Accounting II

Sheet 2
2020 - 2021

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 Chapter 1 P2

Accounting for Merchandising Operations

Periodic Inventory System

‫ واألسهل في تسجيل‬Perpetual ‫ ألنه أقل تكلفة من ال‬Periodic inventory system ‫شركات كتيرة بتستخدم ال‬
‫ فقط في نهاية كل فترة محاسبية (نهاية كل شهر أو كل سنة) بدالً من تسجيلها‬COGS ‫ وال‬Ending Inventory ‫ال‬
.‫يوميا ً باستمرار‬

Accounting for Periodic Inventory System

‫ ومش بتسجل ال‬COGS‫ مش بتسجل ال‬Periodic inventory system ‫في التسجيل المحاسبي في ال‬
.Perpetual ‫ زي ما عملت في ال‬Merchandise Inventory ‫ في حساب ال‬Purchases

Example 1
X Company started the year with a beginning inventory of $10,000. The following
Transactions took place during the period:

Date Sale Cost of Goods Sold Cost of Goods Purchased

10/1 $10,000 7,500
15/1 $20,000
20/1 15,000 12,500
25/1 5,000
Required:

a. Prepare the journal entries to record the above transactions under periodic
inventory.
b. Prepare the merchandise inventory and cost of goods sold accounts

Solution
a. Recording the transactions

1. Sale of $10,000 with cost of $7,000 on 10/1

1 Adapted By Dr Selim
 Dr Cr
Cash/Accounts receivable $10,000
Sales Revenue $10,000

2. Purchase of $20,000 merchandise on 15/1

Dr Cr
Purchases $20,000
Cash/Account Payables $20,000
3. Sale of $15,000 with $12,500 on 20/1

Dr Cr
Cash/Accounts receivable $15,000
Sales Revenue $15,000

4. Purchase of $5,000 on 25/1

Dr Cr
Purchases $5,000
Cash/Account Payables $5,000

a. Required Accounts:
Purchases
15/1 $20,000
25/1 5,000

Merchandise Inventory
1/1 $10,000

2 Adapted By Dr Selim
Determining Cost of Goods Sold and Ending Inventory

Financial ‫ الزم تتحسب قبل ما تحضر ال‬Ending Inventory ‫ وال‬COGS ‫ ال‬Periodic System ‫في ال‬
.‫ بتاعت الشركة‬Statements
Ending Inventory ‫ وال‬COGS‫ لل‬Closing entries‫ و‬Adjusting ‫وفي نهاية الفترة المحاسبية بتعمل‬
.‫عشان تقفل حسابات الشركة‬

Example 2
Referring to Example 1; X Company started the year with a beginning inventory of
$10,000, Ending inventory of 15,000.

Required:

a. Calculate the Cost of Goods Sold.

b. Adjust inventory to ending balance.
c. Close cost of goods sold account.
d. Prepare the merchandise inventory, Purchases, cost of goods sold and
Income Summary accounts

Solution
a. To Calculate the Cost of Goods Sold.

Beginning Inventory $10,000

(+) Purchases 25,000
= Goods Available for Sale 35,000
(-) Ending Inventory (15,000)
=Cost of Goods Sold $20,000

b. To adjust inventory to ending balance.

Dr Cr
Ending Merchandise Inventory $15,000
Cost of goods Sold 20,000
Purchases 25,000
Beginning Merchandise Inventory $10,000

c. To close cost of goods sold

Dr Cr
Income Summary $20,000
Cost of goods Sold $20,000

3 Adapted By Dr Selim
 d. Required Accounts
Merchandise Inventory
1/1 Balance $10,000 Adj. entry $10,000
Adj, entry 15,000
31/1 Balance 15,000

Purchases
15/1 $20,000 Adj. entry $25,000
25/1 5,000

Cost of Goods Sold

Adj, entry $20,000 Closing entry $20,000

Income Summary
Closing entry $20,000

2.2. Issues involved in recording purchases

.Buyer‫ لل‬Seller ‫ تتنقل من ال‬Ownership‫ الزم تتسجل لما ال‬Cost of Purchases ‫ال‬
، Purchases Returns and Allowances‫ ؛‬Purchases Discounts ‫ بتشمل‬Cost of Purchases ‫ال‬
Freight Charges

