Preface
xv
Appendix 6A: The 10-Column Worksheet................................................................................................. 166
In Summary.......................................................................................................................................................... 168
Review Exercise.................................................................................................................................................. 169
Chapter 7: Inventory: Merchandising Transactions
Merchandising Businesses............................................................................................................................. 171
Perpetual vs. Periodic Inventory................................................................................................................... 173
The Perpetual Inventory System.................................................................................................................. 175
Purchase and Sale of Inventory............................................................................................................. 175
Gross Profit Margin: A Profitability Ratio................................................................................................... 184
Multistep Income Statement......................................................................................................................... 185
Closing Entries.................................................................................................................................................... 188
Controls Related to Inventory....................................................................................................................... 191
In Summary.......................................................................................................................................................... 194
Review Exercise.................................................................................................................................................. 196
Appendix 7A: The Periodic Inventory System......................................................................................... 205
Purchases....................................................................................................................................................... 206
Sales................................................................................................................................................................. 209
Reporting the Cost of Goods Sold............................................................................................................... 211
FOB and Inventory Counts...................................................................................................................... 211
Multistep Income Statement......................................................................................................................... 214
Closing Entries.................................................................................................................................................... 216
In Summary.......................................................................................................................................................... 218
Review Exercise.................................................................................................................................................. 219
Chapter 8: InventoryValuation
Inventory Valuation Methods........................................................................................................................ 225
Applying Valuation Methods.................................................................................................................. 226
Specific Identification Method.............................................................................................................. 227
First-In, First-Out (FIFO) Method........................................................................................................... 228
Weighted-Average Cost Method.......................................................................................................... 229
The Effect of Different Valuation Methods........................................................................................ 231
Determining the Actual Quantity of Inventory............................................................................... 231
The Physical Inventory Count................................................................................................................ 232
Effect of Inventory Errors. ............................................................................................................................... 232
The Impact of Cost of Goods Sold on Gross Profit.......................................................................... 233
The Effect of Overstating Inventory..................................................................................................... 233
