Course Profile Accounting for a Small Business (BAN4E), Grade 12,
Workplace Preparation, Public
Unit
1: The Accounting Cycle of the Service
and Merchandise Business
Time: 25 hours
Activity 1.1 | Activity 1.2 | Activity
1.3
Unit
Description
In
Unit 1 students demonstrate accounting skills related to the accounting cycle
for a service business. They then demonstrate an understanding of inventory
control systems and accounting skills related to the accounting cycle for a
merchandising business.
The
prerequisite course, BAI3E, familiarizes the student with the service business
accounting cycle and the corresponding Generally Accepted Accounting Principles
(GAAPs). Activity 1 can serve as a review of those concepts. It is recommended
that the teacher administer a diagnostic appraisal/test. A solution template
could be provided for the students to check their completed work. (See
Resources.) Activity 2 introduces students to the difference between a service
and a merchandising business. Activity 3 takes the accounting cycle for a
merchandising business through to its conclusion of statement preparation,
including a classified balance sheet. Throughout the unit the applicable GAAPs
for a merchandising business are addressed.
|
Activity |
Time |
Learning Expectations |
Assessment Categories |
Tasks |
|
1.1 |
7 hours |
SMV.01,
SM1.01, SM1.02, SM1.03, SM1.04 |
Knowledge/
Understanding Thinking/Inquiry |
1. The business cycle of the service business 2. Generally accepted accounting principles 3. The service business income statement and
balance sheet 4. Closing entries and the post-closing trial
balance |
|
1.2 |
7 hours |
SMV.02,
SMV.03, SM2.01, SM2.02, SM3.01, SM3.02, SM3.03, SM3.05 |
Knowledge/
Understanding Thinking/Inquiry |
1. Physical inventory measurements in a
merchandising firm 2. Accounting entries for the periodic
inventory system 3. Inventory control systems 4. The cost of goods sold section in an income
statement 5. Inventory turnover 6. Generally accepted accounting principles in
the merchandising business |
|
1.3 |
11 hours |
SMV.02,
SMV.03, SM2.01, SM2.03, SM2.04, SM3.06, SM3.04, SM3.07, SM3.08 |
Knowledge/
Understanding Thinking/Inquiry |
1. Comparison of financial statements of the
service business and the merchandising business 2. The classified balance sheet of a
merchandising business 3. The differences between the periodic and
the perpetual inventory methods 4. GAAPs and the merchandising business 5. Computer software for inventories |
Time: 7 hours
Activity
1.1 is a seven-hour review of the service business accounting cycle and the
corresponding GAAPs. The teacher introduces the unit with a discussion of
various service businesses to students and the role of accounting in these
industries. He/she may administer a diagnostic appraisal/test to assess student
retention and serve as a review. As an alternative, the teacher could obtain a
video that covers the basics of accounting, including GAAPs, to the closing of
the books. (Appendix 1.1.1 contains review questions that could be answered
with or without the video. When they are completed, they could serve as review
notes.) The video, if used, could be interspersed with either an
exercise/problem or a project that includes each of the steps in the service
accounting cycle. If all or part of a large project is chosen, it is suggested
that students be divided into groups of four. Each member would be assigned a
task, e.g., journalizing clerk, posting clerk, team recorder, and supervisor.
By assigning specific tasks, each member can be assessed on their contribution.
At the completion of the problem/project, the students may also complete peer
assessment of the team process. One student in the class could be appointed
accounting manager and the solution template could be given to this student. It
would be the responsibility of the team supervisors to report to the accounting
manager to compare their work. The teacher directs formative assessment through
team meetings. A short report could be prepared on the financial status of the
company.
Strand(s): The Service and Merchandising Business, Accounting
Practices
Overall
Expectations
SMV.01 -
demonstrate accounting skills related to the accounting cycle for a service
business.
Specific
Expectations
SM1.01 -
describe how Generally Accepted Accounting Principles (e.g., entity, cost
concepts and practices (e.g., cash accounting) apply to a service business;
SM1.02 -
demonstrate an understanding of the income statement for a service business;
SM1.03 -
demonstrate an understanding of the balance sheet for a service business;
SM1.04 -
demonstrate an understanding of closing entries and post-closing trial balance.
·
Service
business accounting cycle and corresponding Generally Accepted Accounting
Principles (GAAPs) from BAI3E
·
Prepare
diagnostic (appraisal) test and marking template.
·
Obtain
video (if chosen) and prepare worksheet (Appendix 1.1.1).
·
Choose
all encompassing problem/project.
·
If
teams are to be used, group students to provide a good working relationship.
·
Prepare
a solution template and choose a method of team/peer assessment.
·
Assign
dates for team meetings and completion.
·
Obtain
Oral Report Checklist from Introduction to International Business, BBB4M
(Public) for financial oral report or Written Report Rubric, from BTX4E
(Public) at www.curriculm.org.
The teacher:
·
explains
what methods of assessment will be used for the Activity: Diagnostic assessment
to determine retention of concepts, including GAAPs; Formative assessment on
completion of worksheet and solution to problems/projects; team meetings; peer
assessment of team process, assessment tool for oral report on financial status
of the company;
·
provides
diagnostic test and/or video and worksheet;
·
assigns
problems/projects (assigns teams of students and roles; appoints student
accounting manager if used), and provides solution template;
·
meets
with each team to assess completion rate.
Students:
·
complete
diagnostic test and/or watch video and complete worksheet;
·
complete
problems/projects;
·
assess
peers, if assigned to a team.
Diagnostic
Knowledge/Understanding,
Thinking/Inquiry, Application
Formative
– Self-,
teacher assessment of completion of video worksheet and problem/project
–
Self-assessment using Written Report Rubric, BTX4E (Public) at
www.curriculum.org – analysis of financial status of company in problem/project
– Oral
Report Checklist, (BBB4M Public) and peer assessment of team process, Team
Evaluation Chart, (BTX4E Public)
– Team
meetings
Summative
Teacher
evaluation of report using: Oral Report Checklist, Written Report Rubric.
The
following are ways in which the activity can meet students’ individual needs:
·
Encourage
a wide variety of feedback during editing.
·
Use
peer tutoring to assist students who require more instruction.
·
Assign
tutorial from a CD-ROM (see Resources) for review.
·
Allow
all students to have a vocabulary sheet, as much of the language of this course
is subject specific and therefore will not be re-enforced in other classes.