2.2.1. Recording purchases discounts

‫ أو بال‬Gross Method ‫ سواء بال‬Sales Discounts ‫ بتتسجل بنفس طريقة ال‬Purchases Discounts ‫ال‬
.Net Method

‫ بتتسجل بقيمتهم اإلجمالية بدون أي‬Accounts Payables ‫ وال‬Purchases ‫ ال‬Gross Method ‫في ال‬
.‫خصومات‬
‫ بقيمة‬Credit ‫ هيتسجل في ال‬Purchases Discount ‫ حساب ال‬.Discount‫لو الشركة سددت في خالل فترة ال‬
.Dr ‫ هتقل وهتتسجل بقيمتهم اإلجمالية في ال‬A/P ‫ بقيمته بعد الخصم وال‬Cr‫ هيقل في ال‬Cash ‫ وال‬،‫الخصم‬

‫ هتقل بقيمتها‬A/P ‫ بقيمته اإلجمالية وال‬Cr‫ هيقل في ال‬Cash ‫ ال‬.Discount ‫لو الشركة سددت بعد فترة ال‬
.Dr ‫اإلجمالية في ال‬

4 Adapted By Dr Selim
Example 3
On March 1, X Company purchased merchandise costing $10,000 on account with the terms
2/10, n/30.

Required: Prepare the journal entries using the gross method, to:
a. Record the above transaction.
b. Record the payment under the following two independent cases:
1) Payment is made on March 6.
2) Payment is made on March 21.

Solution:
a. The journal entry to record the purchase transaction (on credit) on March 1:

Dr Cr
Purchase $10,000
Accounts Payable $10,000

b. Recording Payment:
1) Payment is made on March 6.

Dr Cr
Accounts Payable 10,000
Purchase Discount 200
Cash $9,800

2) Payment is made on March 21.

Dr Cr
Accounts Payable $10,000
Cash $10,000

2.2.2. Purchases Returns and allowances

Sales Returns ‫ مشابه للتسجيل المحاسبي لل‬Purchases Returns and allowances ‫التسجيل المحاسبي لل‬
and allowances

1. Recording Purchases
Dr Cr
Purchases $XXX
Accounts Payable/Cash $XXX
2. Recording Purchases Returns and allowances
5 Adapted By Dr Selim
 Dr Cr
Accounts Payable/Cash $XXX
Purchases Returns and allowances $XXX
2.2.3. Freight Costs (Transportation)

‫ لو الشركة بتستخدم‬Terms of sale‫ وده بيعتمد على ال‬Freight Costs ‫أول خطوة الزم تحدد مين اللي هيتحمل ال‬
‫ لحد‬Merchandise‫ فا ده معناه ان البائع ملزم انه يوصل ال‬FOB (Free on Board) – Destination ‫ال‬
.Freight ‫ هو اللي بيتحمل تكلفة ال‬Seller‫ بمعنى أن ال‬،‫المشتري‬
‫ فا ده معناه أن انا كمشتري اللي بروح اجيب‬FOB- Shipping Point ‫أما لو الشركة بتستخدم ال‬
.Freight Costs ‫ هو اللي بيتحمل ال‬Buyer ‫ بمعنى أن ال‬..Seller ‫ من ال‬Merchandise‫ال‬
COGS ‫ ومش بتتسجل لما احسب ال‬Selling Expenses ‫ بتعتبر‬Seller ‫ لما بيدفعها ال‬Freight Costs‫ال‬
‫ وبتضاف على‬Cost of Inventory‫ بتعتبر تكلفة جزء من ال‬Freight Costs‫ هو اللي بيدفع ال‬Buyer ‫أما لما ال‬
.COGS‫ال‬

Example 4 (FOB Shipping Point)

If Sauk Stereo (the buyer) pays Public Carrier Co. $150 for freight charges on May 6,

Required: Prepare the entry on Sauk Stereo’s books of freight on goods purchased.

Solution:
To record payment of freight on goods purchased on May 6.
Dr Cr
Merchandise Inventory $150
Cash $150

Example 5 (FOB Destination)

PW Audio Supply (the seller) pays Public Carrier Co. $150 for freight charges,

Required: Prepare the entry on PW Audio Supply of freight on goods sold.

