| Chapter 6 Inventory * goods that are purchased for the purpose of resale to customers * a relatively liquid asset b/c its sold so quickly Operating Cycle 1. Purchases of Merchandise 2. Sales of merchandise, often on account (3) Collection of the receivables Manufacturers � manufacture their own inventories Merchandisers Retailer � sells merchandise directly to the public Wholesaler � buys large quantities of merchandise for several manufacturers and then resells this merchandise to many different retailers. Income Statement * Cost of Goods Sold � expense � amount the company paid for the goods sold to their customers * Gross Profit � difference between revenue from sales and cost of goods sold Subsidiary Ledger Accounts * Subsidiary Ledger � contains separate accounts for each of the items making up: * Controlling Account � summarizes the content of a subsidiary ledger * Examples: Controlling Subsidiary Accounts Payable/Receivable Wood Things Inc, John Smith, Karen Potter Inventory Chairs, Desks, Bookshelves Capital Stock Owner A, Owner B, (and Stockholders) Perpetual Inventory System -Merchandising Transactions are recorded immediately as they occur. * Purchases: Dr Inventory, Cr Accts Payable or Cash * Sales: Dr Accounts Receivable or Cash, Cr Sales (price the customer paid) Dr Cost of Goods Sold, Cr Inventory (price you paid) The Inventory Subsidiary Ledger -a separate account for each type of product -Uses: * Sales Managers- see at a glance which products are selling quickly and which are not * Accounting Personnel- determine the unit costs of merchandise sold * Sales Personnel- determine the quantities of specific products currently on hand & physical location of them * Employees responsible for ordering merchandise- determine when specific products should be reordered, the quantities to order, and the names of major suppliers. ***Quick Formulas: Gross Sales -Sales Returns -Sales Discounts Net Sales (Sales Revenue) -Cost of Goods Sold Gross Profit -Expenses Net Income/Net Loss Beginning Inventory +Purchases Goods Available for Sale -Cost of Goods Sold Ending Inventory Discount Terms 2/10 net/30 means if they pay their bill within 10 days, they get a 2% discount; or pay full amount within 30 days |