Perpetual System

‫ت‬ ‫ت‬
Sales‫سجيل عمليات البيع‬ Purchases‫سجيل عمليات الشراء‬
Sales Purchases
Accounts receivable xx Merchandise Inventory xx
Sales revenue xx Accounts Payable xx
--------------------- ☺☺ ---------------------
Cost of Goods sold xx Purchase Return
Merchandise Inventory xx Accounts Payable XX
--------------------- ☺☺ --------------------- Merchandise Inventory XX
Sales Return --------------------- ☺☺ ---------------------
Sales return and allowance xx Payment within Credit period
Accounts receivable xx Accounts payable xx
Merchandise inventory xx
Merchandise inventory xx Cash xx
cost of Goods sold xx --------------------- ☺☺ ---------------------
--------------------- ☺☺ --------------------- Payment out Credit period
Collection Within credit period Accounts payable xx
Cash xx Cash xx
Sales discount xx --------------------- ☺☺ ---------------------
Accounts receivable xx Payment of Freight charge
--------------------- ☺☺ --------------------- Merchandise Inventory xx
Collection out credit period Cash xx
Cash xx
Accounts receivable xx
--------------------- ☺☺ ---------------------
Payment of Freight charge
Delivery Expense xx
Cash xx
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Solution

(a) June 1 Inventory ...................................................... 1,600

Accounts Payable ................................ 1,600

3 Accounts Receivable .................................. 2,500

Sales Revenue ..................................... 2,500

Cost of Goods Sold ..................................... 1,440

Inventory .............................................. 1,440

6 Accounts Payable ....................................... 100

Inventory .............................................. 100

9 Accounts Payable ($1,600 – $100) ............. 1,500

Inventory
($1,500 X .02) .................................... 30
Cash...................................................... 1,470

15 Cash ............................................................. 2,500

Accounts Receivable ........................... 2,500

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17 Accounts Receivable ..................................................... 1,800
Sales Revenue ..................................... 1,800

Cost of Goods Sold ..................................... 1,080

Inventory .............................................. 1,080

20 Inventory ...................................................... 1,800

Accounts Payable ................................ 1,800

24 Cash ............................................................. 1,764

Sales Discounts ($1,800 X .02) ................... 36
Accounts Receivable ........................... 1,800

26 Accounts Payable ....................................... 1,800

Inventory
($1,800 X .02) .................................... 36
Cash...................................................... 1,764

June 28 Accounts Receivable .................................. 1,600

Sales Revenue ..................................... 1,600

Cost of Goods Sold ..................................... 970

Inventory .............................................. 970

30 Sales Returns and Allowances................... 120

Accounts Receivable ........................... 120

Inventory ...................................................... 72
Cost of Goods Sold ............................. 72

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Under a Periodic System

Problem:
Waller Brothers Supply uses a periodic inventory system. During May, the following transactions and
events occurred.
May 13 Purchased 6 motors at a cost of $44 each from Ord Company, terms 1/10, n/30. The motors cost
Ord Company $25 each.
May 16 Returned 1 defective motor to Ord.
May 23 Paid Ord Company in full.
Instructions
Journalize the May transactions for Waller Brothers. You may omit explanations.

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Sales Discount
Contra-revenue account (debit) to Sales Revenue.

Adjusting Entries
Generally the same as a service company.
One additional adjustment to make the records agree with the actual
inventory on hand.
Involves adjusting Inventory and Cost of Goods Sold.
--------------------------------------  --------------------------------------
Illustration: Suppose that PW Audio Supply has an unadjusted balance of $40,500 in
Merchandise Inventory. Through a physical count, PW Audio determines that its actual
merchandise inventory at year-end is $40,000. The company would make an adjusting
entry as follows.

