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Lecture 3 Inventory Retail practical and theory Preputial Inventory System 1. When business purchase inventory, they record as an asset (Inventory/Stock): Inventory OR Stock Cash OR Accounts Payable

Purchases DR Cash OR Accounts Payable CR

DR CR

2. When business returns inventory/stock to suppliers: Cash OR Accounts Payable Inventory OR Stock

Periodic Inventory System 1. When business purchases inventory, they record as expense (Purchases):

DR CR

2. When business returns inventory/stock to suppliers: Cash OR Accounts Payable Purchases Return

DR CR

3. When a business sells inventory/stock, they record two journals, one is selling price, and the other one is cost price:

3. When a business sells inventory/stock, they record only one journal ( selling price of inventory):

Cash OR Accounts Receivable DR Sales Revenue CR

Cash OR Accounts Receivable DR Sales Revenue CR

Cost of goods sold (COGS) Inventory OR Stock

DR CR

4. When the customer returns inventory, then business record two journals:

Sales Return DR Cash OR Accounts Receivable CR

Sales Return DR Cash OR Accounts Receivable CR Inventory OR Stock Cost of goods sold (COGS)

DR CR

5. If the closing inventory less then the recorded inventory, then business record inventory loss:

Inventory Loss Inventory OR Stock

4. When the customer returns inventory, then business record only one journal:

5. Business does not require to record inventory loss.

DR CR

6. Opening inventory needs to close to COGS account: COGS Inventory

DR CR

7. Total purchases need to close to the COGS account: COGS Purchases

DR CR

8. Total purchases return needs to close to the COGS account: Purchases Return COGS

DR CR

9. Record closing inventory to the COGS account:

Inventory COGS

Settlement Discount Example: Credit terms 5/14/n45 5% if settled in 14 days or the net balance in 45 days.

DR CR

Periodic Method Income Statement: Revenue Sales Less Sales Returns Less Cost of Goods Sold COGS Inventory (beg) Add Purchases Less Purchases Returns Net Purchases Goods Available for sale Less Inventory (end) Gross Profit

65,000 2,000 63,000

315,000 84,000 5,250 78,750 393,750 347,000

periodic Revenue Sales Less Cost of Goods Sold Inventory (beg) Add Purchases Goods available for sale Less Inventory (end) COGS Gross Profit Less Inventory Loss Adjusted Gross Profit

46,750 16,250 perpetual

156,000

156,000

(102,000) 54,000

(96,000) 60,000 (6,000) 54,000

72,000 180,000 252,000 (150,000)

54,000...