Grd 11 Accounting Chapter 8

Merchandise Inventory

The goods a company buys to resell to customers

Physical count

Count of ending inventory (at the end of the period)

COGS formula

COGS = Beginning inventory + purchases - purchase returns & allowances - discounts earned + freight in - ending inventory

Worksheet – Under which columns are the beginning inventory and ending inventory placed?

Beginning Inventory: Income Statement (DR), Trial Balance (DR)

Ending Inventory: Income Statement (CR), Balance Sheet (DR)

Freight-in

Shipping cost on incoming merchandise

Purchases

Purchased inventory to sell (only in periodic system of accounting)

Freight-In:

Purchases:

Sales Returns and Allowances:

Purchase Returns and Allowances:

Sales Discounts (Discounts Allowed):

Purchase Discounts (Discounts Earned):

Freight-In: Income Statement (DR)

Purchases: Income Statement (DR)

Sales Returns and Allowances: Income Statement (DR)

Purchase Returns and Allowances: Income Statement (CR)

Sales Discounts (Discounts Allowed): Income Statement (DR)

Purchase Discounts (Discounts Earned): Income Statement (CR)

R.E.I.D - Closing Entries

R – add Ending Merchandise Inventory, Purchase Returns & Allowances, Discounts Earned to the Income Summary 

E – add Purchases, Beginning Merchandise Inventory, Sales Returns & Allowances, Discounts Allowed, and Freight-in to Income Summary 

I - Income Summary 

D - Drawings 

Perpetual Accounting

NO Purchases account

-NO Purchase Returns and Allowances account

-When recording a Sale, include COGS and Merchandise Inventory

-NO COGS formula because inventory is updated each time there is a Sale or a Purchase

Credit Invoice

Issued = SELLER Received = PURCHASER

Sales Discounts

Look at the terms of sale (e.g: 2/10, n/30 means… pay in 10 days get 2% off or net 30, pay in full in 30 days