Some help with homework?

  • Thread starter Gregory L. Hansen
  • Start date

G

Gregory L. Hansen

I have some homework I'm puzzling over, and won't see the instructor again
until the day it's due, so I was hoping I can get some advice here. It's
accounting for merchandising, and our text, Libby, Libby, and Short, seems
a little short on concrete examples.

To make up an example, suppose I made $100 in sales, received cash at the
time of sale, the merchandise had cost me $80. I would want to journalize
it like so:

Oct. 5 Cash 100
Sales revenue 100

Cost of good sold 80
Inventory 80

Good? Not so good?

Another question is purchasing from a supplier and paying within the
discount period. Warren, Reeve, and Fess give this example:

Jan. 12 Merchandise inventory 1500
Accounts payable 1500

22 Accounts Payable 1500
Cash 1470
Merchandise inventory 30

At first glance, it doesn't seem sensible to credit Merchandise Inventory
because you got a discount for early payment. But I suppose inventory is
recorded at the historical cost to you, the purchaser, and if $30 is
knocked off of the price you paid, then you paid $30 less. And likewise,
if you were penalized $50 for a late payment, your inventory would
increase by $50? And two different companies might buy an identical set
of goods from two different suppliers and credit their inventories by two
different amounts because the suppliers just charged different prices.

Do all accounting texts have a 30 page full-color preface explaining why
their book is the best, and have exhibits rather than figures or
illustrations?
 
Ad

Advertisements

P

Paul A. Thomas

Gregory L. Hansen said:
Oct. 5 Cash 100 DEBIT
Sales revenue 100 CREDIT

Cost of good sold 80 DEBIT
Inventory 80 CREDIT

Good? Not so good?

It's kind of difficult to tell what your intended debits and credits are, so
I highlighted them.



Another question is purchasing from a supplier and paying within the
discount period. Warren, Reeve, and Fess give this example:

Jan. 12 Merchandise inventory 1500 DEBIT
Accounts payable 1500 CREDIT

22 Accounts Payable 1500 DEBIT
Cash 1470 CREDIT
Merchandise inventory 30 CREDIT
I would think an alternative would be to credit a "Purchase Discount"
account instead of inventory.


At first glance, it doesn't seem sensible to credit Merchandise Inventory
because you got a discount for early payment. But I suppose inventory is
recorded at the historical cost to you, the purchaser, and if $30 is
knocked off of the price you paid, then you paid $30 less. And likewise,
if you were penalized $50 for a late payment, your inventory would
increase by $50?

The problem with that is, the inventory didn't change. Taking a credit for
early payment, or paying a penalty for late payment is not a function of
inventory or sales. Inventory isn't changing because of a financial
decision to pay early, or pay late.
 
S

S.M.Serba

See comment below:


The problem with that is, the inventory didn't change. Taking a credit
for early payment, or paying a penalty for late payment is not a function
of inventory or sales. Inventory isn't changing because of a financial
decision to pay early, or pay late.
Correct. Technically, the purchaser should be CREDITING a Purchase Discounts
contra-account.

If there is a penalty being paid due to late payment, that penalty should be
DEBITED to a Finance Charges expense account.


--
Stephanie Wells, AICIA
Partner, Durham Business Outsource
Accounting & Technology
www.dbo.ca
smwells <at> dbo <dot> ca
 
J

Joe Canuck

Gregory said:
I have some homework I'm puzzling over, and won't see the instructor again
until the day it's due, so I was hoping I can get some advice here. It's
accounting for merchandising, and our text, Libby, Libby, and Short, seems
a little short on concrete examples.

To make up an example, suppose I made $100 in sales, received cash at the
time of sale, the merchandise had cost me $80. I would want to journalize
it like so:

Oct. 5 Cash 100
Sales revenue 100

Cost of good sold 80
Inventory 80

Good? Not so good?
This is correct, although not as quoted, for a cash sale in a company
using the perpetual inventory system.

Periodic would be something else.
 
G

glhansen

S.M.Serba said:
See comment below:




Correct. Technically, the purchaser should be CREDITING a Purchase Discounts
contra-account.

If there is a penalty being paid due to late payment, that penalty should be
DEBITED to a Finance Charges expense account.
That makes more sense to me. But I still wonder how that relates to
just buying identical sets of goods from different suppliers at
different prices. I know the local Walgreen's, for instance, has
things like notepads shaped like letters in the dollar section that
they picked up cheap, but a stationary store would charge a few bucks
for. Same product, but bought at different prices, and inventory is
recorded at cost, not at market value. It seems like a case could be
made that discounts and finance charges are a variation on that theme.
But the contra-account still makes more sense to me, both logically and
for internal use.
 
Ad

Advertisements

B

Beverly

That makes more sense to me. But I still wonder how that relates to
just buying identical sets of goods from different suppliers at
different prices. I know the local Walgreen's, for instance, has
things like notepads shaped like letters in the dollar section that
they picked up cheap, but a stationary store would charge a few bucks
for. Same product, but bought at different prices, and inventory is
recorded at cost, not at market value. It seems like a case could be
made that discounts and finance charges are a variation on that theme.
But the contra-account still makes more sense to me, both logically and
for internal use.
Your inventory items are received in at their landed cost and the same
item can vary in landed cost due ro a myriad of factors. What is most
important is that you understand what inventory system you are using
so you know what your COGS should be.
 
