Copyright © 1999, 2002 by M. Ray Gregg.

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Copyright © 1999, 2002 by M. Ray Gregg.

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Chapter 6

I.This WeekA. pp. 223 – 233 and

Appendix 6A

B. Contrast periodic and perpetual

C. Financial statement preparation and formulas

II.Fall Break

III.Week After BreakA. pp. 233 – 249

B. Appendix 6B and Appredix 6C

Copyright © 1999, 2002 by M. Ray Gregg.

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Chapter 6

I.This WeekA. pp. 223 – 233 and

Appendix 6A

B. Contrast periodic and perpetual

C. Financial statement preparation and formulas

II.Fall Break

III.Week After BreakA. pp. 233 – 249

B. Appendix 6B and Appredix 6C

Copyright © 1999, 2002 by M. Ray Gregg.

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Chapter 6

I.This WeekA. pp. 223 – 233 and

Appendix 6A

B. Contrast periodic and perpetual

C. Financial statement preparation and formulas

II.Fall Break

III.Week After BreakA. pp. 233 – 249

B. Appendix 6B and Appendix 6C

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Contrast Periodic and Perpetual

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Merchandising

periodic

perpetual

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Merchandising

periodic

perpetual Review

New

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What’s New?

new accounts new look for transactions new details on Income Statement

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New Accounts

Merchandise Inventory

goods for resale

co$t

Purchases

Purchase Returns and Allowances

Purchase Discounts

contra

contra

Freight-In

“sub”

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New Accounts

Sales

retailSales Returns and Allowances

Sales Discounts

contra

contra

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New Accounts

Cost of Goods Sold

expense

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New Transactions(buyer’s point of view)

Purchased merchandise from Seller, Inc., FOB shipping point, 2/10,n/30, $1,000.

Date Account Title Ref Debit Credit

Merchandise Inventory 1,000

1,000Accounts Payable

Purchases

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New Transactions(buyer’s point of view)

Paid Mack Trucking Company for freight charges, $100.

Date Account Title Ref Debit Credit

Merchandise Inventory 100

100Cash

Freight-In

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New Transactions(buyer’s point of view)

Returned $200 of defective goods, receiving credit.

Date Account Title Ref Debit Credit

Merchandise Inventory

200

200

Accounts PayablePurchases Returns and Allowances

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New Transactions(buyer’s point of view)

Paid the balance due within the discount period.

Date Account Title Ref Debit Credit

Accounts Payable

Merchandise Inventory

800

16

Cash 784

Purchase Discount

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New Accounts

Purchases

Invoice 1,000

Freight-In100 Pur Disc

16

Purchase Returns and Allowances

200

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Sold merchandise (costing $60) to Buyer Co., FOB shipping point, 1/10,n/30, $100.

New Transactions(seller’s point of view)

Accounts Receivable 100

100Sales

Date Account Title Ref Debit Credit

Periodic requires only one entry.

Cost of Goods Sold

Merchandise Inventory

60

60

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Issued a credit memo to Buyer for goods returned, $20 ($12 cost).

New Transactions(seller’s point of view)

Sales Returns and Allow. 20

20Accounts Receivable

Date Account Title Ref Debit Credit

Periodic only requires one entry.

Merchandise Inventory

Cost of Goods Sold

12

12

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Summary of Periodic

• PURCHASES account is debited when goods are acquired.

• SALES is credited to record the sales price of the goods sold, but no entry is made to reduce inventory

• THEREFORE• Must COMPUTE Cost of Goods Sold in

order to find Net Income.

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Financial Statement Formulas

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Financial StatementsSome Company

Income StatementFor the Year Ended 12/31/xx

Sales $ xxx,xxx

Cost of Goods Sold xx,xxx

GROSS PROFIT $ x,xxx

Sales ¹- Cost of Goods Sold ²= Gross Profit

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¹ “Sales”means

“net sales”

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New Accounts

Sales

retailSales Returns and Allowances

Sales Discounts

contra

contra

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Financial StatementsSome Company

Income StatementFor the Year Ended 12/31/xx

Sales $ xxx,xxx

Less: SR&A x,xxx

S Disc xxx x,xxx

Net Sales $ xxx,xxx

Cost of Goods Sold xx,xxx

GROSS PROFIT $ x,xxx

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² Cost of Goods Sold

Beginning Inventory

+ Purchases ³

= Goods Available for Sale

- Ending Inventory

= Cost of Goods Sold

It’s a formula…not an account!

