Costing Inventory:Average Cost Valuation

   The average cost valuation system, also known as weighted average, is based on the average cost of inventory during the period and takes into consideration the quantity and the price of the inventory items by assigning the same amount of cost to identical items. In other words, it spreads the total dollar cost of the goods available for sale equally among all the units.
   The ending inventory is determined by the following procedure:

1. The cost of the total number of units available for sale (beginning inventory plus purchases) is divided by the total units available for sale.
2. The number of units in the ending inventory is multiplied by this weighted average figure.

Example 1

Referring to the data in Chart 1, the cost of the 385 units on hand would be calculated as follows:

1. $7,475 / 695 units = $10.76
2. $10.76 X 385 units on hand = $4,143 ending inventory

Example 2

    The cost of goods sold is then calculated by subtracting the value of the ending inventory from the total value of the inventory available for sale ($7,475 - $4,143 = $3,332).
   Because there were 695 units available for sale and 385 units on hand at the end of the period, the number of units sold was determined as 695 - 385 = 310 units. Therefore, another method of computation to determine the cost of good sold would be $10.76 X 310 units (cost of goods sold) = $3,336

Rounded to the nearest dollar.

   The average cost method is best used by firms that buy large amounts of goods that are similar in nature and stored in a common place. Grain, gasoline, and coal are good examples of products that could logically be costed under weighted average.

   There are some limitations that should be noted in this valuation procedure. Unit cost cannot be related to any physical purchase and does not represent any price changes. In those industries that are greatly affected by price and style change, this method will not yield specific cost determination. Also, the time needed to assemble the data is greater under this method than for FIFO or LIFO, if there are many purchases of a variety of different items bought.

Costing Inventory: Last-In, First-Out (LIFO)

The last-in, first-out (LIFO) method of costing inventory assumes that the most recently purchased items are the first ones sold and the remaining inventory consist of the earliest items purchased. In other words, the goods are sold in the reverse order in which they are bought. Unlike FIFO, the LIFO method specifies that the cost of inventory on hand (ending inventory) is determined by working forward from the beginning inventory through purchases until sufficient units are obtained to cover the ending inventory. This is the opposite of the FIFO system.

Remember the FIFO assumes costs flow in the order in which they are incurred, while LIFO assumes that costs flow in the reverse order form that in which they are incurred.

Example 1

Under LIFO, the inventory at the end of the period is considered to be merchandise purchased in the first part of the period. What is the cost of the385 units oh hand?

                 Jan. 1 purchase      115 units @ $8  = $   920
                 Mar. 10 purchase  145 units @  $7  =  1,015
                 June 6 purchase     125 units @ $10 =  1,250
                                              385 units              $3,185                    

Thus, ending inventory under the LIFO method would be valued at $3,185


Example 2

The cost of goods sold is determined (from Example 1 by subtracting the value of the ending inventory from the total value of the inventory available for sale ($7,475 - $3,185 = $4,290). This cost may also be

             Oct. 1                   245 units @ $12 = $2,940
             July  5                   135 units @ $10 =   1,350
            Cost of goods sold 380 units                $4,290

   A disadvantage of the LIFO method is that it does not represent the actual physical movement of goods in the business, as most business do not move out their most recent purchases. Yet firms favor this method because it does match the most recent costs against current revenue, thereby keeping earnings from being greatly distorted by any fluctuating increases or decreases in prices. Yet it sometimes allows too much maneuvering by managers to change net income. For example, if prices are rising rapidly and a company wishes to pay less taxes (lower net income) for that year, management can buy large amounts of inventory near the end of that period. These higher inventory costs, because of rising prices, under LIFO immediately become an expense (cost of goods sold), and thus result in the financial statement may want to increase net income to garner favor with stockholders. This can be done by delaying any large purchase of high-cost inventory until the following period by keeping the purchases out of the Cost of Goods Sold section for the current year, and thus avoiding any decrease in net income.
   In a rising price market, certain tax advantages are gained through LIFO because it yields a lower profit because of its higher cost of goods sold.

