1. © 2014 Cengage Learning. All Rights Reserved. Do Now: ●Where do you get new shoes? ●Have you ever had to wait for a size you need to be brought out to the floor? ●Where do those employees go to get your shoes? ●How does that business know how much of that shoe they have left on hand? SLIDE 1

2. © 2014 Cengage Learning. All Rights Reserved. Measuring Inventory ●A list of assets, usually containing the value of individual items, is called an inventory. ●The goods a business has on hand for sale to customers is called merchandise inventory. SLIDE 2 LO4 Lesson 9-2

3. © 2014 Cengage Learning. All Rights Reserved. Perpetual Inventory Method ●An inventory determined by keeping a continuous record of increases, decreases, and the balance on hand of each item of merchandise is called a perpetual inventory. ●Purchases of merchandise accounted for directly to Merchandise Inventory account ●When bar code is scanned, system records sale price and updates merchandise records SLIDE 3 LO4 Lesson 9-2

4. © 2014 Cengage Learning. All Rights Reserved. Periodic Inventory Method ●A merchandise inventory evaluated at the end of a fiscal period is called a periodic inventory. ●When a periodic inventory is conducted by counting, weighing, or measuring items of merchandise on hand, it is called a physical inventory. ●Happens annually, quarterly, or monthly ●Easier than perpetual because it does not require records of quantity and cost of individual goods SLIDE 4 LO4 Lesson 9-2

5. © 2014 Cengage Learning. All Rights Reserved. Cost of Goods Sold ●The amount a business pays for goods it purchases to sell is called cost of merchandise. ●When periodic inventory system is used, cost of merchandise recorded in Purchases account, which is increased by a debit and decreased by a credit ●Only includes merchandise SLIDE 5 LO4 Lesson 9-2

6. © 2014 Cengage Learning. All Rights Reserved. Cost of Goods Sold ●Income statement of merchandising business places Purchases in section titled, Cost of Goods Sold (separate from other expenses) ●Include all costs necessary to make item of merchandise available for sale, including freight charges paid to ship items to merchandising business ●Freight charge paid to ship item to customer recorded in Freight Expense account SLIDE 6 LO4 Lesson 9-2

7. © 2014 Cengage Learning. All Rights Reserved. Cost of Goods Sold ●Cost of merchandise sold should appear on income statement only when goods are sold ●Matching Expenses with Revenue concept ●Using perpetual inventory means cost of merchandise first recorded in Merchandise Inventory and then transferred to Cost of Goods sold section when sold ●Using periodic inventory means merchandise cost goes immediately to Cost of Goods Sold section SLIDE 7 LO4 Lesson 9-2

8. © 2014 Cengage Learning. All Rights Reserved. Group Activity ●Create scenarios depicting which inventory method has been used for a hypothetical business that you will create ●Other groups will go to opposite sides of the room to vote either perpetual or periodic inventory method described in group’s scenario SLIDE 8

9. © 2014 Cengage Learning. All Rights Reserved. Ordering Merchandise ●A form requesting the purchase of merchandise is called a requisition. ●Description of merchandise to be ordered, quantity to be purchased, and required delivery date all included ●A form requesting that a vendor sell merchandise to a business is called a purchase order. ●Lists number, description, quantity, and unit price of each item ordered ●Vendor uses purchase order to approve sale and process order SLIDE 9 LO4 Lesson 9-2

10. © 2014 Cengage Learning. All Rights Reserved. Ordering Merchandise SLIDE 10 LO4 Lesson 9-2

11. © 2014 Cengage Learning. All Rights Reserved. Ordering Merchandise ●No transaction occurs until customer receives goods from vendor, so no journal entry is recorded when purchase order is prepared ●Internet commerce sites deliver merchandise much faster ●Vendor doesn’t have to enter purchase order information into computerized accounting system, either, so discounts are offered by some companies for purchasing online SLIDE 11 LO4 Lesson 9-2

12. © 2014 Cengage Learning. All Rights Reserved. Using Special Journals ●A journal used to record only one kind of transaction is called a special journal. ●More efficient ●Businesses typically use five journals: ●Purchases journal—for all purchases of merchandise on account ●Cash payments journal—for all cash payments ●Sales journal—for all sales of merchandise on account ●Cash receipts journal—for all cash receipts ●General journal—for all other transactions SLIDE 12 LO5 Lesson 9-2

13. © 2014 Cengage Learning. All Rights Reserved. Purchases Journal ●A transaction in which the items purchased are to be paid for later is called a purchase on account. ●A purchases journal is a special journal used to record only purchases of merchandise on account. ●A journal amount column headed with an account title is called a special amount column. SLIDE 13 LO6 Lesson 9-2