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“Purchases”

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³ “Purchases”means

“net purchases”

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New Accounts

Purchases

goods for resale

co$t

Purchase Returns and Allowances

Purchase Discounts

contra

contra

Freight-In

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³ “Purchases” means“Net Purchases”

Gregg & Wilson

Purchases

+ Freight-In

- Pur Ret & Allow

- Pur Discounts

= Net Purchases

Weygandt, Kieso, Kimmel

Purchases

- Pur Ret & Allow

- Pur Discounts

= Net Purchases

+ Freight-In

= Cost of Goods Purchased

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New Accounts

Purchases

goods for resale

co$t

Purchase Returns and Allowances

Purchase Discounts

contra

contra

Freight-In

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³ “Purchases” means“Net Purchases”

Gregg & Wilson

Purchases

+ Freight-In

- Pur Ret & Allow

- Pur Discounts

= Net Purchases

Weygandt, Kieso, Kimmel

Purchases

- Pur Ret & Allow

- Pur Discounts

= Net Purchases

+ Freight-In

= Cost of Goods Purchased

GoWithThis!

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OUR Company

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BeginningInventory

PurchasesGoodsAvailableFor Sale

EndingInventory

Cost ofGoodsSold

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BeginningInventory

PurchasesGoodsAvailableFor Sale

EndingInventory

Cost ofGoodsSold

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B I+P =GAFS

- EI

=COGS

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B I+P =GAFS

- EI

=COGS

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BeginningInventory

Purchases

GAFS

EndingInventory

COGS

To Balance Sheet

To IncomeStatement

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Practice Exercise

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From the list of accounts in the handout, prepare an income statement through gross profit.

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Where dowe start?

What’s thefirst thingyou do whenyou prepare an Income Statement?

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Cellar CompanyIncome Statement

For the Year Ended December 31, 20xx

Sales $300,000Less: Sales Returns and Allowances 1,500

Sales Discounts 3,000 4,500Net Sales $295,500

Cost of Goods Sold:Merchandise Inventory, 1/1/xx $22,000Purchases $80,000Less: Purchase Returns and Allow $3,500

Purchase Discounts 6,000 9,500Net Purchases $89,500Add: Freight-in 4,000Cost of Goods Purchased 93,500Goods Available for Sale $115,500Less: Merchandise Inventory, 12/31/xx -30,000Cost of Goods Sold 145,500Gross Profit $150,000

Copyright © 1999, 2002 by M. Ray Gregg.

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Cellar CompanyIncome Statement

For the Year Ended December 31, 20xx

Sales $300,000Less: Sales Returns and Allowances 1,500

Sales Discounts 3,000 4,500Net Sales $295,500

Cost of Goods Sold:Merchandise Inventory, 1/1/xx $22,000Purchases $80,000Less: Purchase Returns and Allow $3,500

Purchase Discounts 6,000 9,500Net Purchases $89,500Add: Freight-in 4,000Cost of Goods Purchased 93,500Goods Available for Sale $115,500Less: Merchandise Inventory, 12/31/xx -30,000Cost of Goods Sold 145,500Gross Profit $150,000

Copyright © 1999, 2002 by M. Ray Gregg.

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Cellar CompanyIncome Statement

For the Year Ended December 31, 20xx

Sales $300,000Less: Sales Returns and Allowances 1,500

Sales Discounts 3,000 4,500Net Sales $295,500

Cost of Goods Sold:Merchandise Inventory, 1/1/xx $22,000Purchases $80,000Less: Purchase Returns and Allow $3,500

Purchase Discounts 6,000 9,500Net Purchases $89,500Add: Freight-in 4,000Cost of Goods Purchased 93,500Goods Available for Sale $115,500Less: Merchandise Inventory, 12/31/xx -30,000Cost of Goods Sold 145,500Gross Profit $150,000

Copyright © 1999, 2002 by M. Ray Gregg.

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Cellar CompanyIncome Statement

For the Year Ended December 31, 20xx

Sales $300,000Less: Sales Returns and Allowances 1,500

Sales Discounts 3,000 4,500Net Sales $295,500

Cost of Goods Sold:Merchandise Inventory, 1/1/xx $22,000Purchases $80,000Less: Purchase Returns and Allow $3,500

Purchase Discounts 6,000 9,500Net Purchases $89,500Add: Freight-in 4,000Cost of Goods Purchased 93,500Goods Available for Sale $115,500Less: Merchandise Inventory, 12/31/xx -30,000Cost of Goods Sold 145,500Gross Profit $150,000

Copyright © 1999, 2002 by M. Ray Gregg.