Example 3

Use Chart 1.

                                                            FIFO                                        LIFO

Sales (assumed)                                                    $25,000                                 $25,000
Cost of Goods Sold:
   Goods Available for sale                  $7,475                                       $7,475
Less: Ending Inventory                         5,070                                         3,185
Cost of Goods Sold                                                 2,405                                      4,290
Gross Profit                                                         $22,595                                  $20,710

   As Example 3 shows, LIFO produces (in a rising market)
(1) a lower ending inventory,      
(2) a higher cost of goods sold,
(3) a lower gross profit. FIFO will produce the opposite.

   The IRS will permit companies to use LIFO for tax purposes only if they use LIFO for financial reporting purposes. Thus, if a business uses LIFO for tax purposes, it must also report inventory and income on the same valuation basis in its financial statements, but it is allowed to report an alternative amount in the notes to the financial  statements. This is permitted because it affords true financial analysis in comparing, on a similar basis, one business with another. It should be noted that a business cannot change its inventory valuation method any time it chooses. Once a method has been adopted, the business should use the same procedure from one period to the next. If management feels a need to change, permission must be granted by the IRS. The business must then follow specific authoritative guides that detail how the changes should be treated on financial statements.
             

Pricing Merchandise

Exercise 2 

Solve the following problem:

1. Equipment of $500 is sold to a retailer at a 25 percent trade discount. What is the retailer's cost?

2. Determine the last day allowable for a company to take advantage of the full discount.
                                                                             
         Term                        Date of Order                  Date of Delivery

a).  2/10, n/30                       March 4                            March 8
b). 2/10, 1/15, n/30               March 4                            March 8
c). 2/10, n/30, ROG              March 4                            March 8
d). 2/10, n/30, EOM             March 4                            March 8



3. Company X gives terms of 30 percent discounts on all items purchased. Company Y gives chain discounts    of 18 percent and 9 percent. If Shehgarlynn bought $750 of supplies, how much would be save by dealing with Company Y rather than with Company X?
     
4. If freight of $35 were added to the purchase in Problem 1, What would be the net cost?

5. Determine the single equivalent discount in each of the following:
a). 20 percent, 5 percent;
b). 25 percent, 10 percent

6. Office supplies selling $18 per box have a markup on cost (markon) of 25 percent. What is the cost of one box?

7. Shehgarlynn bought $950 of goods for her company on January 1, subject to a  20 percent trade discount, bearing terms 2/10, 1/20, n/30. If the invoice was paid on January 7, how much was her payment?

8. The following information, determine the merchandise inventory turnover.

             Cost of Goods Sold:
                 Merchandise Inventory, Jan. 1         $28,000
                 Purchases (net)                                 69,500
                 Available for Sale                              97,500
                 Merchandise Inventory, Dec. 31        14,500
                 Cost of Goods Sold                                         $83,000

9. From the selected information below, determine:
a). Turnover of inventory
b). Average daily cost of goods sold
c). Number of days' sales in inventory

               Cost of Goods Sold                             $850,000
                Inventory (Beginning)                              93,000
                Inventory (Ending)                                  69,000

10. A watch that costs $55 is marked up 30 percent on cost. What is the selling price?

Pricing Merchandise-Quiz

Exercise 1

Fill the following answer on the blank

1. _________________ What is the abbreviation ROG?
2. _________________ What the difference between cost and selling price?
3. Downward adjustments of the selling price are often necessary to induce customers to buy and are referred to as ______________.
4. An adjustment of the retail price is known as ______________.
5. Cash discount are referred to as  _________________.
6. When cost is used as a basis for markup percent, it is sometimes  known as as ___________.
7. The " 2 " in 2/10, n/30 is the  ____________________.
8. In order to give consideration to pricing and profit planning, it is important to consider the __________.
9. A substitute for varying increasing single  discounts to different classes of purchases is referred to as a ____________. 
10. An inducement offered to the buyer to encourage payment of his or her bill within a specific period of time is called a _____________

Number Of Days' Sales In Inventory

The relationship between inventory and cost of goods sold can also be expressed as the number of days' sales in inventory. In this ratio, the inventory at the end of the year is divided by the average daily cost of goods sold. The latter figure is determined by dividing the cost of goods sold by 365. The number of days' sales in inventory provides a rough measure of the length of time required to buy, sell, and then replace the inventory.

