© Copyright 1999-2005 by M. Ray Gregg. All Rights Reserved. 1

© Copyright 1999-2005 by M. Ray Gregg.

All Rights Reserved. 1



Chapter 6

I.This WeekA. pp. 223 – 233 and

Appendix 6A

B. Contrast periodic and perpetual

C. Financial statement preparation and formulas

II.Fall Break

III.Week After BreakA. pp. 233 – 249

B. Appendix 6B and Appredix 6C



Chapter 6

I.This WeekA. Chap 5, pp. pp. 200-213

Chap 5, Appendix 5AChap 6, pp. 228-233


C. Financial statement preparation and formulasII.Fall BreakIII.Week After Break

A. Chap 6, pp. 233 – 247B. Appendix 6A and Appendix 6B



Chapter 6

I.This WeekA. Chap 5, pp. pp. 200-213

Chap 5, Appendix 5AChap 6, pp. 228-233


C. Financial statement preparation and formulasII.Fall BreakIII.Week After Break

A. Chap 6, pp. 233 – 247B. Appendix 6A and Appendix 6B



Contrast Periodic and Perpetual



Merchandising

periodic

perpetual





Merchandising

periodic

perpetual Review

New



What’s New?

new accounts new look for transactions new details on Income Statement



New Accounts

Merchandise Inventory

goods for resale

co$t

Purchases

Purchase Returns and Allowances

Purchase Discounts

contra

contra

Freight-In

“sub”



New Accounts

Sales

retailSales Returns and Allowances

Sales Discounts

contra

contra



New Accounts

Cost of Goods Sold

expense



New Transactions(buyer’s point of view)

Purchased merchandise from Seller, Inc., FOB shipping point, 2/10,n/30, $1,000.

Date Account Title Ref Debit Credit

Merchandise Inventory 1,000

1,000Accounts Payable

Purchases




Paid Mack Trucking Company for freight charges, $100.


Merchandise Inventory 100

100Cash

Freight-In




Returned $200 of defective goods, receiving credit.



200

200

Accounts PayablePurchases Returns and Allowances




Paid the balance due within the discount period.


Accounts Payable


800

16

Cash 784

Purchase Discount



New Accounts

Purchases

Invoice 1,000

Freight-In100 Pur Disc

16


200



Sold merchandise (costing $60) to Buyer Co., FOB shipping point, 1/10,n/30, $100.

New Transactions(seller’s point of view)

Accounts Receivable 100

100Sales


Periodic requires only one entry.

Cost of Goods Sold


60

60



Issued a credit memo to Buyer for goods returned, $20 ($12 cost).

New Transactions(seller’s point of view)

Sales Returns and Allow. 20

20Accounts Receivable


Periodic only requires one entry.


Cost of Goods Sold

12

12



Summary of Periodic

• PURCHASES account is debited when goods are acquired.

• SALES is credited to record the sales price of the goods sold, but no entry is made to reduce inventory

• THEREFORE• Must COMPUTE Cost of Goods Sold in

order to find Net Income.



Financial Statement Formulas



Financial StatementsSome Company

Income StatementFor the Year Ended 12/31/xx

Sales $ xxx,xxx

Cost of Goods Sold xx,xxx

GROSS PROFIT $ x,xxx

Sales ¹- Cost of Goods Sold ²= Gross Profit



¹ “Sales”means

“net sales”



New Accounts

Sales

retailSales Returns and Allowances

Sales Discounts

contra

contra



Financial StatementsSome Company

Income StatementFor the Year Ended 12/31/xx

Sales $ xxx,xxx

Less: SR&A x,xxx

S Disc xxx x,xxx

Net Sales $ xxx,xxx

Cost of Goods Sold xx,xxx

GROSS PROFIT $ x,xxx



² Cost of Goods Sold

Beginning Inventory

+ Purchases ³

= Goods Available for Sale

- Ending Inventory

= Cost of Goods Sold

It’s a formula…not an account!



“Purchases”



³ “Purchases”means

“net purchases”



New Accounts

Purchases

goods for resale

co$t


Purchase Discounts

contra

contra

Freight-In



³ “Purchases” means“Net Purchases”

Gregg & Wilson

Purchases

+ Freight-In

- Pur Ret & Allow

- Pur Discounts

= Net Purchases

Weygandt, Kieso, Kimmel

Purchases

- Pur Ret & Allow

- Pur Discounts

= Net Purchases

+ Freight-In

= Cost of Goods Purchased



New Accounts

Purchases

goods for resale

co$t


Purchase Discounts

contra

contra

Freight-In




Gregg & Wilson

Purchases

+ Freight-In

- Pur Ret & Allow

- Pur Discounts

= Net Purchases


Purchases

- Pur Ret & Allow

- Pur Discounts

= Net Purchases

+ Freight-In


GoWithThis!



OUR Company



BeginningInventory

PurchasesGoodsAvailableFor Sale

EndingInventory

Cost ofGoodsSold



BeginningInventory


EndingInventory

Cost ofGoodsSold



B I+P =GAFS

- EI

=COGS



B I+P =GAFS

- EI

=COGS



BeginningInventory

Purchases

GAFS

EndingInventory

COGS

To Balance Sheet

To IncomeStatement



Practice Exercise



Revision



Revision

January 1 was…



Revision



Revision

$30,000

$22,000



From the list of accounts in the handout, prepare an income statement through gross profit.



Where dowe start?

What’s thefirst thingyou do whenyou prepare an Income Statement?



Cellar CompanyIncome Statement

For the Year Ended December 31, 20xx

Sales $300,000Less: Sales Returns and Allowances 1,500

Sales Discounts 3,000 4,500Net Sales $295,500

Cost of Goods Sold:Merchandise Inventory, 1/1/xx $22,000Purchases $80,000Less: Purchase Returns and Allow $3,500

Purchase Discounts 6,000 9,500Net Purchases $89,500Add: Freight-in 4,000Cost of Goods Purchased 93,500Goods Available for Sale $115,500Less: Merchandise Inventory, 12/31/xx -30,000Cost of Goods Sold 145,500Gross Profit $150,000



































BeginningInventory


EndingInventory

Cost ofGoodsSold



B I+P =GAFS

- EI

=COGS




































Gregg & Wilson

Purchases

+ Freight-In

- Pur Ret & Allow

- Pur Discounts

= Net Purchases


Purchases

- Pur Ret & Allow

- Pur Discounts

= Net Purchases

+ Freight-In


GoWithThis!



















B I+P =GAFS

- EI

=COGS
















Purchase Discounts 6,000 9,500Net Purchases $70,500Add: Freight-in -4,000Cost of Goods Purchased 66,500Goods Available for Sale $88,500Less: Merchandise Inventory, 12/31/xx 30,000Cost of Goods Sold 58,500Gross Profit $237,000








Purchase Discounts 6,000 9,500Net Purchases $70,500Add: Freight-in 4,000Cost of Goods Purchased 74,500Goods Available for Sale $96,500Less: Merchandise Inventory, 12/31/xx 30,000Cost of Goods Sold 66,500Gross Profit $229,000









B I+P =GAFS

- EI

=COGS











Who learnedsomething

today?



Have agreatday…



…a greatweek…



… and aFABULOUSfall break!

Documents

© Copyright 1999-2005 by M. Ray Gregg. All Rights Reserved. 1