© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
1
Chapter 6
I. This Week
A.
pp. 223 – 233 and Appendix 6A
B. Contrast periodic and perpetual
C. Financial statement preparation
and formulas
II. Fall Break
III. Week After Break
A. pp. 233 – 249
B. Appendix 6B and Appredix 6C
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
2
Chapter 6
I. This Week
A. Chap 5, pp. pp. 200-213
Chap 5, Appendix 5A
Chap 6, pp. 228-233
B. Contrast periodic and perpetual
C. Financial statement preparation
and formulas
II. Fall Break
III. Week After Break
A. Chap 6, pp. 233 – 247
B. Appendix 6A and Appendix 6B
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
3
Chapter 6
I. This Week
A. Chap 5, pp. pp. 200-213
Chap 5, Appendix 5A
Chap 6, pp. 228-233
B. Contrast periodic and perpetual
C. Financial statement preparation
and formulas
II. Fall Break
III. Week After Break
A. Chap 6, pp. 233 – 247
B. Appendix 6A and Appendix 6B
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
4
Contrast Periodic and Perpetual
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
5
Merchandising
periodic
perpetual
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
6
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
7
Merchandising
periodic
perpetual
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
New
Review
8
What’s New?
 new accounts
 new look for transactions
 new details on Income Statement
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
9
New Accounts
Purchases
Merchandise Inventory
goods for resale
Purchase Returns
and Allowances
co$t
contra
Freight-In
“sub”
Purchase Discounts
contra
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
10
New Accounts
Sales
retail
Sales Returns
and Allowances
contra
Sales Discounts
contra
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
11
New Accounts
Cost of Goods Sold
expense
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
12
New Transactions
(buyer’s point of view)
Purchased merchandise from
Seller, Inc., FOB shipping point,
2/10,n/30, $1,000.
Date
Purchases
Merchandise Inventory
Account Title
Ref
Accounts Payable
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
Debit
Credit
1,000
1,000
13
New Transactions
(buyer’s point of view)
Paid Mack Trucking Company for
freight charges, $100.
Date
FreightMerchandise Inventory
In
Cash
Account Title
Ref
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
Debit
Credit
100
100
14
New Transactions
(buyer’s point of view)
Returned $200 of defective goods,
receiving credit.
Date
Account Title
Ref
Accounts Payable
Purchases Returns and
Merchandise Inventory
Allowances
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
Debit
Credit
200
200
15
New Transactions
(buyer’s point of view)
Paid the balance due within the
discount period.
Date
Account Title
Ref
Accounts Payable
Purchase
Merchandise Inventory
Discount
Cash
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
Debit
Credit
800
16
784
16
New Accounts
Purchases
Invoice 1,000
Freight-In
100
Purchase Returns
and Allowances
200
Pur Disc
16
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
17
New Transactions
(seller’s point of view)
Sold merchandise (costing $60) to
Buyer Co., FOB shipping point,
1/10,n/30, $100.
Date
Account Title
Ref
Accounts Receivable
Sales
Cost of Goods Sold
Merchandise Inventory
Debit
Credit
100
100
60
60
Periodic requires only one entry.
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
18
New Transactions
(seller’s point of view)
Issued a credit memo to Buyer for
goods returned, $20 ($12 cost).
Date
Account Title
Ref
Debit
Sales Returns and Allow.
Accounts Receivable
20
Merchandise Inventory
Cost of Goods Sold
12
Credit
20
12
Periodic only requires one entry.
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
19
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.
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
20
Financial Statement Formulas
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
21
Financial Statements
Some Company
Sales ¹Income
Statement
Forof
theGoods
Year Ended
12/31/xx
- Cost
Sold
²
= Gross Profit
Sales
Cost of Goods Sold
GROSS PROFIT
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
$ xxx,xxx
xx,xxx
$
x,xxx
22
¹ “Sales”
means
“net sales”
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
23
New Accounts
Sales
retail
Sales Returns
and Allowances
contra
Sales Discounts
contra
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
24
Financial Statements
Some Company
Income Statement
For the Year Ended 12/31/xx
Sales
Less:
$ xxx,xxx
SR&A x,xxx
S Disc
xxx
x,xxx
Net Sales
$ xxx,xxx
Cost of Goods Sold
xx,xxx
GROSS PROFIT
$
x,xxx
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
25
² Cost of Goods Sold
Beginning Inventory
=
It’s a formula…
Purchases
³
not an account!