·
Encourage
process writing. Use a simple model for a paragraph
·
Provide
extra time during written evaluations.
·
Provide
a word list for the fill-in-the-blank exercises such as Review Notes. Provide
teacher written and photocopied answers for student review prior to written
evaluations.
·
Reinforce
vocabulary with word searches and matching exercises.
·
For
enrichment accommodations, allow the student to extrapolate the learning done
in class to apply the theory to the real world.
·
To
make the process of Journal Entries more concrete, prepare the written
transactions and journal so that students can see both simultaneously. (In a
three ring binder – the transactions are on the left side and the journal is on
the left side – draw coloured arrows between the transaction and the place it
belongs on the journal.) The same outcome might be achieved by having
transaction cue cards stuck on the chalkboard. Under teacher guidance have the
students verbally describe and then place each transaction correctly in the
journal.
·
Additional
accommodations are found in the Ontario Curriculum Unit Planner 2001.
Singleton,
Larry and Wayne Label. Accounting Study Sidekick (Workbook) ISBN
1-886156-59-X
Workbook accompanies the video. It includes notes, quizzes, detailed glossary,
tests, and in-depth explanations. Can be purchased with the video set listed in
Overview Resources below.
Standard
Deviants –
http://www.standarddeviants.com/1-800-238-9669/cerebellum.show_subject?p_subject_id=11.
Can choose a
35-question accounting test to download.
Student
Learning Centre – http://www.bboinc.com/actghome/studentlearningcenter.htm – 18
good accounting tests covering the accounting cycle can be purchased. On-line
chapter tests available for free.
Overview
Resources
Bennett,
B., C. Rolheiser-Bennett, and L Stevahn. Cooperative Learning Where Heart
Meets Mind. Toronto: Educational Connections, 1991 ISBN 0-4444-555-6, p.
170.
Toste,
Joseph et al. Accounting
for the Workplace I: Service Business. Hamilton: Norbry Publishing Limited, 2002.
ISBN 1-55232-057-X. Student Workbook 1-55232-059-6. Teacher CD 1-55232-063-4
Horngren,
Charles T., W. T. Harrison, L. Smith Bamber, and W. Morley Lemon. Financial
Accounting, 4th ed. Scarborough: Prentice Hall Canada Inc., 1999. ISBN
0-13-790429-0, sample review question,
p. 218.
Singleton,
Larry and Wayne Label. The Standard Deviants – Accounting Semester Survival
Pack (Accounting, Parts 1 & 2.) Cerebellum Corp., 1997. ISBN
1-48198-000-0 – available through – www.businessbookmall.com. Two-video set
includes a workbook that is set up to accompany video; includes written
examples, practice tests, and quizzes.
Wilson,
Denis. Basic Accounting, Principles and Procedures, Computerized Interactive
Tutorial. Terra Cotta, Ontario: Norbry Publishing, 1997. ISBN 1-55232-012-X
– computer program that teachers could use to assist in the review process.
1. Accounting is the art of ______________,
classifying, and summarizing events and ___________________ of a financial
nature and interpreting the results.
2. The accountant’s job is: a) look at
_______________ transactions, b) decide how to record ___________________ and
c) compile _______________ statements.
3. What are GAAPs? Why are they required?
4. Describe the following three important GAAPs:
Business Entity Concept, Cost Principle, and Matching Principle.
5. What are the three types of business
organizations? List the advantages and disadvantages of each.
6. Accounts are the building blocks of
accounting. Why are they created?
7. Accounts are grouped into five different
types or classifications. List them. Define assets and liabilities. List
examples of accounts in each and explain what they are.
8. Owner’s equity is the term used for the
owner’s ____________ in the business and _____________ a business has
accumulated. Owner’s equity tallies the dollar amount of __________ in the
owner’s stake in the company. How does the owner’s equity change from a sole
proprietorship to a corporation?
9. Define the terms revenue and expense?
How does each affect owner’s equity?
10. What are financial statements? What are they
used for? What are the important financial statements?
11. Describe each financial statement and describe
how they differ/relate.
12. What is the underlying assumption of the
account form of the balance sheet?
13. What is the fundamental accounting equation?
Each side of the accounting equation must ___________________ after each
transaction.
14. Accountants must analyse financial events that
affect a business. They are called _____________ transactions. Internal
transactions are __________________ and closing entries. External transactions
are financial events that take place between an outside party and a business.
Some examples of external transactions are.
15. Describe the double entry concept of the
accounting entry and how it must balance. Record the following transactions in
general journal form and post to T-accounts. (a) Owner invests $13 300 into the
company. (b) Purchase $100 in supplies for cash. (c) Purchase of a truck and a
satellite dish for $100 000 with $10,000 cash and obtains a mortgage for $90
000. (d) Purchase of office equipment for $5000, pays $2000 cash and puts $3000
on account.
16. What are accounting periods? How can they be
divided? What happens at the end of the period? What is the accrual method
versus the cash method of accounting? What GAAP does the accrual method follow?
Why is it more accurate? Give an example. Why don’t most companies use the cash
basis?
17. Accounts are kept in a ledger. What is the
definition of a ledger? What is a T-Account and what is it used for? What is
the left and right side account called? What is the account balance? What is
the usual account balance for Assets? Liabilities? Owner’s equity? Revenue? and
Expenses? On which side (DR, CR) does each type increase?
18. Define general journal. What is important
about it? What information does it contain? What is the chart of accounts and
what is the posting reference used for? List the steps and rules of preparing a
journal entry.
19. Once a transaction is journalized in the
general journal, the next step in the accounting cycle is transferring or
______________ the entry to the ledger. How is it different from the general
journal? Describe the balance column format. What is posting to the ledger?
What are the steps in transferring from the journal to the ledger?
20. When the posting is completed, what statement
is prepared? Why is it prepared? What does it not check?
21. What entries must be prepared at the end of an
accounting cycle before the financial statements are completed? Why are they
done? What principle does it satisfy? List two examples.
22. Define depreciation. Why must it be expensed?
What statement does accumulated depreciation show up on? Why is it a contra
asset? Why are separate accounts kept for each depreciated item?
23. What is unearned revenue?
24. Worksheets are helpful for showing
adjustments. (Note: The teacher could have an eight-column prepared
worksheet inserted here to be completed by the student. It should include
various adjustments.)
25. What is a classified balance sheet? What are
the rules that define how each section is separated?