J

Joker

JC> So, why are you here then.

If everyone would add a rule to delete this idiot, none of his comments
would get through.
 
J

Joe Canuck

Joker said:
JC> finance hotshot wrote:





JC> So, why are you here then.

If everyone would add a rule to delete this idiot, none of his comments
would get through.
Ok, so fh is this newsgroups token troll... duly noted.
 
B

bird flu shot

hotshot speaks sense. you accountants want to turn off the truth,
doncha?
 
Ad

Advertisements

S

S.M.Serba

When two different "retailers" sell the same or comparable products for
different prices, that is simply their way of making money. The one that
sells cheaper proably gets volume discounts from their
wholesaler/manufacturer and is able to pass that savings along. Completely
different from offering a prompt payment discount to clients who pay early.
Or penalizing late payments for that matter.

The prompt payment discount is OPTIONAL. Either pay in 10 days and reduce
your bill by 2% or take 30 days and pay the full amount. Your choice. And
also your choice to pay late, but in that case you must ADD 2% penalty.

Where a "discount" would effect your inventory valuation would be a volume
or quantity discount: buy 1 to 3 of an item and you pay $3.00 each, take 4
to 10 and you pay $2.75 each instead, take more than 10 and you pay $2.40
apiece. Completely different than cash or prompt payment....


--
Stephanie Wells, AICIA
Partner, Durham Business Outsource
Accounting & Technology
www.dbo.ca
smwells <at> dbo <dot> ca
 
B

bird flu shot

this sounds like fun.

Do accountants need to go to a 4 year college? Or is 2 years
vocational training at a community college enough to do debits and
credits and "strategic" cost allocation. "Strategic", I gather, means
to cheat effectively.
 
D

David Jensen

this sounds like fun.

Do accountants need to go to a 4 year college? Or is 2 years
vocational training at a community college enough to do debits and
credits and "strategic" cost allocation. "Strategic", I gather, means
to cheat effectively.
While you need to understand bookkeeping to be an accountant, the
difference between bookkeeper and accountant comes from the 2 or 3
additional years of advanced training.
 
Ad

Advertisements

B

bird flu shot

true, training is needed.

but is the college training, or an apprenticeship in a vocational
bookkeeping shop?
 
B

bird flu shot

true, you need training.

but why college training? seems that an apprenticeship at the local
bookkeeping shop or HR block would teach you more of the relevant
vocational skills.
 
B

Beverly

this sounds like fun.

Do accountants need to go to a 4 year college? Or is 2 years
vocational training at a community college enough to do debits and
credits and "strategic" cost allocation. "Strategic", I gather, means
to cheat effectively.
I can't speak for others, but things like tax and audit were not even
offered at the community college level at my college. I learned most
of my accounting (to include the different types like governmental,
not-for-profit, and cost) in my junior and senior years; however, even
then, there has been so much more to learn. It is only in graduate
school that courses like internal auditing and forensic accounting
have been offered in my experience. Others' mileage may vary.

For what it is worth, a GOOD accountant will know HOW to cheat... and
then implement controls to prevent it.
 
Ad

Advertisements

B

Beverly

true, you need training.

but why college training? seems that an apprenticeship at the local
bookkeeping shop or HR block would teach you more of the relevant
vocational skills.
GOOD LORD! I cringe when I hear someone even MENTION HR Block in
relation to accounting. Let's just put it this way, current law
allows anyone to hang a shingle and make money doing taxes... it
doesn't mean they know what they are doing, just that they may know
more than the average person on how to fill in the forms. HR Block
lulls people in with their guaranty of bearing any penalties should
your taxes be audited and incorrect. Most people foolishly think that
this means an incorrect return done by them won't cost anything. This
is untrue as owed taxes and interest is still the responsibility of
the taxpayer. This may cause them to be so cautious about raising
flags that they miss opportunities to save you money. However, I
think the "real deal" is to lure people in to have taxes done by
someone who may have very little training and their revenue is
sufficient to cover the percentage of audits that result in their
having to pay the penalties.

But even more important is that bookkeeping and tax are only PARTS of
what accounting is. Accountants with proper training can do so much
more and be of so much more value to a company. Just managing cash
flow is an important task as is budgeting and inventory control.
Making suggestions to management on how to improve operations while
reducing expenses can cause an accountant to be considered invaluable.

While new graduates are often less prepared for real world accounting
than they thought, the foundation learned only by a good college
education has them better prepared to deal with anything that may
arise. My predecessor at my company, for example, made a lot of
mistakes that I had to mop up because she was not a degreed
accountant. Furthermore, she consistently had to call the CPAs we use
(primarily for audit and tax) for advice which cost the company a
great deal.

My degree required that I know more than how to book a transaction...
much more. There was macro and micro economics, statistics, business
law, accounting law, personal tax, corporate tax, accounting
information systems, auditing, finance, banking, international
commerce... just to name a few.
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Similar Threads

USA Homework help 4
USA Need Some Help in Understanding Accounting Basics 1
help with homework 1
Homework Help! 1
Canada Homework Help 1
Homework help! 2
USA Homework Help 0
Homework help 1

Top