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Closing Entries

DO IT! 4
The trial balance of Celine’s Sports Wear Shop at December 31 shows Inventory $25,000, Sales Revenue $162,400,
Sales Returns and Allowances $4,800, Sales Discounts $3,600, Cost of Goods Sold $110,000, Rent Revenue $6,000,
Freight-Out $1,800, Rent Expense $8,800, and Salaries and Wages Expense $22,000. Prepare the closing entries for the
above accounts.
Solution

--------------------------------------  ------------------------------------

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(a) Cost of Goods Sold ............................................................ 1,400
Inventory..................................................................... 1,400

(b) Sales Revenue .................................................................... 115,000

Income Summary ....................................................... 115,000

Income Summary ................................................................ 93,300

Cost of Goods Sold ($60,000 + $1,400) .................... 61,400
Operating Expenses .................................................. 29,000
Sales Returns and Allowances ................................. 1,700
Sales Discounts ......................................................... 1,200

Income Summary ($115,000 – $93,300)............................. 21,700

Owner’s Capital.......................................................... 21,700

--------------------------------------  ------------------------------------

Solution
(a) Cost of Goods Sold ...................................................... 600
Inventory ............................................................... 600

(b) Sales Revenue .............................................................. 380,000

Income Summary ................................................. 380,000

Income Summary ......................................................... 335,600

Cost of Goods Sold ($218,000 + $600) ............... 218,600
Freight-Out ........................................................... 7,000
Insurance Expense .............................................. 12,000
Rent Expense ....................................................... 20,000
Salaries and Wages Expense ............................. 55,000
Sales Discounts ................................................... 10,000
Sales Returns and Allowances ........................... 13,000
Income Summary ($380,000 – $335,600) .................... 44,400
Owner’s Capital .................................................... 44,400

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--------------------------------------  ------------------------------------

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(a) ANHAD COMPANY
Income Statement
For the Year Ended December 31, 2017

Net sales .............................................. $2,200,000

Cost of goods sold ............................. 1,289,000
Gross profit ......................................... 911,000
Operating expenses ............................ 725,000
Income from operations ..................... 186,000
Other revenues and gains
Interest revenue........................... $28,000
Other expenses and losses
Interest expense .......................... $70,000
Loss on disposal of plant
assets ........................................ 17,000 87,000 59,000
Net income .......................................... $ 127,000

(b) ANHAD COMPANY

Income Statement
For the Year Ended December 31, 2017

Revenues
Net sales ............................................. $2,200,000
Interest revenue.................................. 28,000
Total revenues ............................ 2,228,000
Expenses
Cost of goods sold ............................. $1,289,000
Operating expenses ........................... 725,000
Interest expense ................................. 70,000
Loss on disposal of plant assets ...... 17,000
Total expenses ............................ 2,101,000
Net income ................................................. $ 127,000
--------------------------------------  ------------------------------------

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Solution

(a) KAILA COMPANY

Income Statement
For the Month Ended March 31, 2017

Sales revenues
Sales revenue ................................................... $380,000
Less: Sales returns and allowances .............. $13,000
Sales discounts .................................... 8,000 21,000
Net sales ........................................................... 359,000
Cost of goods sold ............................................... 215,000
Gross profit ........................................................... 144,000
Operating expenses
Salaries and wages expense ........................... 58,000
Rent expense .................................................... 30,000
Freight-out ........................................................ 7,000
Insurance expense ........................................... 6,000
Total operating expenses ..................... 101,000
Net income ....................................................... $ 43,000
(b) Gross profit rate = $144,000 ÷ $359,000 = 40.11%.
--------------------------------------  ------------------------------------
1. Gross profit will result if:
(a) Operating expenses are less than net income. Test your self
(b) sales revenues are greater than operating expenses.
(c) sales revenues are greater than cost of goods sold.
(d) operating expenses are greater than cost of goods sold.

2. Under a perpetual inventory system, when goods are purchased for resale by a company:
(a) purchases on account are debited to Inventory.
(b) purchases on account are debited to Purchases.
(c) purchase returns are debited to Purchase Returns and Allowances.
(d) freight costs are debited to Freight-Out.

4. A credit sale of $750 is made on June 13, terms 2/10, net/30. A return of $50 is granted on June 16. The amount
received as payment in full on June 23 is:
(a) $700. (c) $685.
(b) $686. (d) $650.

5. Which of the following accounts will normally appear in the ledger of a merchandising company that uses a perpetual
inventory system?
(a) Purchases. (c) Cost of Goods Sold.
(b) Freight-In. (d) Purchase Discounts.

7. The steps in the accounting cycle for a merchandising company are the same as those in a service company except:
(a) an additional adjusting journal entry for inventory may be needed in a merchandising company.
(b) closing journal entries are not required for a merchandising company.
(c) a post-closing trial balance is not required for a merchandising company.
(d) a multiple-step income statement is required for a merchandising company.

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