John J. Wild, Financial Accounting: Information for Decisions, 8th Edition
VISUAL #4-2
COMPONENTS OF NET INCOME (FROM OPERATIONS)
Steps:
(a) Net Sales X
(b) –Cost of Goods Sold* – X
COMPONENTS OF COST OF GOODS SOLD
Steps:
(a) Inventory, Beginning of Period X
COMPONENTS COST OF GOODS PURCHASED
Steps:
(a) Purchases X
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John J. Wild, Financial Accounting: Information for Decisions, 8th Edition
4-14
VISUAL #4-3
ACCOUNTS USED IN BASIC MERCHANDISING TRANSACTIONS
WITH A PERPETUAL INVENTORY SYSTEM
ASSETS
LIABILITIES
REVENUES
& CONTRA-REV.
Payable
Dr. Bal.
Cr. Bal.
Cr. Bal.
+
+
+
Accounts
Receivable
Sales Returns &
Allowance
Dr. Bal.
Dr. Bal.
+
COST
+
Dr. Bal.
+
+
Dr. Bal.
John J. Wild, Financial Accounting: Information for Decisions, 8th Edition
4-15
John J. Wild, Financial Accounting: Information for Decisions, 8th Edition
VISUAL #4-4
ACCOUNTS USED IN BASIC MERCHANDISING TRANSACTIONS
WITH A PERIODIC INVENTORY SYSTEM
ASSETS
LIABILITIES
REVENUES
& CONTRA-REV.
COST & CONTRA-
COST
Cash
Accounts
Payable
Sales
Purchases
Dr. Bal.
Cr. Bal.
Cr. Bal.
Dr. Bal.
+
+
+
+
Receivable
Dr. Bal.
Dr. Bal.
Cr. Bal.
+
+
+
Dr. Bal.
Dr. Bal.
Cr. Bal.
+
+
+
Dr. Bal.
+
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John J. Wild, Financial Accounting: Information for Decisions, 8th Edition
Alternate Demonstration Problem #1
Chapter Four
The following data was taken from ledger account balances and
supplementary data for the Whisk Company. Whisk Company uses
periodic inventory method to account for its inventory.
Merchandise inventory, beginning …………………………………………
$ 20,000
Merchandise inventory, ending ……………………………………………..
23,000
Purchases …………………………………………………………………………….
215,000
Purchases discounts …………………………………………………………….
6,000
Purchases returns and allowances ………………………………………..
3,000
Sales …………………………………………………………………………………….
400,000
Sales discounts …………………………………………………………………….
3,200
Sales returns and allowances ………………………………………………..
1,800
Transportation-in …………………………………………………………………..
10,000
Required:
Show the computation, in Income Statement format, of net sales, cost of
goods sold, and gross profit for the year ended December 31, 20XX.
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Solution: Alternate Demonstration Problem #1
Chapter Four
WHISK COMPANY
Income Statement
For the Year Ended December 31, 20XX
Revenue from sales:
Sales …………………………………..
$400,000
Less: Sales discounts ………….
Net sales ……………………………..
Merchandise inventory, 1/1/XX
Purchases …………………………..
$215,000
Less: Purchase discounts ……
Goods available for sale ………
Merchandise inventory, 12/31/XX
Gross profit from sales ……………
$182,000
John J. Wild, Financial Accounting: Information for Decisions, 8th Edition
Alternate Demonstration Problem #2
Chapter Four
Koda Company is a wholesale company that had the following purchase and sales
transactions related to its merchandise inventory during the month of May.
May 1
Purchased $20,000 of merchandise on account from Webber Mfg. Co.
Credit terms: 2/10, n/30. FOB shipping point
2
Received and paid the $1,000 shipping bill from Interstate Shipping for
the goods purchased on March 1
6
Received a credit memo for the return of $5,000 of the goods purchased
on March 1 which had arrived damaged.
10
Paid Webber Mfg. Co. the amount due.
15
Sold merchandise on account to Dover Company for $5,000. The cost of
the merchandise was $3,000. (cost is 60% of the retail value) Terms:
2/10, n/30; FOB Destination
16
Paid Crosstown Shipping $100 to deliver the goods sold on March 15
17
Dover returned $1,000 of the goods they purchased on March 15. You
had sent them the wrong merchandise.
24
Received the amount due from Dover Co.
Requirement 1: Record the transactions assuming Koda Company uses perpetual
inventory system
Requirement 2: Record the transactions assuming that Koda Company uses periodic
system.
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Solution: Alternate Demonstration Problem #2
Chapter Four
PERPETUAL INVENTORY SYSTEM
PERIODIC INVENTORY SYSTEM
5-1
Inventory
20,000
5-1
Purchases
20,000
Accounts Payable
20,000
Accounts Payable
20,000
Inventory
Cash
Cash
Accounts Payable
Accounts Payable
Inventory
Purchase R & A
10
Accounts Payable
15,000
10
Accounts Payable
18,000
Inventory
300
Purch. Discount
Cash
14,700
Cash
14,700
15
Accts Receivable
15
Accts Receivable
Sales
Sales
15
Cost of Goods Sold
Inventory
16
Delivery Expense
100
16
Delivery Expense
Cash
100
Cash
17
Sales R & A
17
Sales R & A
Accts Receivable
Accts Receivable
17
Inventory
600
Cost of Goods sold
600
24
Cash
24
Cash
Sales Discount
Sales Discount
Accts Receivable
Accts Receivable