After you have mastered the material in this chapter, you will be able to: Record and report on inventory transactions using the perpetual system; show how transportation costs, cash discounts, returns and allowances, and inventory shrinkage affect financial statements; determine the amount of net sales;. | Chapter Three Accounting for Merchandising Businesses © 2015 McGraw-Hill Education. 1 Comparative Income Statements 3-2 2 Allocating Inventory Cost Between Asset and Expense Accounts Cost of Goods Available for Sale Merchandise Inventory (Balance Sheet) Cost of Goods Sold (Income Statement) 3-3 3 Perpetual Inventory System Perpetual Inventory System Inventory account is adjusted perpetually (continually) throughout the accounting period. Inventory increased for each item purchased Inventory decreased for each item sold 3-4 4 Event 1: JPS acquired $15,000 by issuing common stock. Increase assets (cash). Increase equity (common stock). Asset Source Transaction Event 2: JPS purchased merchandise inventory for $14,000 cash. Decrease assets (cash). 2. Increase assets (merchandise inventory). Asset Exchange Transaction 3-5 5 Event 3a: JPS recognized sales revenue from selling inventory for $12,000. Increase assets (cash). Increase equity (sales revenue). Asset Source Transaction Event . | Chapter Three Accounting for Merchandising Businesses © 2015 McGraw-Hill Education. 1 Comparative Income Statements 3-2 2 Allocating Inventory Cost Between Asset and Expense Accounts Cost of Goods Available for Sale Merchandise Inventory (Balance Sheet) Cost of Goods Sold (Income Statement) 3-3 3 Perpetual Inventory System Perpetual Inventory System Inventory account is adjusted perpetually (continually) throughout the accounting period. Inventory increased for each item purchased Inventory decreased for each item sold 3-4 4 Event 1: JPS acquired $15,000 by issuing common stock. Increase assets (cash). Increase equity (common stock). Asset Source Transaction Event 2: JPS purchased merchandise inventory for $14,000 cash. Decrease assets (cash). 2. Increase assets (merchandise inventory). Asset Exchange Transaction 3-5 5 Event 3a: JPS recognized sales revenue from selling inventory for $12,000. Increase assets (cash). Increase equity (sales revenue). Asset Source Transaction Event 3b: JPS recognized $8,000 of cost of goods sold. Decrease assets (merchandise inventory). 2. Decrease equity (cost of goods sold). Asset Use Transaction 3-6 6 Event 4: JPS paid $1,000 cash for selling expenses. Decrease assets (cash). Decrease equity (selling expenses). Asset Use Transaction Event 5: JPS paid $5,500 cash to purchase land to locate a future store. 1. Decrease assets (cash) 2. Increase assets (land). Asset Exchange Transaction = Liab. + Cash + Land = + Common Stock + Retained Earnings Revenue - Expenses = Net Income Cash Flow (5,500) + 5,500 = n/a + n/a + n/a - = (5,500) IA Assets Stockholders' Equity Inventory n/a + n/a n/a n/a + 3-7 7 Financial Statements 3-8 8 Event 2: JPS purchased merchandise inventory on account with a list price of $11,000. Increase assets (inventory). Increase liabilities (accounts payable). Asset Source Transaction Event 1: JPS borrowed $4,000 cash by issuing a note payable. Increase assets (cash). Increase liabilities ( notes payable). Asset .
