COGS Inventory Periodic and how to find the Cost of Go

130000 12000 14000 14000

14000 12000 At 31/12 we must find out the COGS
and also introduce the ending inventory
Endin Balance 132000 in the Inventory account.

Purchases 31/12 Close purchases to COGS

130000 130000
COGS 130000

Close the beginning inventory to COGS

COGS 14000

Replace the amount of inventory at 1/1

Inventory 12000

This way we can find what the business has sold which is the COGS.

DIFFERENCES BETWEEN PERPETUAL AND PERIODIC SYSTEMS

Perpetual: Periodic:

Purchases of merchandise:

Inventory Purchases
A/P

Sales A/R A/R

Sales
(at retail sales price) (at retail price)

COGS
Inventory
(at cost)

Pay suppliers: A/P

A/P
Cash

Collect
from clients
Cash Cash
A/R
nd how to find the Cost of Goods Sold.

we must find out the COGS

ntroduce the ending inventory 12000
entory account.

chases to COGS

Purchases 130000

beginning inventory to COGS

Inventory 14000

he amount of inventory at 1/12

COGS 12000

A/P

Sales
(at retail price)

Cash
A/R
Pob. 6,2A

A. Harry's Haberdashery
Income Statement
For the year ended 31/12/2021
For the year ended 31/
Sales 460800
Less Sales returns -4800 Retained earnings January 1
Net sales 456000 Add Net income
Less COGS -189156 Subtotal
Gross profit 266844 Less Dividends
Less Expenses: Retained earnings Decembe
Purchase discount los 480
Utilities expense 8400
Office supply expense 1080
Depreciation expense 5640
Rent expense 12000
Insurance expense 1800
Salaries expense 180000
209400 -209400
Operating profit (EBIT) 57444
Less Interest expense 0
Erarnings before taxes 57444
Less Income tax expense -16680
Net income 40764

EBIT: earnings before interest and taxes.

Harry's Haberdashery
Balance Sheet
12/31/2021
ASSETS LIABILITIES
Current: Short-term:
Cash 47124 A/P
A/R 5280 Sales taxes payable
Merchandise Invent. 35640
Prepaid rent 3720
Office supplies 1800 Stockholders' equity
Capital stock
Fixed: RE
Office Equipment 84000 TOTAL
Less Accum. Deprec. -24000
TOTAL 153564
B Compute gross profit margin as a % of sales:

(266844/456000)*100 = 58,5%

c. We must find the % of returns:

(4800/456000)*100 = 1,05%

Yes, the clients are satisfied because of the small return %

d. They record the purchases net of the discount because they have an account called Purchase Discount lost.

f. Operating cycle
1 Purchase inventory on account (A/P)
2 Sell the merchandise on account (A/R)
3 Collect cash from clients and cancel the A/R
4 Pay suppliers and cancel the A/P
 Harry's Haberdashery
Statement of retained earnings
For the year ended 31/12/2021

Retained earnings January 1 43200

Add Net income 40764
83964
Less Dividends 0
Retained earnings December 31 83964

26400
6000
32400

37200
83964
153564
d Purchase Discount lost.
 Problem 6.8A

Beginning inventory = $500000

Perpetual system Periodic system

a. 2-Jan Inventory 24250 c. 2-Jan Purchases

A/P Sharp 24250
(25000*0.97 = 24250) (25000*0.97 = 24250)

6-Jan A/R Pace 10000 6-Jan A/R Pace

Sales 10000

6-Jan COGS 6100 (NO SECOND ENTRY)

Inventory 6100

15-Jan Cash 9500 15-Jan Cash

Sales discount 500 Sales discount
A/R Pace 10000

18-Jan A/P Sharp 24250 18-Jan A/P Sharp

Purchase discount los 750 Purchase discount los
Cash 25000

c. INVENTORY
500000 6100
24250 CPI uses a perputual system because they have
524250 Full-time accountant
-6100 Computerized system
Ending inventory 518150
 24250
A/P Sharp 24250
(25000*0.97 = 24250)

10000
Sales 10000

(NO SECOND ENTRY)

9500
Sales discount 500
A/R Pace 10000

24250
Purchase discount los 750
Cash 25000
 Problem 6.8B

Beginning = $900000

a. Operating cycle:
1 Purchase on account (A/P) Assets Liabilities
2 Sell on account (A/R) Cash A/P
3 Collect the cash from the clients A/R
4 Pay the suppliers Inventory

b. Perpetual system: e. Periodic system

Hearthstone Corporation
General Journal

5-Jan Inventory 69840 5-Jan Purchases

A/P Rock Creek 69840 A/P Rock Creek
(72000*0.97 = 69840 (72000*0.97 = 69840

8-Jan Inventory 20370 8-Jan Purchases

A/P Ennox 20370 A/P Ennox

(21000*.97=20370) (21000*.97=20370)

10-Jan A/R Harolds 50400 10-Jan A/R Harolds

Sales 50400 Sales

10-Jan COGS 18000 NO ENTRY FOR COGS

Inventory 18000

12-Jan A/P Rock Creek 69840 12-Jan A/P Rock Creek

Cash 69840 Cash

18-Jan Cash 47880 18-Jan Cash

Sales discount 2520 Sales discount
A/R Harolds 50400 A/R Harolds
(50400*0.95= 47880) (50400*0.95= 47880)

25-Jan A/P Ennox 20370 25-Jan A/P Ennox

Purchase discount lost 630 Purchase discount lost 630
Cash 21000 Cash
 Perpetual: Periodic
d. Inventory f. Beginning inventory 900000
900000 18000 Add Purchases 69840
69840 Purchases 20370
20370 Goods available for sale 990210
990210 Less Ending inventory -972210
-18000 COGS 18000
Ending inventory 972210

g. Perpetual : Accountant and a computerized accounting.

h. Gross profit Margin =( (Sales - COGS)/Sales)*100 = ((50400-18000)/50400)*100 = 64,3%

 69840
A/P Rock Creek 69840
.97 = 69840

20370
A/P Ennox 20370

50400
50400

Y FOR COGS

69840
69840

47880
2520
A/R Harolds 50400
.95= 47880)

20370
discount lost 630
21000
*100 = 64,3%