26. What accounts must be restarted to zero at the
end of the accounting cycle? Describe and give examples of permanent versus
temporary accounts. What accounts must be set to zero? To what account does an
accountant transfer these amounts, to make these accounts zero? Describe the
steps. What is it called when revenue exceeds an expense? What is the final
step in the accounting cycle?
Answers
to Fill in the Blank
1.
recording, transactions 2. business, transactions, financial 8, investment,
capital, changes 13. balance 14. business, adjusting 20 posting
Time: 7 hours
Activity
1.2 introduces students to the difference between a service and a merchandising
company. They learn the key role of inventory in a business that sells
products, not services. They begin with the periodic inventory system and the
calculation of Cost of Goods Sold (COGS), and complete a simulation of actual
inventory process is. Through pictures and quantities of actual products, the COGS
concept of opening inventory, purchases, purchase returns/discounts, and
closing inventory is introduced. Once the simulation is completed, the students
learn through a teacher-led demonstration how the transactions involved in
inventory and the COGS, including journalizing, are carried out. The study of
COGS is useful for analysis purposes and builds a foundation for the various
inventory-costing methods in later accounting courses. A field trip to a store
could be arranged to see how a company handles taking physical inventory, and
to introduce the principles of safeguarding inventory and by inventory control
systems. These two topics can also be addressed through a case study. Students
use annual reports to compare inventory turnover rates of several different
types of companies and complete a short oral/written report. Finally, through a
teacher-led demonstration the concept of inventory turnover can be introduced
and practised. For enrichment, a web activity could be developed that examines
the turnover rates for various industries.
Strand(s): The Service and Merchandising Business
Overall
Expectations
SMV.02 -
demonstrate accounting skills related to the accounting cycle for a
merchandising business;
SMV.03 -
demonstrate an understanding of inventory control systems.
Specific
Expectations
SM2.01 -
describe how Generally Accepted Accounting Principles and practices apply to a
merchandising business;
SM2.02 -
demonstrate the skills required to prepare an income statement with a detailed
Cost of Goods Sold section;
SM3.01 -
demonstrate fundamental skills related to the timing and taking of physical
inventory;
SM3.02 -
analyse the various transactions for a merchandising company by using a
periodic inventory system;
SM3.03 -
demonstrate an understanding of inventory turnover;
SM3.05 -
demonstrate an understanding of the principles involved in safeguarding
inventory.
·
Before
proceeding with this activity, Activity 1.1 should be completed.
·
Students
should have a thorough knowledge and understanding of the accounting cycle for
a service business.
·
To
demonstrate COGS the teacher, will need to pre-label and pre-fill bags with
marbles. For each group, three bags (beginning inventory, purchases, and
merchandise sold) need to be labelled. Photocopy student worksheets (See
details in Appendix 1.2.1).
·
The
teacher may wish to photocopy/prepare general journal pages, income statement
forms, and balance sheets forms for the students. For presentation/instructional
purposes, the teacher may wish to prepare overheads of these forms.
·
Book
computers with Internet capabilities for students to research inventory
turnover rates.
·
Prepare
solution sheets and assessment tools. Students should receive the assessment
tools prior to beginning the activity.
The teacher:
·
introduces
the topic of a merchandising business. One method is to make a list of service
businesses on the board and then a separate list of merchandising businesses.
The teacher should then ask students to explain how the businesses in the two
lists differ. A teacher-led discussion should lead to the definition of
“merchandise” and its physical flow (purchased and ultimately sold);
·
prepares
Appendix 1.2.1 for students;
·
organizes
supplies needed for each team: three small plastic lunch bags and a box of
multi-coloured marbles;
·
labels
one bag “Beginning Inventory” and places approximately one-third of the
contents of the marble box in the lunch bag. The teacher labels a second lunch
bag “Purchases” and fills it with the remainder of the marble box. The third
lunch bag is to be labelled “Merchandise Sold” and should be empty at the
beginning of the simulation.
Students:
·
first
count and value beginning inventory according to the cost given in Appendix
1.2.1. The teacher can vary costs and colours depending on preferences and
circumstances;
·
then
count and value the contents of the purchases. Students combine their valuation
of beginning inventory and purchases to arrive at total cost of merchandise
available for sale. Combine the beginning inventory and purchases bags;
·
remove
a handful of marbles and place it in the “Merchandise Sold” bag;
·
then
count and value the remaining marbles as Ending Inventory. Students calculate
cost of goods sold based on their count of ending inventory and their previous
calculation of total cost of merchandise available for sale;
·
as
a final step students should count and value the “Merchandise Sold” bag.
A teacher-led discussion should follow to
determine that while the “Cost of Merchandise Sold” (which of course can not be
physically counted after the fact) should hypothetically equal “Cost of Goods
Sold,” this is not always the case. The teacher-directed discussion should
generate different causes of shrinkage (theft by employees, theft by
shoplifters, lost, damaged and discarded goods, and miscounted inventory) and
how such problems can be controlled.
Short
case studies assigned to small student teams are used to generate discussion
and oral reporting on correct inventory control procedures (see Resources).
Note: provincial retail sales tax and the
federal Goods and Services Tax have not been introduced at this point.
The teacher:
·
introduces
the accounts that are unique to a merchandising business (See Appendix 1.2.2);
·
demonstrates
common transactions using the merchandising accounts without introducing the
use of Sales Discounts and Purchases Discounts (See Appendix 1.2.3);
·
introduces
cash discounts and demonstrates transactions using the sales discounts and
purchases discounts accounts (See Appendix 1.2.5).
Students:
·
complete
practice transactions using the previous teacher demonstration as their guide.
(See Appendix 1.2.4 and Appendix 1.2.6.)
The teacher:
·
reviews
the basic calculation of cost of goods sold and introduces the calculation of
gross profit and net income/loss for a merchandising business;
·
demonstrates
the completion of a multi-step income statement (and balance sheet) based on a trial
balance (See Appendix 1.2.7).
Students:
·
complete
practice exercises using the previous teacher demonstration as their guide
(See Appendix 1.2.8).
The teacher:
·
introduces
the ratio/calculation of inventory turnover and its importance as a measure of
the marketability of a company’s inventory and the speed with which a business
can convert this asset to cash. Examples could help illustrate this concept.
Financial statements from two competing companies can be used for comparative
purposes.
·
Ensures
that school and board policies related to use of the Internet are followed.