                                                     The Shehgarlynn Company
                                                         Turnover of Inventory

                     Cost of Goods Sold                                                  $895,000
                     Merchandise Inventory:
                        Beginning of Year                                                   $  85,200
                        End of Year                                                              150,300
                    Total                                                                             235,500
                    Average                                                                        105,150
                    Turnover of Inventory (895,000/105,150)                         8.5


The average daily cost of goods sold is $895,000/365 = $2,452.05

                                                   The Shehgarlynn Company
                                             Number of Days' Sales in Inventory

                                                                                                            2007

                     Inventory at End of Year                                             $150,300
                     Average Daily Cost of Goods Sold                                   2,452
                     Number of Days' Sales in Inventory (150,300/2,452)       61.29                                                             

                                      

Markdowns

Once the price of an item has been established, there is no guarantee that will represent the ultimate selling price. Downward adjustments of the selling price are often necessary to induce customers to buy. These are referred to as markdowns. The seller is in effect forced, perhaps because of overstocking or too high a selling price, to abandon the original price. Markdowns take the form of direct price reductions.

Example 1

A cell phone listing for $125 was marked down 25 percent. What is the new selling price?

Markdown  $125 X 25% = $31.25

Selling price $125 - 31.25  = $93.75

Turnover-Ratios for Inventory

The firm's investment in inventory also has a direct effect on its working capital. Excess inventory means that funds are tied up in inventory that could be used more profitably elsewhere. Also, additional cost are being incurred for storage, insurance, and property taxes, not to mention the danger of a price decline and obsolescence of goods.

Whenever any consideration is given to pricing and profit planning, it is important to consider the merchandise inventory turnover. This is the number of times the average inventory is sold during a year. The turnover shows how quickly the inventory is moving. Assuming that the company maintains a reasonable inventory for its type of business, a high turnover rate (such as for a grocery store) indicates that only a relatively small profit need be added to the price of each item to maintain a high profit overall. Turnover is also a good indication of the amount of working capital that needs to be tied up in inventory at one time.

Merchandise inventory turnover can be computed from the cost of goods sold section of the income statement. It should be noted, however, that the turnover is an annual rate and should not be computed from interim statements.

Merchandise inventory turnover =    cost of goods sold                
                                                    average merchandise inventory

*Beginning inventory + ending inventory / 2

Example 1

     Cost of Goods Sold:
     Merchandise Inventory, Jan. 1                 $10,000.00
     Net Purchases                                          88,000.00
     Merchandise Available for Sale                $98,000.00
     Merchandise Inventory, Dec. 31                15,000.00
     Cost of Goods Sold                                                       $83,000.00
        

Merchandise inventory turnover =  $83,000.00
($10,000 + 15,000) /2                    12,500.00

  = 6.64

In a retail business, such as a department store, turnover may effectively be computed either by departments or by classes of items. This can be accomplished by using the following turnover formula, which will yield approximately the same turnover rate as above:


Merchandise inventory turnover =            sales in units           
                                                      average inventory in units


Example 2

ShehGarLynn Dress Shop sells uniform in four sizes, small, medium, large, extra large, all of which sell for the same price. What is the turnover for each color as computed from the data below? What, if any, problems does reveal?


Size                Sales in Units                 Beginning Inventory                  End Inventory
Small                  800                                                140                                     120
Medium              900                                                200                                     150
Large                  600                                                 75                                      125
Extra Large         300                                                210                                    190

Small turnover   = 800 = 6.15
                            130

Medium turnover = 900 = 5.14
                               175

Large turnover  = 600  = 6
                           100

Extra Large  =     300 =  1.5

                           200

The Extra Large uniform should be eliminated because of its low rate of turnover.

