Chapter 5 – Buying/Selling Inventory
What is the largest expense incurred by a retail store or distributor?
Compare Periodic vs Perpetual methods of accounting for inventory
Big T account
Multi-Step Income Statement
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Describe the reason for each of the following accounts: Sales, Sales Returns, Sales
Discounts, Inventory, Cost of Goods Sold
What is Gross Margin (aka Gross Profit)?
FOB Shipping Point and FOB Destination
Payment Terms
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Vegetable World Multi-step Income Statement:
Adjusted Trial Balance
December 31, 20xx
Debit Credit
Cash 131,052
Accounts Receivable 25,135
Inventory 351,242
Prepaid Expenses 46,899
Equipment 340,511
Accumulated Depreciation 175,621
Accounts Payable 32,510
Loans Payable 265,988
Stock 200,000
Retained Earnings 166,475
Sales 1,035,254
Sales Returns 53,215
Sales Discounts 35,651
Cost of Goods Sold 481,984
Advertising Expense 42,100
Customer Support Expense 38,155
Utilities Expense 12,389
Rent Expense 24,000
Salaries Expense 298,545
Interest Expense 13,299
Gain on Sale of Equipment 18,329
1,894,177 1,894,177
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Event Buyer/Brittany Company Seller/ Sally Company
January 1: Brittany Company buys
$1,000 of product from Sally Company,
paying for it all at the time of purchase.
The product sold originally cost Sally
Company $750.
January 2: Brittany Company buys
$1,200 of product from Sally Company
with terms of 2/10, n30. The product
sold originally cost Sally Company
$825.
January 8: Brittany Company pays for
the January 2 purchase.
January 14: Brittany Company
purchases $1,800 of product from Sally
Company with terms of 2/10, n30, FOB
destination. The product sold originally
cost Sally Company $1,100. Sally pays
$300 to the freight company for the
cost of shipping the product.
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January 16: Brittany Company returns
$300 of the product purchased on
January 14 to Sally Company. The
product returned had an original cost of
$100 for Sally Company.
January 20: Brittany Company pays for
the January 14 purchase.
January 22: Brittany Company
purchases $2,300 of product from Sally
Company with terms of 2/10, n30, FOB
shipping point. Sally Company arranges
and pays for shipping of $350 and then
passes the cost on to Brittany Company.
Sally Company’s cost of inventory is
$1,335.
January 27: Brittany Company pays for
the amount due from the January 22
purchase.
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Sales Tax
Assume:
Sale: $100 cash
COGS: $25
Sales tax rate: 10%
Inventory Shrinkage
Assume:
Inventory according to ledger: $10,120
Physical inventory count: $10,000
If physical inventory is overstated, what is the impact to the financial statements?
Assets:
Liabilities:
Equity:
Revenue:
Expense:
Net Income:
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