Students:
·
complete
an exercise electronically. They choose or are assigned a listed company on the
Toronto Stock Exchange (TSE). Using the web site – www.globeinvestor.com/, they
obtain a company snapshot and a list of companies in the same industry listed
on the Toronto Stock Exchange.
·
compile
the inventory turnover for three to four related companies during their last
fiscal year. The teacher can request that students compile additional
information for each company (sales and net income).
·
use
websites such as – www.fin-info.com/, which provide Canadian company profiles
for many large Canadian companies, e.g., websites like Wright Investors’ Services.
Research reports from companies such as Wright Investors’ Services provide the
inventory turnover rate already calculated for the last fiscal year and often
compare it to the company’s previous fiscal year’s performance.
·
complete
a short oral/written report comparing the companies they have researched. Oral
Report Checklist from Activity 1.1 and a Written Report Rubric found
in BTX4E (Public) at www.curriculum.org are available for formative student
assessment.
Formative
Self-
and teacher assessment
– Check
exercises/activities using solution sheets.
– Whole
class or group discussion of short cases on inventory control and the report on
inventory turnover.
– Oral
Report Checklist, Written Report Rubric.
–
Feedback from peers or teacher or oral/written report to make revisions before
submission for teacher evaluation
Summative
Teacher Evaluation
– Test
– Oral
Report Checklist, Written Report Rubric.
·
The
teacher may wish to pair stronger students with students needing assistance
·
Student
work might be submitted either on a photocopied sheet where the answers can be
written in, or done on a spreadsheet (in which case the student’s working copy
might either show the formulae or explain what was done in simple language for
ease of study).
·
The
teacher may wish to supply some students with copies of the completed
transactions. Additional examples may need to be presented to the class for
reinforcement of learning.
Angelfire
– Tonya Skinner – http://www.angelfire.com/ks/tonyaskinner/acctgcms.html – web
page with Cost of Goods Sold/Inventory simulation.
Palmer,
T., V. D’Amico, and D. Grace. Accounting for Canadian Colleges, 3rd ed.
Toronto: Pearson Education Canada Inc., 2001. ISBN 0-201-70306-8, pp. 183-242.
Advice
to Investors – http://www.fin-info.com/
Big
Charts – http://bigcharts.marketwatch.com/
Globe
and Mail Investment – http://www.globeinvestor.com/
MSN
Money – http://money.msn.ca/
Yahoo
Finance – http://ca.finance.yahoo.com/
|
Marbles
Stand |
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January
1 Inventory |
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Quantity |
Unit
Cost |
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Value |
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Red |
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X |
$2 |
= |
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Orange |
|
X |
$3 |
= |
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Brown |
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X |
$5 |
= |
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Green |
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X |
$1 |
= |
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Yellow |
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X |
$4 |
= |
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January
1 Inventory = $ |
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$ |
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Purchases |
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Red |
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X |
$2 |
= |
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Orange |
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X |
$3 |
= |
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Brown |
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X |
$5 |
= |
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Green |
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X |
$1 |
= |
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Yellow |
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X |
$4 |
= |
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+
Purchases |
$ |
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Total
Cost of Merchandise Available for Sale (Inventory + Purchases) = $ |
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Marbles
Stand |
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December
31 Inventory |
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Red |
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X |
$2 |
= |
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Orange |
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X |
$3 |
= |
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Brown |
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X |
$5 |
= |
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Green |
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X |
$1 |
= |
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Yellow |
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X |
$4 |
= |
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- December
31 Inventory= |
$ |
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Total
Cost of Merchandise Available for Sale - December 31 Inventory = $ |
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Proof
of Merchandise Sold |
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Red |
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|
X |
$2 |
= |
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Orange |
|
X |
$3 |
= |
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Brown |
|
X |
$5 |
= |
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Green |
|
X |
$1 |
= |
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Yellow |
|
X |
$4 |
= |
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|
Cost
of Merchandise Sold |
$ |
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|
Do
your totals match? |
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Purchases
·
Account
used to accumulate the cost of purchasing goods intended for resale
·
Cost of Goods Sold account
·
Dr.
balance; Source Document – purchase invoice
Transportation
on Purchases
·
Account
used to accumulate freight costs on merchandise from supplier (manufacturer) to
your place of business
·
Cost of Goods Sold account
·
Dr.
balance; Source Document – purchase invoice
Delivery
Expense
·
Account
used to accumulate the cost of delivering goods to customers
·
Income Statement accounts (contra-revenue account)
·
Dr.
balance; Source Document – purchase invoice
Purchases
Returns and Allowances
·
Account
used to accumulate the cost of merchandise returned to suppliers (defective,
damaged or not ordered) and the allowances given for defective or
damaged goods not returned
·
Cost of Goods Sold account (contra account to purchases)
·
Cr.
balance; Source Document – credit invoice received
Sales
Returns and Allowances
·
Account
used to accumulate customer returns or allowances given to customers
·
Income Statement account (contra-revenue account)
·
Dr.
balance; Source Document – credit invoice issued
Purchases
Discounts
·
Account
used to record discounts received from suppliers for prompt payment of debts
(within discount period)
·
Cost of Goods Sold account (contra account to purchases)
·
Cr.
balance
Sales
Discounts
·
Account
used to record discounts given to customers for prompt payment of accounts receivable
·
Income Statement account (contra-revenue account)
·
Dr.
balance
Merchandise
Inventory
·
Account
used to record the amount of merchandise on hand at the end and beginning of an
accounting cycle
·
Is
a current asset account
· Dr. balance
Journalize
the following transactions for Main Sports, a sporting goods store.
Jan.
2: Sales Invoice
#101 to Mountain Hockey League for the sale of 100 hockey sticks. Amount $2000.
Jan.
3: Sales Invoice
#102 to Central Hockey League for the sale of 30 pairs of hockey gloves. Amount
$1200.
Jan.
4: Purchase Invoice
received from TNT Sports, for the purchase of merchandise. Amount $1000.
Jan.
5: Purchase Invoice
from Dan’s Delivery for the cost of transporting hockey sticks on sales invoice
#101. Amount $10.
Jan.
6: Purchase Invoice
from Karl’s Delivery for the cost of transporting merchandise from TNT Sports
to Main Sports. Amount $52.
Jan.
7: Purchase Invoice
received from ATM Sports, for the purchase of merchandise. Amount $500.
Jan.
9: Credit Invoice
received from TNT Sports for the return of merchandise that was received in
damaged condition. Amount of credit invoice, $300.