Cost As A Basis

When cost is used as a base for markup, it is sometimes referred to as a markon. It has the advantage of expressing clearly the fact that the price increase is added directly to its basis (cost).

Computing Percent Markup

Percent markup = $ markup
                                cost

Example 1 

A printer that sells for $115 cost $95. What is the percent markup based on cost?

Percent markup = $20 ($115-$95)
                             $95
Markup             = 21.05%

Example 2  (Computing the cost)

If an item selling for $75 has a 20 percent markup on cost, what is the cost

Selling price = cost + markup
 $75            = 100% + 20%
 $75            = 120%
 $75/1.20    = cost
$62.5          = cost

Computing Selling Price

In order to compute the selling price from either the cost or the markup, you once again must look at the formula for selling price from the point of view of percents. The cost (basis) is 100 percent.

Example 3

If a tie that costs $50 has a markup of 30 percent on cost, what is the selling price?

Selling price = cost + $ markup
                   = $50 + (0.30) ($50)
                   = $50 + 15
                   = $65

Markup

In order to make a profit, each company must sell its products for more than they cost. The difference between cost and selling price is referred to as markup.

Example 1

A washing machine selling for $500 costs the seller $350. The markup is $150

Percent Markup
Markup is generally expressed in terms of a percentage:

Percent = percentage
                   base

where      percent = markup percent
          percentage = markup
                   base = selling price or cost

Selling Price as a basis :  Computing percent markup

Example 2

A shoes selling for $20 cost the seller $15. What is the percent markup based on selling price?

percent  =$5  ($20-$15)
               $20

Percent markup = .25

Computing Cost
In order to use the percent markup to compute either the cost or the selling price, the selling price formula must be reexamined in terms of percents. It should be noted that the base is 100 percent.

Example 3

A shoes selling for $20 has a markup percent of 25 percent .What is the cost?

  25% = X
             20

X      = 25% X $20
         = $5 (markup)
Cost  =  $20 - $5 = $15

Computing Selling Price

Example 4

A shoes has a markup percent of $5, which 25 percent of the selling price. What is the selling price?


25%    = $5
              X
25%X = $5
       X = $5
              .25
      X = $20

Cash Discounts

Are an inducement offered to the buyer to encourage payment of a bill within a specified period of time. They tend to narrow the gap between the time of sale and the time of  collection, which can become a source of cash flow difficulties for the seller. Cash discounts are referred to as terms and may appear on a bill as 2/10, net 30, where

  2 = the percent of the discount
10 = number of days within which the buyer must pay in order to qualify for the discount net
30 = number of days at which payment must be made in full

Example 1
An invoice of $500, dated March 6, has terms of 2/10, net 30. If payment is made on March 16, the net amount is:

1. $500 X 2% = $10 discount
2. $500 - $10 = 490

If payment is made on March 17, the entire $500 is due.

Some companies offer a varied cash discount depending on when payment is made--for example, 2/10, 1/20, net 30. This means that the company offers a 2 percent discount if the buyer pays within 10 days; if he or she pays after 10 days, but within 20 days of purchase, he or she gets a 1 percent discount; the net amount is due within 30 days.

Example 2
A $750 invoice dated April 6 has terms of 3/10, 2/15, net 30. If paid by April 16, the discount will be $22.50. If the invoice is paid after April 16, but by April 21, the discount will be $15. The entire bill of $750 must be paid by May 6.

Although in most cases the cash discount period is computed from the "invoice" or purchase date, the date may also be computed from either the date of receipt of the goods (ROG) or starting with the end of the month (EOM).

ROG is used primarily when there is a significant gap between the date of the sale and the delivery date. This eliminates the necessity for the buyer to pay for goods before receiving them in order to get a discount.

EOM is used primarily as a convenience with traditional end-of-month billing practices followed by most companies.

Example 3
The last date on which a discount can be taken is shown below:

                                 Invoice       Goods                                      Last Day on Which
                                   Date      Received        Terms                 Discount Can Be Taken
Invoice $600            Oct. 3       Oct. 8       2/10, n/30 ROG             Oct. 18
Invoice $750            Oct. 3       Oct. 8       2/10, n/30 EOM            Nov. 10*
*10 days after the end of month (EOM).