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Cellar CompanyIncome Statement

For the Year Ended December 31, 20xx

Sales $300,000Less: Sales Returns and Allowances 1,500

Sales Discounts 3,000 4,500Net Sales $295,500

Cost of Goods Sold:Merchandise Inventory, 1/1/xx $22,000Purchases $80,000Less: Purchase Returns and Allow $3,500

Purchase Discounts 6,000 9,500Net Purchases $89,500Add: Freight-in 4,000Cost of Goods Purchased 93,500Goods Available for Sale $115,500Less: Merchandise Inventory, 12/31/xx -30,000Cost of Goods Sold 145,500Gross Profit $150,000

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BeginningInventory

PurchasesGoodsAvailableFor Sale

EndingInventory

Cost ofGoodsSold

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B I+P =GAFS

- EI

=COGS

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Cellar CompanyIncome Statement

For the Year Ended December 31, 20xx

Sales $300,000Less: Sales Returns and Allowances 1,500

Sales Discounts 3,000 4,500Net Sales $295,500

Cost of Goods Sold:Merchandise Inventory, 1/1/xx $22,000Purchases $80,000Less: Purchase Returns and Allow $3,500

Purchase Discounts 6,000 9,500Net Purchases $89,500Add: Freight-in 4,000Cost of Goods Purchased 93,500Goods Available for Sale $115,500Less: Merchandise Inventory, 12/31/xx -30,000Cost of Goods Sold 145,500Gross Profit $150,000

Copyright © 1999, 2002 by M. Ray Gregg.

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Cellar CompanyIncome Statement

For the Year Ended December 31, 20xx

Sales $300,000Less: Sales Returns and Allowances 1,500

Sales Discounts 3,000 4,500Net Sales $295,500

Cost of Goods Sold:Merchandise Inventory, 1/1/xx $22,000Purchases $80,000Less: Purchase Returns and Allow $3,500

Purchase Discounts 6,000 9,500Net Purchases $89,500Add: Freight-in 4,000Cost of Goods Purchased 93,500Goods Available for Sale $115,500Less: Merchandise Inventory, 12/31/xx -30,000Cost of Goods Sold 145,500Gross Profit $150,000

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Cellar CompanyIncome Statement

For the Year Ended December 31, 20xx

Sales $300,000Less: Sales Returns and Allowances 1,500

Sales Discounts 3,000 4,500Net Sales $295,500

Cost of Goods Sold:Merchandise Inventory, 1/1/xx $22,000Purchases $80,000Less: Purchase Returns and Allow $3,500

Purchase Discounts 6,000 9,500Net Purchases $89,500Add: Freight-in 4,000Cost of Goods Purchased 93,500Goods Available for Sale $115,500Less: Merchandise Inventory, 12/31/xx -30,000Cost of Goods Sold 145,500Gross Profit $150,000

Copyright © 1999, 2002 by M. Ray Gregg.

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Cellar CompanyIncome Statement

For the Year Ended December 31, 20xx

Sales $300,000Less: Sales Returns and Allowances 1,500

Sales Discounts 3,000 4,500Net Sales $295,500

Cost of Goods Sold:Merchandise Inventory, 1/1/xx $22,000Purchases $80,000Less: Purchase Returns and Allow $3,500

Purchase Discounts 6,000 9,500Net Purchases $70,500Add: Freight-in 4,000Cost of Goods Purchased 74,500Goods Available for Sale $96,500Less: Merchandise Inventory, 12/31/xx -30,000Cost of Goods Sold 126,500Gross Profit $169,000

Copyright © 1999, 2002 by M. Ray Gregg.

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³ “Purchases” means“Net Purchases”

Gregg & Wilson

Purchases

+ Freight-In

- Pur Ret & Allow

- Pur Discounts

= Net Purchases

Weygandt, Kieso, Kimmel

Purchases

- Pur Ret & Allow

- Pur Discounts

= Net Purchases

+ Freight-In

= Cost of Goods Purchased

GoWithThis!

Copyright © 1999, 2002 by M. Ray Gregg.

All Rights Reserved. 54

Cellar CompanyIncome Statement

For the Year Ended December 31, 20xx

Sales $300,000Less: Sales Returns and Allowances 1,500

Sales Discounts 3,000 4,500Net Sales $295,500

Cost of Goods Sold:Merchandise Inventory, 1/1/xx $22,000Purchases $80,000Less: Purchase Returns and Allow $3,500

Purchase Discounts 6,000 9,500Net Purchases $70,500Add: Freight-in 4,000Cost of Goods Purchased 74,500Goods Available for Sale $96,500Less: Merchandise Inventory, 12/31/xx -30,000Cost of Goods Sold 126,500Gross Profit $169,000

Copyright © 1999, 2002 by M. Ray Gregg.