Jan.
11: Credit Invoice
#35 issued to Mountain Hockey League for the return of 10 hockey sticks that
were received by the MHL in damaged condition. Amount $200.
Jan.
13: Cash receipt
from Central Hockey League in payment of invoice #102.
Jan.
15: Cheque #501
issued to ATM Sports in payment of invoice of January 7.
Jan.
19: Cheque #502
issued to TNT Sports in payment of invoice of January 4, less credit invoice of
January 9.
Jan.
20: Cash receipt
from Mountain Hockey League in payment of sales invoices #101, less credit
invoice of January 11.
Journalize
the following transactions for Main Sports, a sporting goods store.
Feb.
2: Sales Invoice
#301 to North-End Lacrosse League for the sale of 100 lacrosse sticks. Amount
$4000.
Feb.
3: Sales Invoice
#302 to Central Lacrosse League for the sale of 30 pairs of lacrosse gloves.
Amount $1440.
Feb.
4: Purchase Invoice
received from LCM Sports, for the purchase of merchandise. Amount $1800.
Feb.
5: Purchase Invoice
from Bob’s Delivery for the cost of transporting merchandise from LCM Sports to
Main Sports. Amount $87.
Feb.
6: Purchase Invoice
from Helmut’s Delivery for the cost of transporting lacrosse sticks on sales
invoice #301. Amount $60.
Feb.
7: Purchase Invoice
received from APC Sports, for the purchase of merchandise. Amount $780.
Feb.
9: Credit Invoice
#12 issued to North-End Lacrosse League for the return of 10 lacrosse sticks
that were received by the NELL in damaged condition. Amount $400.
Feb.
11: Credit Invoice
received from LCM Sports for the return of merchandise that was received in
damaged condition. Amount of credit invoice, $450.
Feb.
13: Cash receipt
from Central Lacrosse League in payment of invoice #302.
Feb.
15: Cheque #201
issued to APC Sports in payment of invoice of February 7.
Feb.
19: Cheque #202
issued to LCM Sports in payment of invoice of February 4, less credit invoice
of February 11.
Feb.
20: Cash receipt
from North-End Lacrosse League in payment of sales invoices #301, less credit
invoice of February 9.
Journalize
the following transactions for Main Sports, a sporting goods store.
Jan.
2: Sales invoice
#501 to Mountain Ski Club for the sale of 10 downhill ski sets. Amount $3 500.
Terms 2/10, net 30.
Jan.
3: Purchase invoice
from ZAP Sports, for the purchase of 12 pairs of skis. Amount $1440. Terms
2/10, net 30.
Jan.
4: Purchase invoice
from AAA Sports, for the purchase of 10 pairs of ski gloves. Amount $280. Terms
1/10, net 30.
Jan.
9: Sales invoice
#502 to Central Ski Club for the sale of 4 cross-country ski sets. Amount $840.
Terms 1/10, net 30.
Jan.
10: Credit Invoice
received from AAA Sports for the return of 2 pair of ski gloves that were
received in damaged condition. Amount of the credit invoice, $56. Credit period
is readjusted so that the original terms offered on January 4 now apply
starting January 10.
Jan.
11: Credit Invoice
#41 issued to the Mountain Ski Club, $350, for the return of goods received by
the ski club in damaged condition. Credit period is readjusted so that the
original terms offered now apply to January 11, not January 2.
Jan.
13: Cheque #100
issued to ZAP Sports in payment of purchase invoice originally dated January 3.
Discount taken.
Jan.
18: Cash receipt
from the Central Ski Club in full payment of invoice #502. Discount taken.
Jan.
19: Cheque #101
issued to AAA Sports in payment of purchase invoice originally dated January 4,
less allowance. Discount taken.
Jan.
20: Cash receipt
from Mountain Ski Club in payment of sales invoice #501, less allowance.
Discount taken.
Journalize
the following transactions for Main Sports, a sporting goods store.
Feb.
1: Sales invoice
#901 to Western Running Club (WRC) for the sale of 50 cross trainers. Amount
$2050. Terms 1/10, net 30.
Feb.
5: Purchase invoice
from Runn Sports, for the purchase of 100 wind jackets. Amount $2,100. Terms
2/10, net 30.
Feb.
6: Sales invoice
#902 to Mountain Running Club (MRC) for the sale of 19 team uniforms. Amount
$1881. Terms 2/10, net 30.
Feb.
7: Purchase invoice
from ZZZ Sports, for the purchase of 12 pairs of running gloves. Amount $120.
Terms 1/10, net 30.
Feb.
9: Credit Invoice
received from ZZZ Sports for the return of 2 pairs of running gloves that were
received in damaged condition. Amount of the credit invoice, $20. Credit period
is readjusted so that the original terms offered on February 7 now apply
starting February 9.
Feb.
10: Credit Invoice
#7 issued to the WRC, $240, for the return of goods received by the club in
damaged condition. Credit period is readjusted so that the original terms
offered now apply to February 10, not February 1.
Feb.
13: Cheque #210
issued to Runn Sports in payment of purchase invoice originally dated February
5. Discount taken.
Feb.
16: Cash receipt
from the MRC in full payment of invoice #902. Discount taken.
Feb.
19: Cheque #211
issued to ZZZ Sports in payment of purchase invoice originally dated February
7, less allowance. Discount taken.
Feb.
20: Cash receipt
from WRC in payment of sales invoice #901, less allowance. Discount taken.
Complete
a detailed Income Statement and Balance Sheet for the year ending December 31.
|
ABC Stores |
||
|
|
Dr. |
Cr. |
|
Cash |
$ 4870 |
|
|
Beginning
Inventory |
31 335 |
|
|
Store
Supplies |
225 |
|
|
Office
Supplies |
120 |
|
|
Prepaid
Insurance |
715 |
|
|
Store
Equipment |
38 490 |
|
|
Accumulated
Depreciation: Store Equipment |
|
$10 295 |
|
Office
Equipment |
9420 |
|
|
Accumulated
Depreciation: Office Equipment |
|
3620 |
|
Accounts
Payable |
|
2390 |
|
J.
Smith, Capital |
|
69 120 |
|
J.
