Accountıng 1 Dersi 5. Ünite Sorularla Öğrenelim

What do you know about ” Cost of Goods Sold “?

Although its name is Cost of Goods Sold, it is an expense item recorded under sales account in income statement. Because according to the “matching principle”, expenses should be recorded in the period in which they generate revenues.

What is periodic inventory system?

Periodic inventory system is used by the companies with inexpensive inventories and manual accounting systems. In periodic inventory system, companies use “Purchase” account to record their purchases of inventories and there is no record for Cost of Goods Sold (COGS) until the end of accounting period.

What is transportation cost?

Transportation cost is treated as delivery expense (a kind of marketing expense) for seller if the shipment is FOB destination, in which the seller is responsible from the merchandise until the destination point.

What do you know about ” Value Added Tax (VAT) “?

Taxes, such as Value Added Tax (VAT), are deducted from the amount of tax that the company should pay the government at the end of an accounting period. These types of recoverable amounts are not included in the cost of merchandise inventory, as companies benefit from those payments in terms of decreases in tax liability, not as sales revenue.

What do you know about ” Purchase Allowances “?

Unsatisfactory goods are not always returned back to sellers, in some cases buyers may keep them in exchange for a reduction in price. This price reduction causes a decrease in the liability of buyer and is deducted from the cost of purchases, with the help of “Purchase Returns & Allowances” account.

What is the role of the cash discount?

If the cash discount is taken before any return, effect of the discount should be reflected in the cost of remaining units. If the cash discount is taken after the return, discount will be applied to the remaining liability

How does ” balance of inventory account ” work?

In periodic inventory system, balance of inventory account is not decreased after each sale. The ending balances of COGS and Inventory account are determined by closing process. Therefore, the first journal entry representing the sale of merchandise is as follows:

Transportation, Sales Returns, Sales Allowances, and Collection of Receivable,

How many entries are required to record sale transactions? What are they?

Two entries are required to record sale transactions:
• The first entry is necessary to record the earned sales revenue: The seller increases (debits) Cash (or Accounts Receivable, if a credit sale), and also increases (credits) Sales Revenue for the invoice price of the goods.
• The second entry records the expense side of the sales event (the cost of the merchandise sold): The seller increases (debits) Cost of Goods Sold, and also decreases (credits) Merchandise Inventory for the cost of those goods

What do companies prefer?

Companies prefer perpetual inventory system to have continuous control over inventories. Under periodic inventory system, any broken, stolen or wasted goods are not detected, because a merchandise is assumed to be sold if it is not in the warehouse at the end of the period.

How many types of discounts are there? What are they?

There are two types of discounts that companies provide to their customers; cash discount and trade (bulk) discount. Trade discount is applied at the time of  purchases in high volumes and is deducted from the list price before the purchase cost is determined11. Therefore, there is no need to make additional entries for the discount. 

The cash discount, on the other hand, is related to the timing of payment. If the buyer pays the invoice price within a certain number of days before the maturity, a predetermined rate of discount is applied on invoice amount.

What is “Sales Discounts” account? 

“Sales Discounts” account is a contra-sales revenue account, and it is deducted from the gross sales revenue to reach net sales revenue in the income statement.

What is ” Sales Returns and Allowances ” acount? 

“Sales Returns & Allowances” account is a contra-sales revenue account, and it is deducted from the gross sales revenue to reach net sales revenue in the income statement.

How would you define ” income summary “?

In the closing process at first all revenues and expenses are closed to a pool account, called “income summary”. Then the net balance in income summary account is transferred to owner’s capital account.

What do you know about ” Purchase Returns “? 

When the buyers are not satisfied with the goods they have purchased, they are usually allowed to return the goods. If this happens, buyers use another contra-purchase account, called “Purchase Returns & Allowances” to record the decrease in amount of purchases.

What do merchandising companies do?

Merchandising companies do not make production. They only purchase goods and resell to either consumers or retailers. Considering the type of their customers, merchandising companies are called either as retailer or whole seller. A retailer buys merchandise inventory either from a producer or a wholesaler and then sells those goods to consumers. A whole seller buys merchandising inventory from a producer and then sells them to retailers. 

How does operating cycle work?

Operating cycle begins with the purchase of merchandise inventory and ends when the cash from sales is collected from customers. When the company sells in cash, operating cycle becomes shorter; because in the case of credit sales company records a receivable at first and cash is collected at a later time. As the cycle shortens, companies become more profitable and liquid.

What do you know about merchandise inventory?

A merchandising company must first purchase merchandise inventory to sell to its customers. Merchandise on hand (not sold) is called merchandise inventory asset. If the merchandise inventory is sold, its cost is taken from inventory account in balance sheet and recognized as an expense (cost of goods sold) in the income statement.

What is the purchase discount? 

The purchase discount is credited to the Merchandise Inventory account because companies record inventory at cost and, by paying within the discount period, early payment decreases the actual cost paid for Merchandise Inventory. In this case, it will be enough to pay 2,104.90 TL to close the total debt, and the cost of inventory to the company will decrease by 65.10 TL.

What is revenue?

The financial performance of a company is assessed by using either the revenue itself or an income number derived from it. Therefore, measuring the revenue accurately is one of the most important tasks of an accounting information system. Revenue in question is the amount generated by the sales of inventor ies. Sales of other assets does not result in revenue.

What do you know about ” net cost “?

When a merchandise inventory is purchased, it is recorded in an account called “Purchases” (not inventory) with its net cost to company. Net cost is the amount that the buyer is suggested to pay considering any trade discount received.