Chain Discounts

When using chain discounts, there are two methods that may be used to compute the net cost price:

1. Determine a single equivalent discount and then proceed to compute the net cost price as illustrated earlier. This method is also useful for companies that wish to compare varying discount policies of competing companies.

To compute an equivalent discount, multiply the complements of each of the discounts (100 percent - discount) together and subtract the result from 100 percent. For example, the single discount equivalent of 10 percent and 20 percent and 20 percent is computed as:

Step 1 (100% - 10%) X (100%-20%)
Step 2 0.90 X 0.80 = 0.72
Step 3 Equivalent discount = 100% - 72% = 28%


Example 1
A computer is offered to wholesalers at a  list price of $750, less chain discounts 25 percent and 20 percent. What is the net cost price?

1. (100%-25%) X (100% - 20%)
2. (0.75) X(0.80) = 0.60
3. Equivalent discount = 100% -60% = 40%
4. Discount = $750 X 0.40 = $300
5. Net cost price = $750 - $300 = $450

Alternative method:

1. Price X first discount percentage  ( $750 X 0.25 = $187.50)
2. Price minus first discount  ( $750 - 187.50 = $562.50)
3. Discounted price X second discount percentage  ($562.50 X 0.20 = $112.50)
4. Discounted price minus second discount ($562.50 - $112.50 = $450.00)

2. The net cost price can be computed directly by multiplying the list price by the complement of each of the discount in the series. It does not make any difference in what order the discounts are arranged.

Example 2

Assume the same information as in Example1:

1. (100% - 25%) X (100% - 20%)
2. (0.75) X (0.80) = 0.60
3. $750 X 0.60 = $450

Perpetual Inventory System

Exercise-1

The following general journal entries are typical entries relating to the acquisition and subsequent sale of goods, using a perpetual inventory system:

2007
Jan. 1  Merchandise Inventory                        $10,000.00
              Accounts Payable                                                $10,000.00
          1000 units at $10 per unit

     10  Cash                                                        4,200.00
             Sales                                                                         4,200.00
          300 units at $14

     10  Cost of Good Sold                                   3,000.00
             Merchandise Inventory                                               3,000.00
           300 units at $10

     14  Merchandise Inventory                              4,500.00
              Cash                                                                         4,500.00
          600 units at $6.50 per units

    20  Cash                                                         11,200.00
             Sales                                                                         11,200.00
         800 units at $14 per unit

    25  Cost of Goods Sold                                    7,750.00
              Merchandise Inventory                                              7,750.00
         700 units at $10.00 per unit
         100 units at $7.50 per unit

The entry of January 1 records the purchase of merchandise on credit. This entry and others that follow would normally be recorded to special journals; however, for ease of analysis they are recorded in simple two-column general journal form. Unlike the periodic system, which uses the merchandise purchases account, the perpetual system records purchases of merchandise directly in the inventory account.
Each type of good acquired is posted to a specific subsidiary ledger account that contains an explanation similar to that of the journal entry. The actual subsidiary ledger account is also known as a STOCK RECORD CARD. The purpose of the stock record card is to list specific information pertaining to the goods acquired and subsequently sold.

The following represents the typical form of the subsidiary ledger, stock record card:

Items Stock #-324A                                                          Description: Hand Tool
Location: Edwood 5 B                                                       Basis --FIFO


                          Received                                  Issued                                    Balance                
Date   Units   Unit Cost  Total Cost     Units   Unit Cost   Total Cost     Unit  Unit Cost    Total Cost  
2007
Jan. 1 1,000   10.00       10,000                                                         1,000   10.00       10,000
10      
                                                          300        10.00        3,000           700    10.00         7,000
14        600      7.50         4,500                                                            700   10.00         7,000
                                                                                                             600     7.50         4,500  
                                                                                                                                        11,500
17                                                     700         10.00        7,000
                                                         100           7.50           750           500    7.50           3,750