Solution:
To record payment of freight on goods sold
Dr Cr
Selling Expenses $150
Cash $150

6 Adapted By Dr Selim
2.3. Multiple-step Income statement (vs) Single-Step Income Statement

Single-Step Income ‫ بيكون فيها تفاصيل وبيانات أكتر عن ال‬Multiple-step Income statement‫ال‬
.Statement

Multiple-step Income statement

7 Adapted By Dr Selim
Single-step Income statement

Example 12
a. On November 2, Z-Mart purchased $1,200 of merchandise inventory on account, credit
terms are 2/10, n/30
b. On November 12, Z-Mart paid the amount due on the purchase of November 2.
c. On November 15, Z-Mart (buyer) issues a $300 debit memorandum for an allowance
from Trex for defective merchandise.
d. Z-Mart purchased merchandise on terms of FOB shipping point. The transportation
charge is $75.
e. On November 3, Z-Mart sold $2,400 of merchandise on credit. The merchandise has a
cost basis to Z-Mart of $1,600.
f. Recall Z-Mart’s sale for $2,400 that had a cost of $1,600. Assume the customer returns
part of the merchandise. The returned items sell for $800 and cost $600.
g. Assume that $800 of the merchandise Z-Mart sold on November 3 is defective but the
buyer decides to keep it because Z-Mart offers a $100 price reduction.
h. Z-Mart received the full amount less 3% discount.

Required: Prepare the Journal entry.

8 Adapted By Dr Selim
Solution:
a. On November 2, Z-Mart purchased $1,200 of merchandise inventory on account, credit
terms are 2/10, n/30
Periodic method Perpetual method
Dr Cr Dr Cr
Purchases 1,200 Merchandise inventory 1,200
Accounts Payables 1,200 Accounts Payable 1,200

b. On November 12, Z-Mart paid the amount due on the purchase of November 2.
Periodic method Perpetual method
Dr Cr Dr Cr
Purchases 1,200 Accounts Payable 1,200
Purchase Discounts 24 Merchandise Inventory 24
Cash 1,176 Cash 1,176

c. On November 15, Z-Mart (buyer) issues a $300 debit memorandum for an allowance from
Trex for defective merchandise.

Periodic method Perpetual method

Dr Cr Dr Cr
Accounts Payable 300 Accounts Payable 300
Purchase returns and allowances 300 Merchandise Inventory 300

d. Z-Mart purchased merchandise on terms of FOB shipping point. The transportation charge
is $75.

Periodic method Perpetual method

Dr Cr Dr Cr
Transportation-in 75 Merchandise Inventory 75
Cash 75 Cash 75

e. On November 3, Z-Mart sold $2,400 of merchandise on credit. The merchandise has a cost
basis to Z-Mart of $1,600
Periodic method Perpetual method
Dr Cr Dr Cr
Accounts Receivable 2,400 Accounts Receivable 2,400
Sales 2,400 Sales 2,400
Cost of goods sold 1,600
Merchandise inventory 1,600

f. Recall Z-Mart’s sale for $2,400 that had a cost of $1,600. Assume the customer returns part
of the merchandise. The returned items sell for $800 and cost $600.
Periodic method Perpetual method
Dr Cr Dr Cr
Sales returns and allowances 800 Sales returns and allowances 800
Account receivables 800 Account receivables 800
Merchandise inventory 600
Cost of goods sold 600

9 Adapted By Dr Selim
g. Assume that $800 of the merchandise Z-Mart sold on November 3 is defective but
the buyer decides to keep it because Z-Mart offers a $100 price reduction.

Periodic method Perpetual method

Dr Cr Dr Cr
Sales returns and allowances 100 Sales returns and allowances 100
Account receivables 100 Account receivables 100

h. Z-Mart received the full amount less 3% discount.

Full Amount = 2400 - 800 = 1,600

Periodic method Perpetual method

Dr Cr Dr Cr
Cash 1,552 Cash 1,552
Sales Discount (1600x3%) 48 Sales Discount (1600x3%) 48
Accounts Receivables 1,600 Accounts Receivables 1,600

10 Adapted By Dr Selim