Welcome to AB114 Accounting I Unit 7 Professor David Levenstam Unit 7 Seminar AB114 Unit 7

Welcome to AB114 Accounting I Unit 7 Professor David Levenstam Unit 7 Seminar AB114 Unit 7

Reading, Help & Contact Reading: Accounting, Chapter 6 Authors: Warren, Reeve, and Duchac Tech Support 866-522-7747 (or free online) Contact info: Email: DLevenstam@kaplan.edu AIM: LFCCEconinstruct (sign up for AIM at http://www.aim.com) Office Hours: Thursdays 7-9 PM ET When emailing, please include your full name & course number (AB114) AB114 Unit 7

This Week’s Assignments Discussion (Don’t forget to post your initial response by Saturday! :-)) Review (You can take only once.) Homework Assignment: Submit to Dropbox We have an Excel template in Doc Sharing for each homework set Templates show you wrong answers (*) :-)

Reviews Weeks 2-9. 8 worth 20 each for a total of 160 (16% of your grade) 10 multiple-choice questions You can take it only once You have 1 hour I recommend that you take the practice review first You can see the results 7 days after a review closes

Please Read the Announcements! :-) Located on the Course Home page Contain important administrative and accounting material Please check the announcements and the syllabus first for administrative questions you might have AB114 Unit 7

Please Read My “Hi Students” Posts! :-) Typically located early on the board Occasionally come later too Could say “Hi Class” or “Warning, Warning, Danger, Will Robinson!!” :-D Please give my tired old eyes a break and LABEL your multi-part answers! :-) AB114 Unit 7

For Every Journal Entry Debits MUST Equal Credits! Homework Assignment Reminder: For Every Journal Entry Debits MUST Equal Credits! AB114 Unit 7

B Problem Solutions The homework assignments each have at least 1 problem (and generally at some exercises) If we’ve assigned a problem, it’s from the A set in the back of the chapter We’ve included the solution to the nearly-identical B problem in Doc Sharing If you have trouble with the A problem, try the B problem and solution! :-) AB114 Unit 7

Accounting for a Merchandising Business AB114 Unit 7

What is Merchandise? AB114 Unit 7

Goods that a business sells What is Merchandise? Goods that a business sells AB114 Unit 7

What is the “Cost of Merchandise Sold?” AB114 Unit 7

What is the “Cost of Merchandise Sold?” Cost of buying goods sold during the period also call it Cost of Goods Sold, or COGS for short AB114 Unit 7

What is “Cost of Merchandise Sold?” 2 For a merchandising company Cost of Goods Sold (COGS) will usually constitute the single largest expense by far AB114 Unit 7

What is Gross Profit? AB114 Unit 7

Sales revenue minus COGS What is Gross Profit? Sales revenue minus COGS AB114 Unit 7

How Do We Get From Gross Profit to Net Income? AB114 Unit 7

How Do We Get From Gross Profit to Net Income? Gross profit – operating expenses = net income So a merchandising business has one more step to calculating net income: first calculate gross profit then calculate net income AB114 Unit 7

On What Financial Statement Do Gross Profit And COGS Appear? AB114 Unit 7

On What Financial Statement Do Gross Profit And COGS Appear? Income Statement along with revenues and expenses AB114 Unit 7

What Is Inventory? AB114 Unit 7

1. Current asset 2. Goods on hand for sale What Is Inventory? AB114 Unit 7

The physical goods themselves The cost of the goods to us What Is Inventory? 2 We use the term to mean: The physical goods themselves The cost of the goods to us C. Taking a count of the physical inventory AB114 Unit 7

Don’t confuse price with cost: What Is Inventory? 3 Don’t confuse price with cost: Price: What we SELL the goods for Cost: What we PAID for the goods AB114 Unit 7

On What Financial Statement Does Inventory Appear? AB114 Unit 7

On What Financial Statement Does Inventory Appear? As an asset, inventory appears on the balance sheet AB114 Unit 7

How Do We Calculate COGS? AB114 Unit 7

How Do We Calculate COGS? Under periodic inventory system: COGS: temporary account on income statement close out at end of period to Income Summary account like expense AB114 Unit 7

How Do We Calculate COGS? 2 Under perpetual inventory system: Transfer cost from Inventory to COGS at time of each sale AB114 Unit 7

How Do We Calculate COGS? 3 Under perpetual inventory system: If you need to calculate the ending balance in Inventory (EI): BI + Purchases – COGS = EI AB114 Unit 7

How Do We Calculate COGS? 4 Under periodic inventory system: Transfer cost from Inventory to COGS at end of period AB114 Unit 7

How Do We Calculate COGS? 5 Under periodic inventory system: COGS is just a net figure that appears on the income statement, calculated as follows: AB114 Unit 7

How Do We Calculate COGS? 6 BI (Beginning inventory) +Purchases -Purchase returns and allowances -Purchase discounts +Freight in = COGAS (Cost of goods available for sale) - EI (Ending inventory) = COGS (Cost of goods sold) AB114 Unit 7

How Do We Calculate COGS? 7 You’ll need the formula for Ex 6-4, which uses periodic. Here’s the short version: BI + Purch = COGAS COGAS – EI = COGS AB114 Unit 7

Example Exercise 6-6 Transactions for Buyer and Seller Sievert Co. sold merchandise to Bray Co. on account, $11,500, terms 2/15, n/30. The cost of the merchandise sold is $6,900. Sievert Co. issued a credit memorandum for $900 for merchandise returned and later received the amount due within the discount period. The cost of the merchandise returned was $540. Journalize Sievert Co.’s and Bray Co.’s entries for the payment of the amount due.

Cash ($11,500 – $900 – $212)…………………………….. 10,388 Example Exercise 6-6 (continued) Cash ($11,500 – $900 – $212)…………………………….. 10,388 Sales Discounts [($11,500 – $900) × 2%]…..................... 212 Accounts Receivable—Bray Co ($11,500 – $900)… 10,600 Bray Company Journal Entries: Accounts Payable—Sievert Co. ($11,500 – $900)……... 10,600 Merchandise Inventory [($11,500 – $900) × 2%]…… 212 Cash ($11,500 – $900 – $212)…………….................... 10,388

Questions? :-) AB114 Unit 7