Sole Propietorship

Solution from Exercise 1 - B

 ShehGarLynn's Dress Shop

Trial Balance

For the Month Ended January 31, 2007

Cash in Bank (BOA)...............................................$40,000.00

Petty Cash .............................................................        443.00

Accounts Receivable..............................................       7,000.00

Prepaid Rent .........................................................       9,000.00


 Accounts Payable...................................................                                  5,000.00

Shehla's Capital ......................................................                                 50,000.00

Sales ......................................................................                                   7,500.00

Sales Return and Allowances ..................................         500.00

Purchases...............................................................       5,000.00

Cleaning Expenses .................................................          215.00

General Expenses ..................................................             30.00

Delivery & Shipping Expenses ...............................              12.00                                

Total......................................................................     $62,500.00            $62,500.00

Sole Proprietorship

Solution from Exercise 1-A

	ShehGarLynn'S Dress Shop
	Journal Entries
	For the month Ended January 31, 2007
Date
Jan. 10	Cash	$  50,000.00
	Shehla's Capital		$  50,000.00
	To record Shehla invested into business
Jan. 11	Cash in Bank	$  50,000.00
	Cash		$  50,000.00
	To record cash deposited to Bank of America
Jan. 15	Petty Cash	$        500.00
	Cash in Bank		$        500.00
	To established petty cash check no. 1
Jan. 16	Prepaid Rent	$    9,000.00
	Cash in Bank		$    9,000.00
	To pay 3 months advance of rent at $3,000 per month
Jan. 17	Purchases	$    5,000.00
	Accounts Payable - Nellie		$    5,000.00
	To record merchandise purchased from Nellie's
	Term; 2/10, n/30
Jan. 18	Cleaning Expenses	$          15.00
	Petty Cash		$          15.00
	To record the expenses voucher no. 1
Jan. 19	Accounts Receivable	$    3,500.00
	Sales		$    3,500.00
	To record the sales invoice no. 1
	Term; 2/10, n/30
Jan. 25	General Expenses	$          15.00
	Petty Cash		$          15.00
	To record the postage expense voucher no.
Jan. 26	Accounts Receivable	$    2,500.00
	Sales		$    2,500.00
	To records sales invoice no. 2
	Term; 2/10 n/30
Jan. 27	General Expenses	$          15.00
	Petty Cash		$          15.00
	To record first aid expenses, voucher no. 3
Jan. 28	Purchase	$    4,000.00
	Accounts Payable		$    4,000.00
	To record merchandise purchase on account
	Term; 2/10, n/30
Jan. 29	Delivery Expenses	$          12.00
	Petty Cash		$          12.00
	To record the expenses voucher no. 4
Jan. 30	Accounts Receivable	$    1,500.00
	Sales		$    1,500.00
	To record sales invoice no 3
	Term; 2/10, n/30
Jan. 30	Cleaning Expenses	$        200.00
	Cash in Bank (BOA)		$        200.00
	To record the expenses paid check no. 3
Jan. 31	Sales Returns and Allowances	$        500.00
	Account Receivable		$        500.00
	To record the returned merchandise
	Issued credit memo invoice no. 2

Partnership

A PARTNERSHIP is a joining of two or more individuals as co-owners of a business for profit. When funds are needed to organize the business, the partnership will enable the capital needed to be raised through the contributions of each partner to the partnership. Many professions, such as accounting, law, and medicine, use the partnership form of business organization for this reason.



Part-Exe-001

Exercise 1

March 7, 2007, Shehla, Gary, and Lynn entered into a partnership, Name their business "ShehGarLynn's"  The agreement called for Shehla to contribute the following asset: Cash, $25,000; land, 125,000; for Gari to contribute  Cash, $200,000; for Lynn to contribute Cash $50,000. Profit and Loss sharing ratio agreed upon their capital invested into business.

