eal means ota rererd“perpeti” Filipino) is called as such because 5 er als a » a or Merchandie eine — irchase or sale is oe ye Nndted S8CN O Eorng OF wis Sunt) Saaant SHOWS @ continuing oF Iimods on hand se, Fee er this system from Ww e More ainained YT ogis on hand and goods sold can_be pe Ei getanee: OE me without the need of erriged Ot 80 Ent oF inventories. apa ‘decreases in inventory, such as “neces purchase dacs, cst right Perens are recorded in the “Inventon” aoe ne) account "Cost of goods sold” is ES ele er ae soupdated om etual inventory system is -sommanty se fr La lentifis id are relatively hij that are specifically id 4 ae ais machineries, furniture and Heavy equipaient. Learning Objectives 1. Prepare the Statement of Cost of G 2, Complete the a cle of a ea Conn | eee ~ Introduction ‘We have already completed the accou business in the previous chapter. In this chapter a, the accounting cycle of a merchandising hasnge io on that bays ct nee Aan cal for Ao eee that are applicable to a merchandisin Oe cee 1 busines: service business. but nti Inventory The main difference between a merchandising buses a service business is that a_merchandising busines nix holds inventory of physical goods for sale, Frlyman’s terms, the sore Gro means occurring or recurring ‘in this context, inventory simply refers to the gosta: «rg : agua interoas (or “part partion” in Filipino) erchandising business has purchased ‘The periadi inventory syste is called as such because resale, normally in their’ ‘without any kt under this system, the “fl account (or “Merchandise tenia” account) is updated only when a_physical_countiof processing, is performed, Thus, the amounts of inventory and cost es a re only. periodically Inventories are accounted for using either of the Mt Under this system, the business does not maintain records fat show the running, balances of inventory on hand and cost of Pols sold as at any: giver point of time, To determine this Berman physi! cto the unt of gods on hard rea Performed periclicaly (eg, om a daly, weekly monthly, ae y counted is then multiplied by the inventory systems: 1. Perpetual inventory system; or 2. Periodic inventory system. quantiSS suns account’ No? to the tof goods sold when inventory is jie cast Of BOOES ate ecogniv® unit cost fo get the belance of the amount is then used to compute for he metry i the residual amount inthe formula belo 4 ginning inventory “ ae is updated only after a Go es (sant, the balance of the inventory Talc ¥ jor 0 the or the balance from the ic tng ty : i the balance of “Cost of goods nth Comaeensees a] count 2" om is commonly used for Less: Ending invento : x Cost of Goods Soig” Ye! coun) a Mie invert jodic inven interchangeable, relatively low © "Net purchases” is computed as fll SS fat 2 Tamer er vate, such a5 grocery Hem ™ OO base and office supplies Purchases uel & electrical Pa ‘Add: Freightin = dae baten tone id + ne day, you have 1 apple. During the day you Ne een fy ot the end ofthe day, you have 2 apples lef a 5 ae Pehave you sold? rerhae a oe I ngeventory (wits) 1 apple eet purchases (ir uitits) __Sapples tl gods ial for sale ie sts) 6 apples iss Ending inventory (ir wits) (2 applies) (Ctof goods sold (in units) tapples tte start of the day, yout have | apple costing M10. During the You purchased 5 apples tor PIO each, You retumed 1 apple to Stpplier because it was rotten, If at the end of the day, you Spples let, how much is your cost of goods sold? discounts availed of on the purchased goods.Purchase discounts Co) Net purchases» Total goods avilable for sae Qa inventory (2 applies x P10) Cost of goods sold pepe see ms nd us xis on hand are recorded through the tre gos rf FP secount. Also, costof goods sold isebited when eeisaand credited when there is a sales return. Re pderthe Mion hand are seconded through the purchases, the 500 10,000 ‘Ounts payable 10,000 1000 | Cash Inventory 3. You returned damaged goods worth P2,000 tothe supin, (Purchases ee Accounts payable 2,000 ‘Accounts payable 2000 4,000 | 5,000 (4) Cost of goods sold 2 20 4.200_ end. bal. ‘Accounts receivable 20,000 Sales 29,000 Cost of goods sold 5,000 Inventory 5,000 200 __ (6) Sales