Goods Available for Sale
-
Ending Inventory
=
Cost of Goods Sold
+
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
26
“Purchases”
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
27
³ “Purchases”
means
“net purchases”
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
28
New Accounts
Purchases
goods for resale
Purchase Returns
and Allowances
co$t
contra
Freight-In
Purchase Discounts
contra
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
29
³ “Purchases” means
“Net Purchases”
Gregg & Wilson
Purchases
Weygandt, Kieso, Kimmel
Purchases
+
Freight-In
-
Pur Ret & Allow
- Pur Ret & Allow
-
Pur Discounts
- Pur Discounts
=
Net Purchases
= Net Purchases
+ Freight-In
= Cost of Goods Purchased
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
30
New Accounts
Purchases
goods for resale
Purchase Returns
and Allowances
co$t
contra
Freight-In
Purchase Discounts
contra
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
31
³ “Purchases” means
“Net Purchases”
Gregg & Wilson
Purchases
+
=
Go
Pur Ret & Allow
With
Pur Discounts
This!
Net
Purchases
Weygandt, Kieso, Kimmel
Purchases
Freight-In
- Pur Ret & Allow
- Pur Discounts
= Net Purchases
+ Freight-In
= Cost of Goods Purchased
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
32
OUR Company
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
33
Ending
Inventory
Goods
Available
For Sale
Purchases
Cost of
Goods
Sold
Beginning
Inventory
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
34
Ending
Inventory
Goods
Available
For Sale
Purchases
Cost of
Goods
Sold
Beginning
Inventory
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
35
BI
+P
= GAFS
- EI
= COGS
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
36
BI
+P
= GAFS
- EI
= COGS
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
37
To Balance
Sheet
Ending
Inventory
Purchases
GAFS
To Income
COGS
Statement
Beginning
Inventory
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
38
Practice Exercise
© Copyright 1999-2005 by M. Ray Gregg.
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39
Revision
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
40
Revision
January 1 was…
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
41
Revision
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
42
Revision
$22,000
$30,000
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
43
From the list of
accounts in the
handout, prepare
an income
statement through
gross profit.
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
44
Where do
we start?
What’s the
first thing
you do when
you prepare an Income
Statement?
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
45
Cellar Company
Income Statement
For the Year Ended December 31, 20xx
Sales
Less:
$300,000
Sales Returns and Allowances
Sales Discounts
Net Sales
1,500
3,000
4,500
$295,500
Cost of Goods Sold:
Merchandise Inventory, 1/1/xx
$22,000
Purchases
$80,000
Less:
Purchase Returns and Allow
$3,500
Purchase Discounts
6,000
9,500
Net Purchases
$89,500
Add:
Freight-in
4,000
Cost of Goods Purchased
93,500
Goods Available for Sale
$115,500
Less:
Merchandise Inventory, 12/31/xx
-30,000
Cost of Goods Sold
145,500
Gross Profit
$150,000
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
46
Cellar Company
Income Statement
For the Year Ended December 31, 20xx
Sales
Less:
$300,000
Sales Returns and Allowances
Sales Discounts
Net Sales
1,500
3,000
4,500
$295,500
Cost of Goods Sold:
Merchandise Inventory, 1/1/xx
$22,000
Purchases
$80,000
Less:
Purchase Returns and Allow
$3,500
Purchase Discounts
6,000
9,500
Net Purchases
$89,500
Add:
Freight-in
4,000
Cost of Goods Purchased
93,500
Goods Available for Sale
$115,500
Less:
Merchandise Inventory, 12/31/xx
-30,000
Cost of Goods Sold
145,500
Gross Profit
$150,000
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
47
Cellar Company
Income Statement
For the Year Ended December 31, 20xx
Sales
Less:
$300,000
Sales Returns and Allowances
Sales Discounts
Net Sales
1,500
3,000
4,500
$295,500
Cost of Goods Sold:
Merchandise Inventory, 1/1/xx
$22,000
Purchases
$80,000
Less:
Purchase Returns and Allow
$3,500
Purchase Discounts
