BA 215: lecture recording 03 March 2025

Chapter 1: Introduction

• Concept of Gross Profit

  • Gross profit calculation: Sales - Cost of Goods Sold (COGS)

  • Given: COGS = $900,000

  • Sales calculation: Cash on account = $1,000,437.20; Sales = Cash on account + sales amount (needs calculation)

  • Estimated sales:

    • Sales from earlier discussions: $1,000,000

    • Gross profit = Sales - COGS = $1,000,000 - $900,000 = $100,000.

• Purchase Transactions

  • Bowers Company purchased merchandise on account for $28,000 (terms $2.10 net 30).

  • Merchandise returned = $5,500, received full credit.

  • If Bowers pays within the discount period (1%), the discount = $280.

  • Amount owed after the discount and return:

    • Initial amount after discount = $28,000 - $5,500 = $22,500

    • Deduct discount = $22,500 - $280 = $22,220.

  • Debit Account for Returned Merchandise:

    • Debit: Accounts Payable (Saunders Corporation)

    • Credit: Purchase Returns Inventory.

Chapter 2: Cash and Credit

• Sale of Merchandise Transactions

  • Sold merchandise on account = $18,000 (terms net 30); Cost of goods sold = $10,800.

  • Journal entry for the sale:

    • Debit Accounts Receivable: $18,000; Credit Sales: $18,000.

  • For the cost of goods sold:

    • Debit COGS: $10,800; Credit Inventory: $10,800

  • Gross profit = Sales - COGS = $18,000 - $10,800 = $7,200.

• Received Payment

  • When payment is received, debit Cash, credit Accounts Receivable.

• Refund Scenario

  • Refunded $600 for defective merchandise not returned:

    • Debit Cash: $600; Credit Customer Refunds Payable: $600.

Chapter 3: Freight Terms

• Freight Terms

  • FOB Shipping Point: Buyer pays for freight and receives title at shipping.

  • FOB Destination: Seller pays for freight, title transfers when the buyer receives goods.

• Example Calculations

• Invoice A: Cost of goods = $24,000, returns = $2,000; discount = $240; payment = $23,760.

Chapter 4: Shore Company Transactions

• Transactions and Journal Entries

  • Sold merchandise to Blue Star Company for $112,000 (terms FOB shipping point).

  • Cost of goods sold = $67,200; Freight paid by Shore = $1,800.

  • Sale Entry:

    • Debit Accounts Receivable - Blue Star: $112,000; Credit Sales: $112,000.

  • For COGS:

    • Debit COGS: $67,200; Credit Inventory: $67,200.

  • Credit Memo for Returns

    • Debit Customer Returns for $7,500; Credit Accounts Receivable: $7,500.

Chapter 5: Estimated Returns Inventory

• Adjusting Entries for Returns

  • Sales refunds and allowances estimated: $125,000; Merchandise returns: $80,000.

  • Estimated returns entry:

    • Debit Estimated Returns Inventory: $80,000; Credit COGS: $80,000.

  • Refunds:

    • Debit Sales: $125,000; Credit Customer Refunds Payable: $125,000.

Chapter 6: Current Year's Sales

• Asset Turnover Ratio Calculation

  • Asset turnover ratio = Sales / Average Assets.

  • Average Assets calculation: (Beginning Assets + Ending Assets) / 2.

  • Example for Year 2021:

    • Sales = $1,562,000; Average Assets = $650,000 + $770,000 / 2 = $710,000

    • Ratio = $1,562,000 / $710,000 = 2.2 (favorable).

Chapter 7: Conclusion

• Summary of Key Points

  • All adjustments to entries, transactions, and basic accounting principles have been covered.

  • Review all concepts associated with inventory, purchases, sales, and returns.