INVENTORY Sale of merchandise

FOB Destination A/R xxx

Sales
 Goods that are in transit are still xxx
owned by the seller
Return of merchandise sold from
FOB Shipping Point customer

 Goods that are in transit are Sales Return xxx

owned by the buyer A/R xxx

Adjustment of ending inventory

Freight Collect – Freight Charge paid
by the buyer Merch. Inventory-end xxx
Income Summary xxx
Freight Prepaid – Freight Charge
paid by the seller Perpetual System
 Requires the maintenance of
records called stock cards that
There are two systems offered in
usually offer a running summary
accounting for inventory, namely
of the inventory inflow or
periodic system and perpetual
outflow.
system.
Journal Entries for Perpetual
Periodic System
Purchase of merchandise
 Physical counting of goods on
hand at the end of the Merchandise Inventory xxx
accounting period to determine A/P xxx
quantities. Payment of freight
Quantity x Unit Cost = End. Inv. Merchandise Inventory xxx
Cash xxx
Inventory - COGAS = Cost of Goods
Sold Return of merchandised purchased to
supplier
Journal Entries for Periodic
A/P xxx
Purchase of merchandise Merchandise Inventory
Purchases xxx Sale of merchandise at gross profit of
A/P xxx x%. Cost of merchandise sold is x%
Payment of freight A/R xxx
Freight in xxx Sales xxx
Cash xxx Cost of Goods Sold xxx
Return of merchandise purchased to Merchandise Inventory
supplier xxx

A/P xxx Return of merchandise sold from

Purchase Return customer. Cost of merchandise
xxx returned is x%
Sales Return Sales Disc. – Sales = Net Sales
A/R Revenue
Merchandise Inventory Gross Method
Cost of Goods Sold
Purchases xxx
The balance of merchandise inventory A/P xxx
account represents the ending inventory.
It’s only adjusted unless there’s inventory A/P xxx
shortage. Cash xxx
Purchase Discount xxx
Inventory shortage or overage
A/P xxx
It’s necessary to recognize any Cash xxx
inventory shortage or overage if the
physical count indicates a different
amount at the end of the accounting Net Method
period.
Purchases xxx
Inventory Shortage xxx A/P xxx
Merchandise Inventory
xxx A/P xxx
Cash xxx
It’s usually closed to COGS as it’s a
A/P xxx
result of normal shrinkage and
Purchase discount lost xxx
breakage in inventory. Other cases,
Cash xxx
such as abnormal and material
shortage, shall be separately classified Purchase discount lost xxx
and presented as other expense. A/P xxx

Trade discounts and cash

discounts Raw Materials
Trade Discounts MANUFACTURING Inventory
Work-in-Process
 Deductions from the list or Inventory
catalog price to arrive at the Finished Goods
invoice price which is the Inventory
amount charged to the buyer. Raw Materials
 It’s not recorded. Inv., Beg. xxx
Add: Net cost of
Cash Discounts Purchase xxx
 Deductions from the invoice
price when payment is made Raw Materials for Production xxx
within the discount period. Less: Raw Materials Inv., End. (xxx)
 It’s recorded as purchase Raw Materials
discount by the buyer and sales Used (Direct
discount by the seller. Materials) xxx
Direct Labor xxx
Purchase Disc. – Purchases = Net Factory Overhead xxx
Purchases Total xxx
 Manufacturing
Costs 18 700 210 147,000
Add: Work-in-Process Inv., Beg. xxx
Total Goods placed in Production xxx 22
Less: Work-in-Process End. (xxx)300 200 60,000
Cost of Goods Manufactured xxx
Add: Finished Goods Inv., Beg. xxx500 210 105,000
Cost of Goods Available for Sale xxx 31 500 220 110,000
Less: Finished Goods Inv., End. (xxx)
Cost of Goods
Sold xxxUnder FIFO-periodic and FIFO-
perpetual,
cases, the January 31 inventory is
152,000.
Under FIFO-perpetual, the cost of
goods
January 8 sale
INVENTORY COST FLOW January 22 sale (60,000+105,000)
First in, First Out (FIFO) Cost of goods sold

Unit UC
TC Sale
Jan 1 Beg. Bal. 800 | 200 | 160,000
Jan 8 Sales
500
Jan 18 Purch. 700 | 210 | 147,000
Periodic
Jan 22 Sale
800 Units Unit Cost
Jan 31 Purch. 500 | 220 | 110,000 Total Cost
Jan 18 200 210
The ending inventory is 700 units
42,000
Jan 31 500 220
110,000
700
Perpetual 152,000

Date Purchase COGS (Cost of Goods Sold)

Sales Beg. Inventory- Jan. 1
U UC TC 160,000
U UC TC Purchases (147,000+110,000)
Jan 1 257,000
Goods Available for Sale
8 417,000
500 200 100,000 End. Inventory-Jan. 31
(152,000) Jan 1. Beg. 800 200
COGS 160,000
265,000 18. Pur. 700 210
147,000
31. Pur. 500 220
110,000
Total GAS 2,000
Balance 417,000
U UC TC
800 200 160,000 WA unit cost (417,000/2,000)
208.50
300 200 60,000 Inventory Cost (700 x 208.50)
145,960
300 200 60,000
Cost of goods sold
700 210 147,000
Beg. Inv
200 210 42,000 160,000
200 210 42,000 Purchase
500 220 110,000 257,000
700 152,000 Goods Avail. For Sale
417,000
the inventory costs are the same. In
End. Inv.
both
(145,950)
COGS
sold is determined from the stock 271,050
card.

100,000

165,000

265,000

Weighted Average
Periodic
Units Unit Cost Total
Cost
Perpetual
Units Unit Cost Total
Cost
Jan 1. Bal. 800 200
160,000
8 Sale (500) 200
(100,000)
Bal. 300 200
60,000
18 Pur. 700 210
147,000
Total 1,000 207
207,000
22 Sale (800) 207
(165,000)
Bal. 200 207
41,400
31 Pur. 500 220
110,000
Total 700 216
151,400
COGS from stock card
January 8 Sale
100,000
22 Sale
165,600
Cost of Goods Sold
265,600

Lower of Cost and Net Realizable

Value