March 8, 2007, Both parties agreed Lynn's will manage the company with $5,000 monthly salaries plus 750 monthly allowance, and agreed to increase her salaries after a year. companies paid her advance for the month of March. check no. 1

March 8, 2007, Lynn deposit the cash in Bank of America for checking account. No. 05040711

March 9, 2007, They both agree to purchase a home care facilities amounting $750,000 on loan basis with Bank of America 5% interest for 30 years to pay...

March 10, 2007, Lynn issued a check to pay $500 Rene's cleaners for general cleaning of the home care facilities. check no. 2

March 10, 2007, Lynn issued a check to pay $750 for miscellaneous expense.check no. 3

March 10, 2007, Lynn established a petty cash fund, $ 500, check no. 4

March 11, 2007, Lynn bought office equipment; such as 5 computer at $500 each, 1 printer at $300, 1 xerox machine at $500, on credit to Best buy. no interest with in 1 year to pay.

March 12, 2007, Lynn issued check no. 5, amounting $300 to Office Depot for payment of office supplies.

March 12, 2007, Lynn hired Registered Nurse and pay $45/hr, 4 hours a day.

March 12, 2007, Lynn hired LVN  and pay $25/hr, full time, 8 hrs a day

March 13, 2007, Receive 5 patient at $5,000 each

March 14, 2007, Lynn hired 2 CNA and pay $18/hr, full time., 2 shift, day/night

March 15, 2007, Additional 5 patient at $5,000 each

March 16, 2007, Hired 2 CNA  and 2 LVN  full time.

March 17, 2007, Hired 1 office assistant $11/hr, full time 8 hrs a day.

March 18, 2007, Additional 5 patient at $5,000 each

March 19, 2007, Issued check no. 6 amounting $700 to pay for food services. for 1 week 10 patient

March 20, 2007, Issued check no. 7 amounting $300 to pay Rene's Cleaners.

Marc 30, 2007, Received statement from best buy amounting $150.


Compute the following:

1. What is the profit and loss sharing ratio accordingly?
2. Compute the salaries of all the staff.
3. Prepare the Journal entries
4. Prepare Trial Balance for the month ended.

Petty Cash

Petty cash is a small amount of discretionary funds in the form of cash used for expenditures where it is not sensible to make any disbursement by cheque,

Lets go back to SheGarLynn'S Dress Shop established a petty cash of  $500.00

The Journal entry was:

Petty Cash ...........................$500.00
    CAsh in Bank (BOA) .......................$500.00
To record the petty cash fund issued Jan. 15, 2007, check no. 1

The petty cash fund during that month was being paid the following date:

January 15, 2007 - Paid $15.00 to Marcelo Delivery, voucher no. 1
January 15, 2007 - Bought pencils and pens, cost $10.00, voucher no. 2
January 16. 2007 - Paid local newspaper of advertising, $20.00, voucher no. 3
January 16, 2007 - Paid postage on incoming packages, $5.90, voucher no. 4
January 17, 2007 - Shehla, the owner, borrow $100.00 for personal use, voucher no. 5
January 18, 2007 - Reimbursed employee for stamp, $50.00, voucher no. 6
January 19, 2007 - Bought ink for printer, $75.00, voucher no. 7
January 20, 2007 - Paid $10.00 to Belyn delivery service, voucher no. 8
January 21, 2007 - Paid for mailing packages, $15.25, voucher no. 9
January 22, 2007 - Paid for making duplicate keys, $26.30, voucher no. 10
January 23. 2007 - For trash removal, $10.00, voucher no. 11



Question:

1. How much should the accountant reimburse the fund for expenditure made?
2. Prepare the journal entry to records the expenses.

