Aim: What Is A Perpetual Inventory System? Do Now: What is the operating cycle of a merchandising company?

Perpetual Inventory System- record inventory and cost of goods sold as transactions occur 1.Inventory Purchased: A.Debit Inventory B.Credit Cash/Accounts Payable 2.Inventory Sold, 2 entries: A.Record Revenue 1. Debit Cash/Accounts Receivable 2. Credit Sales B.Record Expense/Change in Inventory: a. Debit Cost of Goods Sold b. Credit Inventory

9/1Merchandise Inventory ……………………6,000 Accounts Payable ……………..………..6,000 purchased 10 Regent CX-21 monitors for $600 each; payment due to Okawa Wholesale in 30 days 9/5Accounts Payable…………………………..3,000 Merchandise Inventory………………….3,000 returned 5 Regent CX-21 monitors to Okawa Wholesale for credit

10/1Account Payable ………………….….... …….3,000 Cash……………………………..………..3,000 paid amount owed to Okawa Wholesale Co.

9/7Accounts Receivable…………….2,000 Sales………………………………………2,000 sold two Regent CX-21 monitors for $1,000 each; payment due in 30 days 9/7Cost of Goods Sold……………….1,200 Merchandise Inventory…………………1,200 Transfer cost of monitors from Inventory to Cost of Goods Sold

9/9 Sales Returns & Allowances…………….1,000 Accounts Receivable……………………1,000 R.J. Travel returned one monitor purchased on Sep. 7 th for credit 9/9 Merchandise Inventory ……………….600 Cost of Goods Sold ……………………600 Transfer cost of monitors returned to Merchandise Inventory account

10/7 Cash………………………….1,000 Accounts Receivable ….....…….1,000 collected account receivable from R.J. Travel

Aim: How Is Inventory Checked? Do Now: True or False: Gross Margin is an important measure of profitability. Explain What happens when gross margin is insufficient to cover operating expenses?

Perpetual Inventory System- Inventory account updated as items are bought and sold Physical inventory should = account balance To check, inventory is counted

Inventory Shrinkage- unrecorded decreases in inventory resulting from:  breakage  spoilage  employee theft  shoplifting Cause physical inventory < inventory balance

Adjusting For Inventory Shrinkage: Example: Computer Barn’s inventory account has $72,000. After taking physical inventory account on 12/21, only $70,000 is counted. 12/21 Cost of Goods Sold ……………………….2,000 Inventory ………………………………2,000 to adjust inventory records to reflect results of physical count

Let’s try it now: Sammy’s Sneaker Shop’s inventory account has $64,700. After taking physical inventory account on 3/5, only $63,200 is counted. How much Inventory Shrinkage occurred? What is the adjusting entry?

3/5 Cost of Goods Sold ……………1,500 Inventory ………………………1,500 to adjust inventory records to reflect results of physical count

Suppose the physical count of stock of merchandise at Sammy’s Sneaker shop was $65,200, $500 more than the inventory account. What would the adjust be now? 3/5 Inventory…………. ……………500 Cost of Goods Sold………………500 to adjust inventory records to reflect results of physical count