Textbook Notes (290,000)
CA (170,000)
McMaster (10,000)
COMMERCE (2,000)
Chapter 6

COMMERCE 1AA3 Chapter Notes - Chapter 6: Net Income, Gross Profit, Combined Gas And Steam


Department
Commerce
Course Code
COMMERCE 1AA3
Professor
Emad Mohammad
Chapter
6

This preview shows pages 1-3. to view the full 11 pages of the document.
COGS: expense recognized when inventory is sold
- This is recorded so that we understand the decrease in inventory
Gross Profit: Total Revenue before expenses
- negative Gross Profit = rip
Sales revenue is reduced by contra-revenue accounts
- Credit card discounts
- Sales returns and allowances
- Sales discounts (cash discounts): discounts given to customers to encourage early payment
find more resources at oneclass.com
find more resources at oneclass.com

Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

- Income from operations (operation income) = Gross profit operating expenses
- Income from continuing operations = Operating income other expenses + other revenue
o Operating income is persistent good for predictive ability, so it is recorded in its own step
Net income = income from continuing operations -/+ Irregular Items
Inventory
- Is an asset held for resale or used to produce services an goods for sale
No need to worry about three types
Costs Included in Inventory
- Recorded at the price paid plus all costs incurred to get an asset ready for its use, including:
o Invoice price
o Freight(shipping) and insurance
o Inspection costs
o Preparation costs
Purchases Returns and Allowances
- When customers are sold damaged merchandise, they can either
o Return the merchandise and receive full refund: sales return. To the customers its
purchase return
o Keep the merchandise, but receive some credit (Either reduction in A/R, store credit or
cash). Dent on a fridge; offer $300 to the customer.
Inventory Quantities
- Take physical count at the end of the accounting period
- Take into account the following
o Ownership of goods in transit
F.O.B Shipping point (As soon as the seller, it belongs to the buyer) belongs to
the purchaser upon shipping of good
F.O.B Destination belongs to purchaser upon reception good
o Consigned goods holding goods for sale that are owned by someone else
Whoever possess ownership of the goods records them as a part of their
inventory
o Shirts on Consignment basis: The store will display x amount of shirts on my behalf
Sells for $80
Store keeps $15
Pays me $65
- The quantity in store is not the right inventory
- F.O.B stands for Free on Board
find more resources at oneclass.com
find more resources at oneclass.com

Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

Inventory Systems
o Perpetual System: detailed record of the cost of each inventory purchase and sale
o COGS is calculated at each sale and inventory is updated to reflect the sale
o Provides better control and accurate data of inventory
o Periodic System: Detailed records are not kept throughout the period
o Cost of goods sold determined and inventory account updated only at the end of the accounting
period when a physical inventory count is taken
An adjusting entry is required to update the inventory and COGS
Accounting for Purchases of Inventory
o Perpetual: Debit Inventory, Credit Cash or A/P
o Periodic: Debit Purchases, Credit Cash or A/P
Accounting for Returns of Inventory
o Perpetual:
o Periodic
Accounting for Sales of Inventory
o Perpetual: Debit Cash or A/R, Credit Sales Revenue
Debit COGS, Credit Inventory
o Periodic: Debit Cash or A/R, Credit Sales Revenue
Accounting for Payment of Shipping
o Perpetual:
Selling: Debit Freight Out, Credit Cash
Buying: Debit Inventory, Credit Cash
find more resources at oneclass.com
find more resources at oneclass.com
You're Reading a Preview

Unlock to view full version