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

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

3. Reading, Help & Contact Reading: Accounting, Chapter 6
Authors: Warren, Reeve, and Duchac
Tech Support (or free online)
Contact info:
AIM: LFCCEconinstruct (sign up for AIM at
Office Hours: Thursdays 7-9 PM ET
When ing, please include your full name & course number (AB114)
AB114 Unit 7

4. 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 (*) :-)

5. 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

6. 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

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! :-)
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8. For Every Journal Entry Debits MUST Equal Credits!
Homework Assignment
Reminder:
For Every Journal Entry
Debits MUST Equal Credits!
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9. 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! :-)
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10. Accounting for a Merchandising Business
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11. What is Merchandise?
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12. Goods that a business sells
What is Merchandise?
Goods that a business sells
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13. What is the “Cost of Merchandise Sold?”
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14. 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
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15. 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
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16. What is Gross Profit?
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17. Sales revenue minus COGS
What is Gross Profit?
Sales revenue minus COGS
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18. How Do We Get From Gross Profit to Net Income?
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19. 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
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20. On What Financial Statement Do Gross Profit And COGS Appear?
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21. On What Financial Statement Do Gross Profit And COGS Appear?
Income Statement
along with revenues and expenses
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22. What Is Inventory?
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23. 1. Current asset 2. Goods on hand for sale What Is Inventory?
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24. 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
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25. 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
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26. On What Financial Statement Does Inventory Appear?
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27. On What Financial Statement Does Inventory Appear?
As an asset, inventory appears on the
balance sheet
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28. How Do We Calculate COGS?
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29. 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
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30. How Do We Calculate COGS? 2
Under perpetual inventory system:
Transfer cost from Inventory to COGS at time of each sale
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31. 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
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32. How Do We Calculate COGS? 4
Under periodic inventory system:
Transfer cost from Inventory to COGS at end of period
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33. 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:
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34. 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)
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35. 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
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36. 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.

37. 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%]…
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)…………… ,388

38. Questions? :-)
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