6,000
9,500
Net Purchases
$89,500
Add:
Freight-in
4,000
Cost of Goods Purchased
93,500
Goods Available for Sale
$115,500
Less:
Merchandise Inventory, 12/31/xx
-30,000
Cost of Goods Sold
145,500
Gross Profit
$150,000
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
48
Cellar Company
Income Statement
For the Year Ended December 31, 20xx
Sales
Less:
$300,000
Sales Returns and Allowances
Sales Discounts
Net Sales
1,500
3,000
4,500
$295,500
Cost of Goods Sold:
Merchandise Inventory, 1/1/xx
$22,000
Purchases
$80,000
Less:
Purchase Returns and Allow
$3,500
Purchase Discounts
6,000
9,500
Net Purchases
$89,500
Add:
Freight-in
4,000
Cost of Goods Purchased
93,500
Goods Available for Sale
$115,500
Less:
Merchandise Inventory, 12/31/xx
-30,000
Cost of Goods Sold
145,500
Gross Profit
$150,000
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
49
Cellar Company
Income Statement
For the Year Ended December 31, 20xx
Sales
Less:
$300,000
Sales Returns and Allowances
Sales Discounts
Net Sales
1,500
3,000
4,500
$295,500
Cost of Goods Sold:
Merchandise Inventory, 1/1/xx
$22,000
Purchases
$80,000
Less:
Purchase Returns and Allow
$3,500
Purchase Discounts
6,000
9,500
Net Purchases
$89,500
Add:
Freight-in
4,000
Cost of Goods Purchased
93,500
Goods Available for Sale
$115,500
Less:
Merchandise Inventory, 12/31/xx
-30,000
Cost of Goods Sold
145,500
Gross Profit
$150,000
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
50
Ending
Inventory
Goods
Available
For Sale
Purchases
Cost of
Goods
Sold
Beginning
Inventory
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
51
BI
+P
= GAFS
- EI
= COGS
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
52
Cellar Company
Income Statement
For the Year Ended December 31, 20xx
Sales
Less:
$300,000
Sales Returns and Allowances
Sales Discounts
Net Sales
1,500
3,000
4,500
$295,500
Cost of Goods Sold:
Merchandise Inventory, 1/1/xx
$22,000
Purchases
$80,000
Less:
Purchase Returns and Allow
$3,500
Purchase Discounts
6,000
9,500
Net Purchases
$89,500
Add:
Freight-in
4,000
Cost of Goods Purchased
93,500
Goods Available for Sale
$115,500
Less:
Merchandise Inventory, 12/31/xx
-30,000
Cost of Goods Sold
145,500
Gross Profit
$150,000
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
53
Cellar Company
Income Statement
For the Year Ended December 31, 20xx
Sales
Less:
$300,000
Sales Returns and Allowances
Sales Discounts
Net Sales
1,500
3,000
4,500
$295,500
Cost of Goods Sold:
Merchandise Inventory, 1/1/xx
$22,000
Purchases
$80,000
Less:
Purchase Returns and Allow
$3,500
Purchase Discounts
6,000
9,500
Net Purchases
$89,500
Add:
Freight-in
4,000
Cost of Goods Purchased
93,500
Goods Available for Sale
$115,500
Less:
Merchandise Inventory, 12/31/xx
-30,000
Cost of Goods Sold
145,500
Gross Profit
$150,000
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
54
Cellar Company
Income Statement
For the Year Ended December 31, 20xx
Sales
Less:
$300,000
Sales Returns and Allowances
Sales Discounts
Net Sales
1,500
3,000
4,500
$295,500
Cost of Goods Sold:
Merchandise Inventory, 1/1/xx
$22,000
Purchases
$80,000
Less:
Purchase Returns and Allow
$3,500
Purchase Discounts
6,000
9,500
Net Purchases
$89,500
Add:
Freight-in
4,000
Cost of Goods Purchased
93,500
Goods Available for Sale
$115,500
Less:
Merchandise Inventory, 12/31/xx
-30,000
Cost of Goods Sold
145,500
Gross Profit
$150,000
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
55
Cellar Company
Income Statement
For the Year Ended December 31, 20xx
Sales
Less:
$300,000
Sales Returns and Allowances
Sales Discounts
1,500
3,000
Net Sales
Cost of Goods Sold:
Merchandise Inventory, 1/1/xx
Purchases
$80,000
Less:
Purchase Returns and Allow
$3,500
Purchase Discounts
6,000
9,500
Net Purchases
$70,500
Add:
Freight-in
4,000
Cost of Goods Purchased
Goods Available for Sale
Less:
Merchandise Inventory, 12/31/xx
Cost of Goods Sold
Gross Profit
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
4,500
$295,500
$22,000
74,500
$96,500
-30,000
126,500
$169,000
56
³ “Purchases” means
“Net Purchases”
Gregg & Wilson
Purchases
+
=
Go
Pur Ret & Allow
With
Pur Discounts
This!