Smith, Drawings |
21 000 |
|
|
Sales |
|
313 235 |
|
Sales
Returns and Allowances |
2125 |
|
|
Sales
Discounts |
3875 |
|
|
Purchases |
220 460 |
|
|
Purchases
Returns and Allowances |
|
1150 |
|
Purchases
Discounts |
|
3230 |
|
Transportation
on Purchases |
1875 |
|
|
Salaries
Expense |
41 560 |
|
|
Rent
Expense |
18 000 |
|
|
Store
Supplies Expense |
1735 |
|
|
Office
Supplies Expense |
310 |
|
|
Depreciation
Expense: Store Equipment |
3910 |
|
|
Depreciation
Expense: Office Equipment |
1170 |
|
|
Insurance
Expense |
1845 |
________ |
|
Totals |
$403 040 |
$403 040 |
Note: Ending Merchandise Inventory: $32
655
Complete
a detailed Income Statement and Balance Sheet for the year ending December 31.
|
XYZ Stores |
||
|
|
Dr. |
Cr. |
|
Cash |
$ 4500 |
|
|
Accounts
Receivable |
5400 |
|
|
Beginning
Inventory |
28 800 |
|
|
Supplies |
5200 |
|
|
Equipment |
50 000 |
|
|
Accumulated
Depreciation: Equipment |
|
$5000 |
|
Building |
150 000 |
|
|
Accumulated
Depreciation: Building |
|
3000 |
|
Land |
35 000 |
|
|
Accounts
Payable |
|
38 000 |
|
Bank
Loan (2 years) |
|
63 300 |
|
P.
Jones, Capital |
|
150 000 |
|
P.
Jones, Drawings |
8000 |
|
|
Sales |
|
205 000 |
|
Sales
Returns and Allowances |
1850 |
|
|
Sales
Discounts |
1450 |
|
|
Purchases |
89 000 |
|
|
Purchases
Returns and Allowances |
|
1200 |
|
Purchases
Discounts |
|
1350 |
|
Transportation
on Purchases |
2500 |
|
|
Salaries
Expense |
40 800 |
|
|
Rent
Expense |
32 000 |
|
|
Delivery
Expense |
3000 |
|
|
Supplies
Expense |
1350 |
|
|
Depreciation
Expense: Equipment |
5000 |
|
|
Depreciation
Expense: Building |
3000 |
________ |
|
Totals |
$466 850 |
$466 850 |
Note: Ending Merchandise Inventory: $31
200
Time: 11 hours
Activity
1.3 takes the accounting cycle for a merchandising business through to its
conclusion: preparing statements, including a classified balance sheet.
Students learn the difference between the periodic and perpetual inventory
systems. Since the advent of the computer in business has made the perpetual
system of inventory more common in the marketplace, the accounting for a
perpetual system should be stressed. Students examine the role of the computer
in keeping track of the flow of goods into and out of inventory; how using
appropriate software enhances inventory reporting; and how management gains
greater inventory information through the electronic process.
Students
compare the financial statements of a service business with those of a
merchandising firm. Students analyse the advantages and disadvantages of both
inventory control systems. Subsequently, the teacher revisits the Generally
Accepted Accounting Principles and their application specific to the
merchandising firm (Matching Principle, the Time Period Concept, and the
Consistency Principle). Finally, the students work with computer software on a
variety of inventory transactions.
Strand(s): The Service and Merchandising Business, Accounting
Practices
Overall
Expectations
SMV.02 -
demonstrate accounting skills related to the accounting cycle for a
merchandising business;
SMV.03 -
demonstrate an understanding of inventory control systems.
Specific
Expectations
SM2.01 -
describe how Generally Accepted Accounting Principles and practices apply to a
merchandising business;
SM2.03 -
demonstrate the skills required to prepare a classified balance sheet for a
merchandising business;
SM2.04 -
demonstrate an understanding of the difference between the financial statements
for a merchandising business and those for a service business;
SM3.04 -
demonstrate an understanding of the perpetual inventory control system;
SM3.06 -
explain the differences between the periodic and perpetual inventory methods;
SM3.07 -
explain how inventory reports are enhanced by using appropriate software;
SM3.08 -
demonstrate proficiency in applying inventory accounting methods through the
use of accounting software.
·
Journalizing
and posting transactions in a merchandising firm. The periodic inventory
method. Skills in Simply Accounting developed in BAI3E. Note: BAF3M
Course Profile contains a unit on Simply Accounting.
·
Photocopy
instruction and worksheets for all tasks in Activity 1.3.
·
Supply
students with a classified three-column balance sheet.
·
Arrange
for the appropriate accounting software on computers: Simply Accounting,
Version 7 or 8; MYOB, Version 10 (these are Ministry licensed software
packages), or any spreadsheet program.
·
Prepare
the appropriate sections of the accounting software (inventory).
·
Photocopy
software instructions, worksheets, and classified balance sheet paper and
solution sheets.
The teacher:
·
presents
the financial statements for a merchandising company together and a service
business, (see Appendix 1.3.1);
·
discusses
the differences in the income statement and the balance sheet for the two types
of firms.
Students:
·
analyse
the differences between the financial statements of the two types of firms.
The teacher:
·
develops
a classified balance sheet model using the balance sheet from Appendix 1.3.1.
This can also be done as an overhead using Appendix 1.3.2;
·
discusses
the meaning of the different categories in the classified balance sheet;
·
assigns
practice exercises (see Appendix 1.3.3).
Students:
·
actively
participate in the discussion of the classified balance sheet;
·
practise
the set-up of a classified balance sheet using Appendix 1.3.3 and a classified
three-column balance sheet.
The teacher:
·
introduces
the students to the fundamentals of the perpetual inventory method (see
Appendix 1.3.4);
·
assigns
worksheet to student pairs (see Appendix 1.3.5);
·
discusses
answers to completed worksheets.
Students:
·
take
notes on the perpetual inventory method;
·
complete
worksheet in pairs (Appendix 1.3.5);
·
discuss
the answers to the completed worksheets.
The teacher:
·
demonstrates
the relevance of specific GAAPs such as the Matching Principle, the Time Period
Concept, and the Consistency Principle in the context of the merchandising firm
(see Resources);
·
directs
the students toward sources of GAAPs as presented by organizations such as the
Accounting Standards Committee of the Canadian Institute of Chartered
Accountants on the Internet (see Resources).
Students:
·
take
notes on the GAAPs as they pertain to the merchandising firm and research the
sources where appropriate;
·
compare
notes and report their findings to the class.
The teacher:
·
develops
assignment for computer application of inventory transactions.
