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

2. 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

3. 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

4. 10/1Account Payable ………………….….... …….3,000 Cash……………………………..………..3,000 paid amount owed to Okawa Wholesale Co.

5. 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

6. 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

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

8. 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?

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

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

11. 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

12. 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?

13. 3/5 Cost of Goods Sold ……………1,500 Inventory ………………………1,500 to adjust inventory records to reflect results of physical count

14. 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