14. © 2014 Cengage Learning. All Rights Reserved. Purchases Journal SLIDE 14 LO6 Lesson 9-2

15. © 2014 Cengage Learning. All Rights Reserved. Purchase Invoice ●An invoice used as a source document for recording a purchase on account transaction is called a purchase invoice. ●Objective Evidence accounting concept ●An agreement between a buyer and a seller about payment for merchandise is called the terms of sale. ●n/30 = “Net 30 days” ●The date by which an invoice must be paid is called the due date. ●Late fees may be assessed SLIDE 15 LO6 Lesson 9-2

16. © 2014 Cengage Learning. All Rights Reserved. Purchase Invoice SLIDE 16 1. 1.Record the initials of the employee processing the invoice, date received, and the purchase invoice number in the stamp. LO6 Lesson 9-2 2. 2.Place a check mark by each of the amounts in the Total column to show that the items have been received and that amounts have been checked and are correct. 3. 3.Review the vendor’s terms and the payment due date. 1 1 2 2 3 3

17. © 2014 Cengage Learning. All Rights Reserved. More Scenarios ●In groups of five, create and act out a scenario in which one business entity orders from another business entity ●Include all of the different forms needed and terms that were previously mentioned from slide nine and above SLIDE 17

18. © 2014 Cengage Learning. All Rights Reserved. Purchasing Merchandise on Account SLIDE 18 November 6. Purchased merchandise on account from Wynn Lighting, $1,082.50. Purchase Invoice No. 525. LO6 Lesson 9-2 1. 1.Write the date in the Date column. 4. 4.Write the amount of the invoice in the special amount column. 2. 2.Write the vendor account title in the Account Credited column. 3. 3.Write the purchase invoice number in the Purch. No. column. 1 1 Date Purchases 1,082.50 Accounts Payable 1,082.50 2 2 Vendor Name 3 3 Purchase Invoice Number 4 4 Amount

19. © 2014 Cengage Learning. All Rights Reserved. Lesson 9-2 Audit Your Understanding 1.What is the difference between a periodic inventory system and a perpetual inventory system? SLIDE 19 ANSWER With a periodic inventory system, the value of the inventory is determined by a physical count. With a perpetual inventory system, the value of the inventory on hand is determined by a continuous record of increases and decreases. Lesson 9-2

20. © 2014 Cengage Learning. All Rights Reserved. Lesson 9-2 Audit Your Understanding 2. When the perpetual inventory system is used, in what account are purchases recorded? In what account are purchases recorded when the periodic inventory system is used? SLIDE 20 ANSWER In a perpetual inventory system, purchases are recorded in the Merchandise Inventory account. In a periodic inventory system, purchases are recorded in the Purchases account. Lesson 9-2

21. © 2014 Cengage Learning. All Rights Reserved. Lesson 9-2 Audit Your Understanding 3.Identify the four special journals typically used by a business. SLIDE 21 ANSWER Purchases journal, cash payments journal, sales journal, cash receipts journal Lesson 9-2

22. © 2014 Cengage Learning. All Rights Reserved. Lesson 9-2 Audit Your Understanding 4.How are special amount columns used in a journal? SLIDE 22 ANSWER Special amount columns are used for frequently occurring transactions. Lesson 9-2

23. © 2014 Cengage Learning. All Rights Reserved. Lesson 9-2 Audit Your Understanding 5.Why are there two account titles in the amount column of the purchases journal? SLIDE 23 ANSWER All transactions for purchasing merchandise on account involve a debit to Purchases and a credit to Accounts Payable. Lesson 9-2

24. © 2014 Cengage Learning. All Rights Reserved. Lesson 9-2 Audit Your Understanding 6.What is the advantage of having special amount columns in a journal? SLIDE 24 ANSWER Using special amount columns eliminates writing general ledger account titles in the Account Title column, which saves time and helps to reduce mistakes. Lesson 9-2

25. © 2014 Cengage Learning. All Rights Reserved. Lesson 9-2 Audit Your Understanding 7.What information is contained on a purchase invoice? SLIDE 25 ANSWER A purchase invoice lists the vendor name and address; the date; the quantity, description, and price of each item; and the total amount of the purchase. Lesson 9-2

26. © 2014 Cengage Learning. All Rights Reserved. Your Turn ●As a class: Work Together 9-2 ●Closure: ●What do you believe must be done at the end of the fiscal period with your purchase journal? ●How would you do so? SLIDE 26