·
prepares
the appropriate sections in the commercially available inventory software
packages for ready student use (see Resources);
·
develops
spreadsheets of a perpetual inventory system and journals/ledgers.
Students:
·
use
computer software for inventory transactions;
·
submit
computer output for evaluation.
Formative
Self-
and teacher assessment
–
completion of classified balance sheet exercise
–
completion of perpetual inventory worksheet in pairs
–
gathering and sharing GAAP material
Summative
–
computer printouts (marking scheme)
The following are ways
in which the activity can meet students’ individual needs:
·
Assign
tutorial CD-ROM found in Resources to students who require review;
·
Provide
extension activities for students requiring enrichment.
Freedman,
Harvey, Joseph Toste, and Catherine Barr. Learning Simply Accounting 8.0, a
simulation approach. Hamilton: Norbry Publishing Limited, 2000. ISBN
1-55232-042-1. Chapters 8 and 9, Inventory Modules.
Fuhrman,
Peter H. and André N. Choquette. Using Simply Accounting for Windows,
Version 7.0. Scarborough: Prentice-Hall Canada Inc., 2000. ISBN
0-13-021715-8. Chapter 8 and Chapter 14,
section 9, Inventory.
Heany,
Christie and Claudette Edie. MYOB Version 10, a Simulation Approach.
Hamilton: Norbry Publishing Limited, 2001. ISBN 1-55232-070-7, Chapters 4
(Inventory Setup) and 13 (Working with Inventory).
Purbhoo,
Mary and Dhirajlal Purbhoo. Using Simply Accounting Version 8.0 for Windows,
an Integrated Simulation. Toronto: Addison Wesley Longman Ltd., 2000. ISBN
0-201-71690-9, Chapters 14 (Inventory Ledger Setup) and 15 (Inventory
Journals).
The
Institute of Chartered Accountants of Ontario, Website – http://www.icao.on.ca
The
teacher is automatically eligible to become part of the Teacher Colleague
Program with the Institute of Chartered Accountants of Ontario. For a nominal
fee, the teacher receives CA Magazine monthly and the CICA Handbooks and
updates useful for GAAP research.
|
XYZ Stores Income Statement For The Year Ended December 31,
2--- |
||
|
Sales |
$205 000 |
|
|
Less:
Sales discounts |
1450 |
|
|
Sales returns and allowances |
1850 |
|
|
Net
Sales |
|
$201 700 |
|
|
|
|
|
Cost of
Goods Sold |
|
|
|
Beginning
Inventory |
28 800 |
|
|
Add:
Purchases |
89 000 |
|
|
Transportation on Purchases |
2500 |
|
|
Less:
Purchase discounts |
1350 |
|
|
Purchase returns and allowances |
1200 |
|
|
Less:
Ending Inventory |
31 200 |
|
|
Cost of
Goods Sold |
|
86 550 |
|
Gross
Margin |
|
115 150 |
|
Operating
Expenses |
|
|
|
Salaries
Expense |
40 800 |
|
|
Rent
Expense |
32 000 |
|
|
Delivery
Expense |
3000 |
|
|
Supplies
Expense |
1350 |
|
|
Depreciation
Expense: Equipment |
5000 |
|
|
Depreciation
Expense: Building |
3000 |
|
|
Total
Expenses |
|
85 150 |
|
Net
Income |
|
$30 000 |
|
XYZ Stores Balance Sheet December 31, 2--- |
|||||
|
Assets |
|
|
Liabilities |
|
|
|
Cash |
|
$4500 |
Accounts
Payable |
|
$38 000 |
|
Accounts
Receivable |
|
5400 |
Bank
Loan |
|
63 300 |
|
Supplies |
|
5200 |
Total
Liabilities |
|
101 300 |
|
(Ending)
Inventory |
|
31 200 |
|
|
|
|
Equipment |
$50 000 |
|
|
|
|
|
Accumulated
Depreciation: Equipment |
5000 |
45 000 |
|
|
|
|
Building |
150 000 |
|
Owner’s
Equity |
|
|
|
Accumulated
Depreciation: Building |
3000 |
147 000 |
P.
Jones, Capital |
150 000 |
|
|
Land |
|
35 000 |
Less:
P. Jones, Drawings |
8 000 |
|
|
|
|
_______ |
Add:
Net Income |
$30 000 |
172 000 |
|
Total
Assets |
|
$273 300 |
Liabilities
and Equity |
|
$273 300 |
|
UVW Services Income Statement For The Year Ended December 31,
2--- |
||
|
Sales
from Services |
|
$115 150 |
|
|
|
|
|
Operating
Expenses |
|
|
|
Salaries
Expense |
$40 800 |
|
|
Rent
Expense |
32 000 |
|
|
Delivery
Expense |
3000 |
|
|
Supplies
Expense |
1350 |
|
|
Depreciation
Expense: Equipment |
5 000 |
|
|
Depreciation
Expense: Building |
3000 |
|
|
Total
Expenses |
|
85 150 |
|
Net
Income |
|
$30 000 |
|
UVW Services Balance Sheet December 31, 2--- |
|||||
|
Assets |
|
|
Liabilities |
|
|
|
Cash |
|
$4500 |
Accounts
Payable |
|
$38 000 |
|
Accounts
Receivable |
|
5400 |
Bank
Loan |
|
63 300 |
|
Supplies |
|
5200 |
Total
Liabilities |
|
101 300 |
|
Equipment |
$50 000 |
|
|
|
|
|
Accumulated
Depreciation: Equipment |
5000 |
45 000 |
|
|
|
|
Building |
150 000 |
|
Owner’s
Equity |
|
|
|
Accumulated
Depreciation: Building |
$3000 |
$147 000 |
J.
Servisor, Capital |
$118 800 |
|
|
Land |
|
35 000 |
Less:
J. Servisor, Drawings |
8000 |
|
|
|
|
|
Add:
Net Income |
30 000 |
140 800 |
|
Total
Assets |
|
$242 100 |
Liabilities
and Equity |
|
$242 100 |
|
|
|
________ |
|
|
_______ |
|
Classified Balance Sheet XYZ Stores Balance Sheet December 31, 2--- |
|||
|
Assets |
|
|
|
|
Current
Assets1 |
|
|
|
|
Cash |
|
$4500 |
|
|
Accounts Receivable |
|
5400 |
|
|
Supplies |
|
5200 |
|
|
Inventory |
|
31 200 |
$46 300 |
|
|
|
|
|
|
Fixed
Assets2 |
|
|
|
|
Equipment |
$50 000 |
|
|
|
Accumulated Depreciation: Equipment |
5000 |
$45 000 |
|
|
Building |
$150 000 |
|
|
|
Accumulated Depreciation: Building |
3000 |
147 000 |
|
|
Land |
|
35 000 |
227 000 |
|
Total
Assets |
|
|
$273 300 |
|
|
|
|
|
|
Liabilities
and Owner’s Equity |
|
|
|
|
Current
Liabilities3 |
|
|
|
|
Accounts Payable |
|
$38 000 |
|
|
Bank Loan |
|
63 300 |
$101 300 |
|
|
|
|
|
|
Long-term
Liabilities4 |
|
|
|
|
|
|
|
|
|
P.