etum. 4,300 __ end. Bal.pwns fusines Under the periodic inventory oystem hd od eg jeu eee sold Cetra Na Performing fst @ physical count ote ty iantity Assume that a physical count \ of 105 units costing 40 per unit, “ta inventory on hand and cost of mi oe fom inventory system are determined meee a Physical counts necessary to determine the balances of thea inventory on hand and cost of ond sold e Requires the use of the following formula when determining, cost of goods sold: eee inventory BI 1 sses (1) , Jet purchases Freightin @) = Syme Purchase returns (3) (2,000) ED physical count) (XX) Purchase discounts COGS x Net purchases ra Total goods available for sale Ending inventory (105 units x P40 per unit) Cost of goods sold a ies profs) is imply “Net @ All increases and decreases jin inventory are recorded in ri the “Inventory” account. “Gross profit represents the profit a business cams. after_ the cost of the yoods sold or services: ‘rendered, but ucting other expenses et profit) is ditterent from gross profit. Profitis unt derived atte al other expenses from the This is illustrated below: “Cost of goods sold” is debited when inventory is sold and credited for sales; 30,000 sol ie ion gr expenee 2,000 sonexPense 7,000 expense “ income statement for the perjod, at; Prepare the I SW heder cas" ves Tate agre Swe ot Income Statement period ended December 31,20x1 70,000 (6,000) “Sales returns” and “Sales discounts” are contre ae (deductions) to “Sales” when computing for “Net sales” * Sales = include both cash sales and credit sales. * Sales returns — the account used to record goods returety} customers. ales discounts ~ the account used to record cash dsw given to customers. The records of your business show the following informa December 31, 20x1: # Periodic inventory system Account titles —_—____ #1 fof gods sold Yoru that we have discussed erie und Jetiodc inventory system is commonly used by bass & ants whose inventories have a fast tumover-"reba Basin 353 —__ 83 he amounts abov « computing tl You should Ate ter to see if you have a Tecorded sale of Dottles les x 70 sale price le 4 (238 bottl Price pet bottle). f this ig as TF not, then you need a are for you! reconcile Pa 12 Fa efollowing are possible scenarion * a ementt Prepare a “Statemeng - " et ded sales only 236 boten, instead 0230 tng i Cost OF Casts say nati you have a shortage, meaning there ore» Solution: | (Shortage’ means “kulang’ in Fill epatatons below: INO.) Analyze the [06s based on physical count (sev computations aboce) tage (missing sales) 1 the Statement Profit ends with the gross. pro! information about the other ex Pading inventory per physical count (se fact pattern) Hper computation (290 1G.5 - 236 COGS per reves) Stage (missing bottles) t Of Cost of Goods Sold and tr fit, meaning it does no ‘penses. Using our previous formula, let us compute forthe cos of gu Ooviously, you nee to investigate the cause of the sold: tlsoepancy. Don't get angry just yet, A’ good manager makes fecsions based on tact ‘s, not on mere emotions! Here are some, ereasons forthe discrepancy. eT Maybe there were breakages; - padPe the bottles delivered by the supplier were lacking bbe your cashier filed to record a sale Maybe ‘one of your waiters drank them of. smaybe it's your Sault you drank them snct forgot about it. OF Beginning inventory Add: Net purchases Total goods available for sale Less: Ending inventory Cost of goods sold (10 cases x 24 bottles) = 240 ‘(2 cases x24 bottles) +4 bottles] =52 cost of Depend e res the investigation, the co ing on the result of the Apes he ahBbeverages is chard either a a recfable Is itis soya eck a" Employee oF a customer) oF a5 fos OF Ys faulty| Scenario #2: | What if the recorded sale is 241 botth |serario, you have an. overage of 3 batt 2 [soba in Filipino.) Analyze the computation 'tage | Analyze the computations be} } Ons below: Mey Scenario 2 ‘COGS based on physical count (se conpuatin nS above) OR Ending inventory per physical count (se fact patter) EI per computation (290 TGAS - 241 COGS per records Overag ; ne not... because that’s not my still confusing? 