IM2 EXAM 3

CH 8, 9, & 10

Describe the Perpetual System

1. It accounts for inventory changes as they happen

2. It accounts for COGS and Inventory as goods are sold

3. More costly

4. More accurate

Describe the Periodic System

1. It accounts for the change in Total Inventory at the END of the period

2. Less Costly

Journal Entry for Purchases (PERPETUAL)

Inventory (DEB); Accounts Payable (CRED)

Journal Entry for Purchases (PERIODIC)

Purchases (DEB); Accounts Payable (CRED)

Journal Entry for Freight (PERIODIC)

Freight-In (DEB); Cash (CRED)

Journal Entry for Freight (PERPETUAL)

Inventory (DEB); Cash (CRED)

Journal Entry for Returns (PERPETUAL)

Accounts Payable (DEB); Inventory (CRED)

Journal Entry for Returns (PERIODIC)

Accounts Payable (DEB); Purchase Returns (CRED)

Journal Entry for Discounts (PERPETUAL)

Accounts Payable (DEB); Inventory (CRED); Cash (CRED)

Journal Entry for Discounts (PERIODIC)

Accounts Payable (DEB); Purchase Discount (CRED); Cash (CRED)

Journal Entry for Sales (PERPETUAL)

Accounts Receivable (DEB); Sales Revenue (CRED) & COGS (DEB); Inventory (CRED)

Journal Entry for Sales (PERIODIC)

Accounts Receivable (DEB); Sales Revenue (CRED)

End of Period JE (PERIODIC)

COGS (DEB); Ending Inv (DEB); P. Returns (DEB); P. Discounts (DEB); Purchases (CRED); Beginning Inv (CRED)

What are the two types of Inventories?

Merchandising & Manufacturing

What are the techniques fr simplifying LIFO?

Dollar-Value LIFO & LIFO Inventory Pool

How to find COGS (Periodic)

COGS= Beg Inv + Total Purchases — End Inv

Net Purchases =

Total Purchases — (P. Returns + P. Discounts) + Freight-In

Overstated Ending Inventory

Understated COGS; Overstated Net Income; Overstated Retained Earnings

Overstated Purchases

Overstated COGS; Understated Net Income; Understated Retained Earnings

Understated Beginning Inventory

Understated COGS; Overstated Net Income; Overstated Retained Earnings

Understated Freight-in

Understated COGS; Overstated Net Income; Overstated Retained Earnings

Understated Ending Inventory

Overstated COGS; Understated Net Income; Understated Retained Earnings

Understated Purchases

Understated COGS; Overstated Net Income; Overstated Retained Earnings

Overstated Beginning Inventory

Overstated COGS; Understated Net Income; Understated Retained Earnings