Jones, Capital |
|
|
|
|
Balance January 1 |
|
$150 000 |
|
|
Net Income |
$30 000 |
|
|
|
Drawings |
8000 |
|
|
|
Increase in Equity |
|
22 000 |
|
|
Balance December 31 |
|
|
172 000 |
|
Total
Liabilities and Owner’s Equity |
|
|
$273 300 |
1 Current Assets: Assets that will be used up or converted to cash within one year.
2 Fixed Assets: Long-lived assets that are held for their usefulness in producing or selling goods and services.
3 Current Liabilities: Debts, which are expected to be paid off within one year.
4 Long-term Liabilities: Debts, which are expected to last longer than one year.
Use
the following information to set up a classified balance sheet in the correct
format.
|
Goblin Merchandising |
||
|
|
Dr. |
Cr. |
|
Cash |
$ 9000 |
|
|
Accounts
Receivable |
10 800 |
|
|
Beginning
Inventory |
57 600 |
|
|
Supplies |
10 400 |
|
|
Equipment |
100 000 |
|
|
Accumulated
Depreciation: Equipment |
|
$10 000 |
|
Building |
300 000 |
|
|
Accumulated
Depreciation: Building |
|
6000 |
|
Land |
70 000 |
|
|
Accounts
Payable |
|
76 000 |
|
Bank
Loan (2 years) |
|
66 600 |
|
P.
Jones, Capital |
|
360 000 |
|
P.
Jones, Drawings |
16 000 |
|
|
Sales |
|
410 000 |
|
Sales
Returns and Allowances |
3700 |
|
|
Sales
Discounts |
2900 |
|
|
Purchases |
178 000 |
|
|
Purchases
Returns and Allowances |
|
2400 |
|
Purchases
Discounts |
|
2700 |
|
Transportation
on Purchases |
5000 |
|
|
Salaries
Expense |
81 600 |
|
|
Rent
Expense |
64 000 |
|
|
Delivery
Expense |
6000 |
|
|
Supplies
Expense |
2700 |
|
|
Depreciation
Expense: Equipment |
10 000 |
|
|
Depreciation
Expense: Building |
6000 |
|
|
Totals |
$933 700 |
$933 700 |
Note: Ending Merchandise Inventory: $62
400
With the increased use of computers in businesses, firms are more and more inclined to use the perpetual method of inventory. This system facilitates the calculation of the value of stock on hand at any point in time. Although it used to be very time-consuming in the past to record individual sales and purchases for thousands of items, computers can now fulfill this task in seconds, once a system has been set up.
A
perpetual inventory system keeps a detailed record of each item in stock as it
is bought or sold. Often, a firm will have its (point-of-sale) cash registers
hooked up to a central computer and as the customer receives the goods and the
cashier rings in the sale, the inventory is brought up to date. At the same
time, it is possible for the computer to make the appropriate accounting entry.
Since the computer knows exactly the purchase price of the goods and the
selling price, the Cost of Goods Sold entry can be made immediately for that
particular transaction. This, of course, enables a firm to create frequent,
intermediate financial statements without the need to take a physical
inventory. Notice, however, that the number of entries generated for a given
day in a successful business may amount to tens or even hundreds of thousands.
Computers are an essential tool to process all these as they occur.
Example
of a sales entry:
|
Nov. 12 |
Cash |
220.00 |
Price at which item is sold |
|
|
Sales |
220.00 |
|
|
|
|
|
|
|
Nov. 12 |
Cost of
Goods Sold |
160.00 |
Price for which item was bought |
|
|
Merchandise Inventory |
160.00 |
It is
worthwhile to notice that Cost of Goods Sold is a temporary account, which will
be closed off to the Income Summary account at the end of the cycle.
In order
to make the input of information as simple as possible, most computer programs
assign a standard inventory number to each item in stock. This makes it easy
for the cashier to enter the item into the register. The Min. column tells the
personnel when to reorder the item.
|
XYZ Inventory Report |
|||||||
|
Item # |
Item Description |
Balance |
Bought |
Sold |
Balance |
$/Unit |
Min. |
|
A123-456 |
Thumb tacks |
200 boxes of 50 |
30 |
60 |
170 |
.40 |
120 |
|
B432-876 |
Paper Clips |
800 boxes of 100 |
|
200 |
600 |
.50 |
500 |
|
C726-238 |
Envelopes |
450 boxes of 50 |
200 |
300 |
350 |
2.15 |
300 |
|
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|
|
|
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|
|
Although
an inventory report such as the one above always contains important information
on the inventory, the firm still needs to conduct a physical inventory count
every so often to see whether the actual quantities on hand match the computer
records. If there is a difference, it is mostly due to theft, spoilage, or
loss. Of course, there is also the possibility of inaccurate computer input.
Large discrepancies need to be checked with the original purchase and sales
documents.
Name 1 _________________________________
Name 2 ____________________________________
1. Complete the following tables to the best of
your knowledge.
|
PERIODIC
INVENTORY |
|
|
Advantages |
Disadvantages |
|
(Teacher adds 7 rows) |
|
|
PERPETUAL
INVENTORY |
|
|
Advantages |
Disadvantages |
|
(Teacher adds 6 rows) |
|
2. Show the journal entries for the following
transactions. In A, show the entry for a firm using the periodic inventory method
and for B, show the entry for a firm using the perpetual inventory method.
November
16, sold 30 spades
at $25 each. They cost the firm $15 a piece.
November
17, returned 5
wheelbarrows for credit due to faulty design. They were originally bought on
credit and each cost $42.
A.
|
DATE |
PARTICULARS |
P.R. |
DEBIT |
CREDIT |
|
|
|
|
|
|
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|