Question

please explain:

How to record a payment received for a sale on credit with discount terms?

How and when cost of goods sold is used and calculated in both perpetual and periodic inventory system?

What represents net sales?

How to calculate days in inventory?

How to determine cash balance per books?

What are internal controls and what purpose they have?

Answer 1

1) The payment received for a sale on credit with discount terms is recorded by debiting cash net, the discount offered is debited to sales discount and the total amount is credited to accounts receivable. The discount offered in on net amount of account receivable if allowances and returns are given earlier

2) In perpetual inventory system there is continuous updation of inventory after each and every purpose. Hence the cost of goods sold is based on issue of material to sales after every transaction. The cost of goods sold amount depends on the method of inventory followed FIFO, LIFO or weighted average method. In case of periodic inventory systems the cost of goods sold is updated at the end of the period. The physical count of inventory is taken and adjustment entry is passed for updating closing inventory in system which includes cost of goods sold

3) The net sale sis the difference between gross sales less sales discount and sales returns and allowances given to customers

4) Days in inventory are calculated dividing 365 days by inventory turnover. Inventory turnover is cost of goods sold divided by average inventory. Average inventory is the average of opening and closing inventory

5) The amount appearing in the general ledger is the cash balance. When reconciling the bank statement, the balance as per books is the balance of the cash balance in the general ledger that pertains to the bank account.

6) The primary purpose of internal controls in an organisation is to safeguard an organisation and further its objectives. The purpose of internal control is to

· Minimize risks

· Protect assets of the organisation

· Ensure accuracy of records

· Promote operational efficiency

· Adherence to organisation policies, rules , regulations

· Compliance to laws