Accounting Solution 5.2 (Accounting in Merchandising Companies)
Take a look at the table below:
| Event No |
Account titles |
Debit |
Credit |
| 1 |
Cash Inventory Contributed Capital |
6,000 |
4,000 |
| 2 |
Purchases Accounts Payable |
3,000 |
3,000 |
| 3 |
Transportation-in Cash |
250 |
250 |
| 4 |
Accounts Payable Purchase Returns |
500 |
500 |
| 5 |
Accounts Payable Cash Discount |
75 |
75 |
| 6 |
Accounts Receivable Sales Revenue |
5,000 |
5,000 |
| 7 |
Transportation-out Cash |
670 |
670 |
| 8 |
Sales Revenue Accounts Receivable |
300 |
300 |
| 9 |
Sales Revenue Accounts Receivable |
500 |
500 |
| 10 |
Cash Accounts Receivable |
4,200 |
4,200 |
| 11 |
Accounts Payable Cash |
2,425 |
2,425 |
In this problem we assumed that the periodic method is used to record inventory transactions. Purchases, Transportation-in, Purchase Returns, and Cash Discount accounts were affected instead of tracking inventory changes directly in the Merchandise Inventory account. In addition, the Cost of Goods Sold account is not affected during the accounting period, and, thereof, we did not record expenses related to the cost of goods sold. We are to recognize these expenses only at the accounting period end after conducting the physical count of goods remained on hand and preparing the schedule of costs of goods sold. Let us do that. Recall that we already know that the amount of inventory remained at the end of the period is $4,875. The schedule looks like this:
| Schedule of Cost of Goods Sold |
|
| Beginning Inventory | 4,000 |
| Plus: Purchases | 3,000 |
| Less: Purchase Returns | (500) |
| Less: Cash Discounts | (75) |
| Plus: Transportation-in | 250 |
| Cost of Goods Available for Sale | 6,675 |
| Less: Ending Inventory | (4,875) |
| Cost of Goods Sold | 1,800 |
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