All Rights Reserved. 55

Cellar CompanyIncome Statement

For the Year Ended December 31, 20xx

Sales $300,000Less: Sales Returns and Allowances 1,500

Sales Discounts 3,000 4,500Net Sales $295,500

Cost of Goods Sold:Merchandise Inventory, 1/1/xx $22,000Purchases $80,000Less: Purchase Returns and Allow $3,500

Purchase Discounts 6,000 9,500Net Purchases $70,500Add: Freight-in 4,000Cost of Goods Purchased 74,500Goods Available for Sale $96,500Less: Merchandise Inventory, 12/31/xx -30,000Cost of Goods Sold 126,500Gross Profit $169,000

Copyright © 1999, 2002 by M. Ray Gregg.

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B I+P =GAFS

- EI

=COGS

Copyright © 1999, 2002 by M. Ray Gregg.

All Rights Reserved. 57

Cellar CompanyIncome Statement

For the Year Ended December 31, 20xx

Sales $300,000Less: Sales Returns and Allowances 1,500

Sales Discounts 3,000 4,500Net Sales $295,500

Cost of Goods Sold:Merchandise Inventory, 1/1/xx $22,000Purchases $80,000Less: Purchase Returns and Allow $3,500

Purchase Discounts 6,000 9,500Net Purchases $70,500Add: Freight-in 4,000Cost of Goods Purchased 74,500Goods Available for Sale $96,500Less: Merchandise Inventory, 12/31/xx -30,000Cost of Goods Sold 126,500Gross Profit $169,000

Copyright © 1999, 2002 by M. Ray Gregg.

All Rights Reserved. 58

Cellar CompanyIncome Statement

For the Year Ended December 31, 20xx

Sales $300,000Less: Sales Returns and Allowances 1,500

Sales Discounts 3,000 4,500Net Sales $295,500

Cost of Goods Sold:Merchandise Inventory, 1/1/xx $22,000Purchases $80,000Less: Purchase Returns and Allow $3,500

Purchase Discounts 6,000 9,500Net Purchases $70,500Add: Freight-in -4,000Cost of Goods Purchased 66,500Goods Available for Sale $88,500Less: Merchandise Inventory, 12/31/xx 30,000Cost of Goods Sold 58,500Gross Profit $237,000

Copyright © 1999, 2002 by M. Ray Gregg.

All Rights Reserved. 59

Cellar CompanyIncome Statement

For the Year Ended December 31, 20xx

Sales $300,000Less: Sales Returns and Allowances 1,500

Sales Discounts 3,000 4,500Net Sales $295,500

Cost of Goods Sold:Merchandise Inventory, 1/1/xx $22,000Purchases $80,000Less: Purchase Returns and Allow $3,500

Purchase Discounts 6,000 9,500Net Purchases $70,500Add: Freight-in 4,000Cost of Goods Purchased 74,500Goods Available for Sale $96,500Less: Merchandise Inventory, 12/31/xx 30,000Cost of Goods Sold 66,500Gross Profit $229,000

Copyright © 1999, 2002 by M. Ray Gregg.

All Rights Reserved. 60

Cellar CompanyIncome Statement

For the Year Ended December 31, 20xx

Sales $300,000Less: Sales Returns and Allowances 1,500

Sales Discounts 3,000 4,500Net Sales $295,500

Cost of Goods Sold:Merchandise Inventory, 1/1/xx $22,000Purchases $80,000Less: Purchase Returns and Allow $3,500

Purchase Discounts 6,000 9,500Net Purchases $70,500Add: Freight-in 4,000Cost of Goods Purchased 74,500Goods Available for Sale $96,500Less: Merchandise Inventory, 12/31/xx 30,000Cost of Goods Sold 66,500Gross Profit $229,000

B I+P =GAFS

- EI

=COGS

Copyright © 1999, 2002 by M. Ray Gregg.

All Rights Reserved. 61

Cellar CompanyIncome Statement

For the Year Ended December 31, 20xx

Sales $300,000Less: Sales Returns and Allowances 1,500

Sales Discounts 3,000 4,500Net Sales $295,500

Cost of Goods Sold:Merchandise Inventory, 1/1/xx $22,000Purchases $80,000Less: Purchase Returns and Allow $3,500

Purchase Discounts 6,000 9,500Net Purchases $70,500Add: Freight-in 4,000Cost of Goods Purchased 74,500Goods Available for Sale $96,500Less: Merchandise Inventory, 12/31/xx 30,000Cost of Goods Sold 66,500Gross Profit $229,000

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Who learnedsomething

today?

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Have agreatday…

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…a greatweek!