Question

1. Define the difference periodic and perpetual inventory systems
2. Transaction about returning merchandise
3. Revenue account that is being impacted that is being effected
4. Transaction and have to select the accounts that are impacted by it
5. Perpetual inventory

We record sale revenue and cost of good sold during the time of the sale

6. Periodic inventory

We do not record the cost of good sold because we wont know that until we do inventory at the end of the year

7. Sales return and how do you handle it on a financial statement
8. Transaction about making a cash discount
9. Definition of post profit
10. Calculation of gross profit (steps)

Answer as many as you can please

Answer 1

(I) DIFFERENCE BETWEEN PERIODIC AND PERPETUAL INVENTORY SYSTEM

The periodic and perpetual inventory systems are different methods used to track the quantity of goods on hand. The more sophisticated of the two is the perpetual system, but it requires much more record keeping to maintain .The periodic system relies upon an occasional physical count of the inventory to determine the ending inventory balance and cost of goods sold, while the perpetual system keeps continual track of inventory balances.

Some differences are as follow:

(i) Accounts: Under the perpetual system, there are continual updates to either the general ledger or inventory ledger as inventory related transactions occur.  cconversely , under a periodic inventory system, there is no cost of goods sold account entryat all in an accounting period until such time as there is a physical count .

(ii) Computer system: It is impossible to manually maintain the records for a perpetual inventory system, snce there may be thousand of transactios at the unit level in every accounting period. Conversely, the simplicity of a periodic inventory system allows for the use of manual record keeping for smal enterprises.

(iii) Purchase: Under the perpetual system, inventory purchases are recorded in either the raw materials inventory account or merchandise account (depending on the nature of purchase) there is also a unit count entry into the individual item. Conversely, under a periodic inventory system, all purchases are recorded into a purchase asset account , and there are no individual inventory records to which any unit - count information could be added.

(iv) Transaction investigation: It is nearly impossible to track through the accounting records under a periodic inventory system to determine why an inventory related error of any kind occured, since the information is aggregated at a very high level.Concersely, such investigations are much easier in a perpetual inventory system, where all the transactions are available in detail at the individual unit level.

(ii) TRANSACTION ABOUT RETURNING MERCHANDISE

Perpetual inventory system

When a sales return occurs, perpetual inventory systems require recognition of the inventory's condition this means a decrease to cost of goods sold and an increase to merchandise inventory

When merchandise is returned by the customer , the sales returns and allowances account is debited to reduce sales and account receivable or cash is credited to refund cash or reduce what is owed by the customer ,

A second entry must also be made to put the merchandise back in our inventory , the inventory account is debited and to increase the inventory and cost of goods sold is credited to reduce the value of cost of goods sold.

Periodic inventory system

However, under the periodic inventory systems, only the sales return is recognized, but not the inventory condition entry.

Only this entry will be like this:

When merchandise is returned by the customer , the sales returns and allowances account is debited to reduce sales and account receivable or cash is credited to refund cash or reduce what is owed by the customer

(iii) CALCULATION OF GROSS PROFIT

Step 1: Find out the nat sales or net revenue figure of the company that take total of gross sales and reduce the same by sales return

Step 2: Secondly find out what is the cost of sales which includes all the variable costs that the company made while making the product or delivering the service

Step 3: Gross profit formula would be to subtract the figure arrived in step 2 from step1 i.e. sales revenue - Cost of goods sold.

(iv) TRANSACTION ABOUT MAKING A CASH DISCOUNT

A cash discount is a reduction in the amount of an invoice that the seller allows the buyer .This discount is given in exchange for the buyer paying the invoice earlier than its normal payment date.To offer a discount for an immediate cash payment in order to entirely avoid the effort of billing the customer.

Cash account is debited discount allowed account is debited and credited the account receivable account.

Under the perpetual inventory method, discounts are recorded in a contra revenue account called sales Discounts, Receiving payment will affect the customer side only and not inventory. We will be reducind the amount owed by the customers(accounts receivable) and increasing sales discount (if any) and cash.

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