Bank Reconciliation

ShehGarLynn

Bank Reconciliation

For the month ended June 30, 2011

Checkbook Balance            Sub-Total      Total              Bank Balance           Sub-Total       Total

Balance per Book                                                  $6,418.59       Balance Per Bank  
         $7,542.03               

Add:                                                                                       Add:

Note Receivable                  $1,500.00                              Deposit in Transit  
                           944.07

Interest                                       30.00          1,530.00      

Sub-total                                                       7,948.50      Sub-total
                          8,486.10  

Less:                                                                                  Less: Outstanding Check

NSF                                         120.00                              Check No. 523                    $148.95

Service Charge                           14.34             134.36      Check No. 525                        97.50

                                                                                         Check No. 526                       425.40       671.85

Reconciled Book Balance                              $7,814.25    Reconciled Bank Balance                     $7,814.25                     


General Journal

a). Cash                                           $1,530.00

        Note Receivable                                           $1,500.00

        Interest Income                                                    30.00
To record the note collection by the bank.

b). Account Receivable                          120.00
        Cash                                                                  120.00
To record NSF check from customer

c). Service Charge Expense                      14.34
       Cash                                                                      14.34

Sole Proprietorship

Exercise 1

Shehla invest into business name ShehGarLynn's Dress Shop as Sole Proprietorship

The following transaction is my example for Sole Proprietorship:

January 10, 2007  Shehla invested $50,000 cash in opening the ShehGarLynn's Dress Shop.

January 11, 2007 She deposit the cash in Bank of America for checking account.

January 15, 2007  She established a petty cash fund, $ 500, check no. 1

January 16, 2007 She issue a check no. 2 for 3 months' rent in advance, at $3,000 per month.

January 17, 2007 Purchased merchandise from Nellie's Company on account, $5,000, terms 2/10, n /30.

January 18, 2007 Paid from the petty cash fund $15 for  cleaning package, voucher no. 1 (consider this a cleaning expense.)

January 19, 2007 Sold merchandise to Ronald Company on account, $3,500, invoice no. 1, terms 2/10, n/30.

January 25, 2007 Paid from petty cash fund for postage, $15, voucher no. 2

January 26, 2007 Sold Merchandise to Ronald Company on account, $2,500, invoice no. 2, term 2/10, n/30

January 27 Paid from the petty cash fund for First Aid emergency, $15, voucher no. 3

January 28 Purchased merchandise from Merly's Company on account, $4,000, terms 2/10, n/30

January 29 Paid for delivery expense from petty cash fund, $12, voucher no. 4

January 30 2007 Sold merchandise to Ronald Company on account, $1,500, invoice no. 3, terms 2/10, n/30.

January 30 2007 Paid Cleaning Service, $200, Check no. 3.

January 31 Ronald Company returned merchandise costing $500 from invoice no. 2. ShehGarLynn's Dress Shop issued credit memo to Ronald Company for $500.

Instruction:

A. Prepare Journal Entries the following transaction above

B. Prepare Trial Balance

Bank Reconciliation

This is just an example, for the transaction of Shehgarlynn's  Proprietorship in computing the Bank Reconciliation for the month ended June 30, 2011. But if you want to learn more about it click the link Bank Reconciliation.

Exercise BR 001

On June 30, 2011, the balance in the Shehgarlynn Proprietorship's checkbook and cash account was $6,418.59. The balance shown on the bank statement on the same day was $7,542.03.

Notes:

1.  The firm's records indicate that a deposit of $944.07 make on June 30, was not on the statement.
2. A service charge of $14.34 and a debit memorandum of $120 covering NSF check have not yet been entered  in the firm's books. (The check was issued by Paul Gibbs, a credit customer).
3. The following checks were still outstanding . Check No. 523 for  $148.95, Check No. 525 for $97.50, Check No. 526 for $425.40
4. A credit memo shows that the Bank has collected a $1.500 note receivable and interest of $30 for the firm.

Instruction:

1. Prepare a bank reconciliation statement for the firm as of June 30, 2011.
2. Record general journal entries for any items on the bank reconciliation that must be journalized.

The Top 10 Steps to Success

1.  TRY
2. TRY AGAIN
3. TRY ONCE MORE
4. TRY IT A LITTLE DIFFERENT
5. TRY IT AGAIN TOMORROW
6. TRY AND ASK FOR HELP
7. TRY TO FIND SOMEONE WHO HAS DONE IT
8. TRY TO DETERMINE WHAT IS NOT WORKING
9. TRY TO DETERMINE WHAT IS WORKING
10. JUST KEEP TRYING