelâs Boats , for $1,800 (Cost$900). Issued Invoice No. 721.

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AC 210 Lecture Notes - Lecture 23: Accounts Payable, Purchase Order, Operating Expense

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