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Aaa co uses a periodic inventory system12/24/2023 ![]() ![]() Determine the amount of inventory and cost of sales under: a. Prepare the necessary journal entries under the following systems: a. At the end of the year, physical count revealed that 300 units were on hand Required: 1. ![]() ![]() Sold on account 2,300 units of inventory for P30 per unit 6. Purchased on account 2,000 units of inventory at P10 per unit 5. Sold on account 1,750 units of inventory for P30 per unit 4. Returned 10 units to the supplier due to damages 3. ![]() Purchased on account 1,000 units of inventory at P10 per unit and paid freight of P1,500 2. The following chronological transactions transpired during the year: 1. Credited – Purchase returns, allowances, and discounts 2 entries are made: (1) sale and (2) cost related to the sale To determine the accuracy of accounting records Inventory – ending balance Cost of goods sold Loss on inventory shortage Treatment of inventory shortage or overage Normal losses Abnormal losses Journal entries Transactions Purchases on account Freight-in Purchase returns, allowances and discounts Sales Sales returns Sales allowance and discount Inventory shortages (normal) Closing entries related to inventory Periodic inventory system Cost of sales Cost of sales Periodic inventory system Purchases xx Accounts payable Freight-in xx Accounts payable Accounts payable xx Purchase return/allowance/discount Accounts receivable xx Sales Sales return Accounts receivable xx Sales allowance/discount Accounts receivable No entry xx Inventory, end Cost of sales Cost of sales Purchase return/allowance/discount Purchases Freight-in Inventory, beginning xx xx xx Perpetual inventory system Cost of sales Other operating expense xx xx xx xx xx xx Perpetual inventory system Inventory xx Accounts payable Inventory xx Accounts payable Accounts payable xx Inventory Accounts receivable Sales Cost of sales Inventory Sales return Accounts receivable Inventory Cost of sales Sales allowance/discount Accounts receivable Loss on inventory shortage Inventory xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx No entry is necessary xx xx xx xx PROBLEM 1 At the beginning of the current year, AAA Company has 1,500 inventories costing P10 per unit. Recorded directly to the inventory account. With this, the entity would know inventory on hand at a particular point in time. Financial Accounting and Reporting: INVENTORIES (Part 2) LOGO HERE INVENTORIES SYSTEMS OF ACCOUNTING FOR INVENTORIES Periodic inventory system Commonly used for high-volume, low value inventory items Updated only when financial statements are prepared Use of the system Inventory account Recording purchases, freight-in, purchase returns, allowances, and discounts Recorded using nominal accounts (Purchases, Freight-in, Purchase returns, allowances, and discounts) Recording sales transactions Only the sale transaction is recorded Objective of physical count To determine the amount of inventory and cost of goods sold to be reported in financial statements Inventory – beginning balance Items presented in the unadjusted trial balance Perpetual inventory system Commonly used for low-volume, high value inventory items Updated using stock cards for every transaction affecting inventory items. ![]()
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