1 hep sory my trend, you'll get the oe So you won't get confused when determining shape overages, let us use the ‘Should be’ es ‘etry mad’ ay commonly used by accountants. “Should be’ is like “ito dapat” in Filipino, while ‘Entry mit is like “ito ang ginawn” in Filipino. Let's try this: “Bntry made’ ~ “Ito ang gina.” COGS per records (‘entry made’) COGS per physical count (should be’) (hortage) | Overage [enaro #3: eran alo vse the computations above to eheck the accurney of murah collections. We Inve computed that the “ct ous Sold) is 238 bottles. We aso si in units (,e,, number of Be how tat the sale price per bottle ts P70, Therefore, your 98a lllecions should be Plo ocd! (238 bottles x P70 sale price Pet rte), 645? In this er contains only P15: le What if your cash far you again have a shortage! _ 15,645 Gash Balance per count - ‘ite aneg nablany Gah balance per computation - ‘Ito dat ‘) “Should be’ - “Ito dapat.”* Maybe your empl : ployees used the mi supplies, ice c emis a oe Leting Ah og pasha ‘ihionetelanoe en on SN & Maybe the missing pie Intomedin te box Gor Wes tmisplaced ingen AN ‘© Maybe you cashier, or mh tt stoleit, ete. other employee, or a cus, “ i % Depending again on the . result of wining ca ns fault of an employee or @ customer) or a tides disappeared like a bubble). Be fy OK. back to the requirement ~ “Stat teen of Cos Gross profit.” Let’s assume that there are no ees 7 ‘Statement of Cost of Goods Sold and Gross Prof Your Bar Statement of Cost of goods sold and Gross proft For the period ended December 31,201 | ris Sales Cost of goods sold: Beginning inventory ne ‘Add: Net purchases eee Total goods available for sale 5 Less: Ending inventory Gross profit venanising Business yom mes Males - Cost of goods sold aes ~ Sales retums & discounts id= Beginning, inventory + Net piehiGe sit Net Total 5 is sol Brentory BS, purchases + Freight-in ~ Purchase retums de unt analysis yt anal joms can be solved much easier using T. ae st an ee ea ies ncn ooo on ooo Sow) | ee | meee | one oe me Inventory beg Net purchases. NN et puachases sp purchases is pace om thedititsiteteanne | Purchases nares t : | leit nes358 ag ye eda Case #1: Ending inventory Inventory, beg, 40,000; Net pu, sold, 200,000. How much ig treentn 14, ¥ Invent Solution: 40,000 Dr. + 180,000 Dr. - 200,000 Cr. = 2,600 * Notice that the sum of the amounts on account is equal to the sum of the am¢ (40,000 + 180,000 = 200,000 + 20,000). Case #2: Cost of goods sold Inventory, beg. 60,000; Net purchases, 270,000; Inveioya 190,000. How much is the cos of goods sold? Solution: Inventory beg. 60,000 Net purchases 270,000 | 240,000 90,000 60,000 Dr. + 270,000 Dr. ~ 90,000 Cr. «240,000 ny, ony’ Sy NOUNS on the ce i COGS (que) end. Hho, Cont of srs wi, ranneree er aera laa: eb OH mm Inventory wo 40,000 1,009 200,000 _ COGS 720,000_ end. (00; Inventory, Inventory 60,000 sruyane 240,000 _ COGS 90,000_ end. oods avaitnble for sale ot soods sold, 240,000; Inventory, et purchases, 9270000; Cost Ot ni, 990000, How much is the weds for sale’ Inventory _ beg, irelevant™ Netpurchases ——27U(NNE z4o.000 COGS og}000__ ends of the ‘Beginning inventory is frelecunt in solving the requirement iH “inventory, beg: * Problem, Recall from the previous formula that Net purchases = TCS.” However, we knovt from the Tarot ‘ht“lnventory, beg, © Net purchases” equals "COGS + Inventorwl end.” Thus, we can solve for “ : the tora) : follows: in pa MI 1240000 COGS + 90,00 tnventory ng - Coes . end. 4 990,000) ue ok rere to reflect Cae 6: Increase in inventory - COs 360,000 cocs ecial Journals ween Fe uned to record transactions of a similar jal journal ~ ples aiG ae J — used to record sales or SRS Bee ee used to record purchases of ~~ eter : Ne Purcl ao = ae ere rs ioarnal - used to recon al Kansactions Lso00 eu _ Engrs paw Crelving revipisef Na Doce sural — used to record all ee ase in inventory - COGS janur tal d Net purchases, 270,000; Decrease in invent 790000. How muchisthe costo goods soi? Cash dishurscoments transactions volving payments ot cash, 2 Goa urna! IN wer tansetons that cannot Be e recorded in the ‘Step 1: Place the given information on the T-account, recorded in the special joumals are recorded - general journal