Net
Purchases
Weygandt, Kieso, Kimmel
Purchases
Freight-In
- Pur Ret & Allow
- Pur Discounts
= Net Purchases
+ Freight-In
= Cost of Goods Purchased
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
57
Cellar Company
Income Statement
For the Year Ended December 31, 20xx
Sales
Less:
$300,000
Sales Returns and Allowances
Sales Discounts
1,500
3,000
Net Sales
Cost of Goods Sold:
Merchandise Inventory, 1/1/xx
Purchases
$80,000
Less:
Purchase Returns and Allow
$3,500
Purchase Discounts
6,000
9,500
Net Purchases
$70,500
Add:
Freight-in
4,000
Cost of Goods Purchased
Goods Available for Sale
Less:
Merchandise Inventory, 12/31/xx
Cost of Goods Sold
Gross Profit
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
4,500
$295,500
$22,000
74,500
$96,500
-30,000
126,500
$169,000
58
Cellar Company
Income Statement
For the Year Ended December 31, 20xx
Sales
Less:
$300,000
Sales Returns and Allowances
Sales Discounts
1,500
3,000
Net Sales
Cost of Goods Sold:
Merchandise Inventory, 1/1/xx
Purchases
$80,000
Less:
Purchase Returns and Allow
$3,500
Purchase Discounts
6,000
9,500
Net Purchases
$70,500
Add:
Freight-in
4,000
Cost of Goods Purchased
Goods Available for Sale
Less:
Merchandise Inventory, 12/31/xx
Cost of Goods Sold
Gross Profit
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
4,500
$295,500
$22,000
74,500
$96,500
-30,000
126,500
$169,000
59
BI
+P
= GAFS
- EI
= COGS
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
60
Cellar Company
Income Statement
For the Year Ended December 31, 20xx
Sales
Less:
$300,000
Sales Returns and Allowances
Sales Discounts
1,500
3,000
Net Sales
Cost of Goods Sold:
Merchandise Inventory, 1/1/xx
Purchases
$80,000
Less:
Purchase Returns and Allow
$3,500
Purchase Discounts
6,000
9,500
Net Purchases
$70,500
Add:
Freight-in
4,000
Cost of Goods Purchased
Goods Available for Sale
Less:
Merchandise Inventory, 12/31/xx
Cost of Goods Sold
Gross Profit
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
4,500
$295,500
$22,000
74,500
$96,500
-30,000
126,500
$169,000
61
Cellar Company
Income Statement
For the Year Ended December 31, 20xx
Sales
Less:
$300,000
Sales Returns and Allowances
Sales Discounts
1,500
3,000
Net Sales
Cost of Goods Sold:
Merchandise Inventory, 1/1/xx
Purchases
$80,000
Less:
Purchase Returns and Allow
$3,500
Purchase Discounts
6,000
9,500
Net Purchases
$70,500
Add:
Freight-in
-4,000
Cost of Goods Purchased
Goods Available for Sale
Less:
Merchandise Inventory, 12/31/xx
Cost of Goods Sold
© Copyright 1999-2005 by M. Ray Gregg.
Gross Profit
All Rights Reserved.
4,500
$295,500
$22,000
66,500
$88,500
30,000
58,500
$237,000
62
Cellar Company
Income Statement
For the Year Ended December 31, 20xx
Sales
Less:
$300,000
Sales Returns and Allowances
Sales Discounts
1,500
3,000
Net Sales
Cost of Goods Sold:
Merchandise Inventory, 1/1/xx
Purchases
$80,000
Less:
Purchase Returns and Allow
$3,500
Purchase Discounts
6,000
9,500
Net Purchases
$70,500
Add:
Freight-in
4,000
Cost of Goods Purchased
Goods Available for Sale
Less:
Merchandise Inventory, 12/31/xx
Cost of Goods Sold
Gross Profit
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
4,500
$295,500
$22,000
74,500
$96,500
30,000
66,500
$229,000
63
Cellar Company
Income Statement
For the Year Ended December 31, 20xx
Sales
Less:
Net Sales
BI
+P
= GAFS
- EI
= COGS
Sales Returns and Allowances
Sales Discounts
Cost of Goods Sold:
Merchandise Inventory, 1/1/xx
Purchases
$80,000
Less:
Purchase Returns and Allow
$3,500
Purchase Discounts
6,000
9,500
Net Purchases
$70,500
Add:
Freight-in
4,000
Cost of Goods Purchased
Goods Available for Sale
Less:
Merchandise Inventory, 12/31/xx
Cost of Goods Sold
Gross Profit
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
$300,000
1,500
3,000
4,500
$295,500
$22,000
74,500
$96,500
30,000
66,500
$229,000
64
Cellar Company
Income Statement
For the Year Ended December 31, 20xx
Sales
Less:
$300,000
Sales Returns and Allowances
Sales Discounts
1,500
3,000
Net Sales
Cost of Goods Sold:
Merchandise Inventory, 1/1/xx
Purchases
$80,000
Less:
Purchase Returns and Allow
$3,500
Purchase Discounts
6,000
9,500
Net Purchases
$70,500
Add:
Freight-in
4,000
Cost of Goods Purchased
Goods Available for Sale
Less:
Merchandise Inventory, 12/31/xx
Cost of Goods Sold
© Copyright 1999-2005 by M. Ray Gregg.
Gross Profit
All Rights Reserved.
4,500
$295,500
$22,000
74,500
$96,500
30,000
66,500
$229,000
65
Who learned
something
today?
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
66
Have a
great
day…
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
67
…a great
week…
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
68
… and a
FABULOUS
fall break!
© Copyright 1999-2005 by M. Ray Gregg.
All Rights Reserved.
69