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Chapter 5

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Ryerson University
Global Management Studies
GMS 200
Louis Pike

Chapter 5: Merchandising Companies: NEW/REVIEW ACCOUNTS: COMPLETE BEFORE LECTURE Using your textbook determine the definition, category, and the financial statement on which the following accounts appear: Acct Name Definition Category On which statement? Accounts Receivable Inventory Accounts Payable Sales Sales returns and allowances 1 Acct Definition Category On which Name statement? Sales discounts Cost of goods sold Freight Out Perpetual vs. Periodic Inventory Systems: Perpetual Periodic Record purchase of at time of purchase at time of purchase inventory Record sale of inventory Sales and cost of goods sold Sales recorded at point of recorded at point of sale sales. Cost of goods sold recorded at the end of the period Inventory count completed Annually Annually Reason for inventory count To check accuracy of To calculate inventory on perpetual records AND to hand and use this determine shrinkage (due to information to determine theft, damage, human error, what the cost of goods sold etc) number is. This method is very similar to Supplies learned in Chapter 4 (count supplies at end of year and expense the difference). Perpetual Inventory System: 2 We will be using the perpetual inventory system ONLY. BUYER OF INVENTORY: PW Audio Supply, Inc., has an opening inventory balance of $11,200. On August 4 PW Audio Supply, Inc., purchases $5,500 of inventory for cash. Date Assets = Liabilities + Shareholders’ Equity On August 8 PW Audio Supply, Inc., purchases an addition $2,300 of inventory on account, terms 2/10, n/30. The inventory was shipped FOB shipping point. Date Assets = Liabilities + Shareholders’ Equity What does FOB shipping point mean? Who is responsible for paying the shipping costs? What does FOB destination mean? Who is responsible for paying the shipping costs? 3 th On August 9 the appropriate party paid $150 freight. Who should pay for the freight – the supplier or PW Audio? ________________ If it is PW Audio, provide the entry: Date Assets = Liabilities + Shareholders’ Equity On August 11 PW Audio returns $300 of inventory because it was the wrong model. Make the entry to record this return. Assume the supplier pays the return freight. Date Assets = Liabilities +
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