control account, subsidiary ledgers, closing entries, inventory systems
Assignment Question 2 Sample
Assume that Musonda’s Markets had an inventory balance of $13 860 at the close of the last accounting period. The following sales and purchase transactions are for the current period:
1. Purchased goods on account for $11 570.
2. Returned part of the above purchase that had an original purchase price of $670.
3. Paid for the balance of the purchase in time to receive a discount of 1% of the purchase price.
4. Sold goods costing $10 600 for $21 200. Cash of $9800 was received, with the balance due on account.
5. Goods sold on credit for $860 (cost $430) were returned.
Required
A. In two columns, prepare general journal entries (ignoring GST) assuming:
1. a periodic inventory system is used
2. a perpetual inventory system is used.
B. Same as for requirement A, except that GST is to be added to the figures where appropriate.
C. Suppose that a physical count of the inventory at the end of the current period shows inventory of $13 200 to be on hand. Present the entries (if any) required under each inventory system to adjust for any discrepancy.
D. Comment on which system would best disclose any discrepancy.
Solution Journal entries – perpetual and periodic inventory systems
MUSONDA’S MARKETS
Required:
A. In two columns, prepare general journal entries assuming:
1. a periodic inventory system is used.
2. a perpetual inventory system is used.
B. Repeat requirement A assuming GST is to be added to the figures where appropriate.
C. Suppose that a physical count of the inventory at the end of the current period shows inventory of $13 200 to be on hand. Present the entries (if any) required under each inventory system to adjust for any discrepancy.
D. Comment on which system would best disclose any discrepancy.
A. (without GST)
MUSONDA’S MARKETS
Periodic Perpetual
1. Purchases 11 570 Inventory 11 570
Accounts Payable 11 570 Accounts Payable 11 570
2. Accounts Payable 670 Accounts Payable 670
Purchases Returns & Allows. 670 Inventory 670
3. Accounts Payable 10 900 Accounts Payable 10 900
Discount Received 109 Discount Received 109
Cash at Bank 10 791 Cash at Bank 10791
4. Cash 9 800 Cash 9 800
Accounts Receivable 11 400 Accounts Receivable 11 400
Sales 21 200 Sales 21 200
Cost of Sales 10 600
Inventory 10 600
5. Sales Returns & Allows 860 Sales Returns & Allows 860
Accounts Receivable 860 Accounts Receivable 860
Inventory 430
Cost of Sales 430
B. (with GST)
MUSONDA’S MARKETS
Periodic Perpetual
1. Purchases 11 570 Inventory 11 570
GST Outlays 1 157 GST Outlays 1 157
Accounts Payable 12 727 Accounts Payable 12 727
2. Accounts Payable 737 Accounts Payable 737
Purchases Rtns & Allows. 670 Inventory 670
GST Outlays 67 GST Outlays 67
3. Accounts Payable 11 990 Accounts Payable 11 990
Discount Received 109 Discount Received 109
GST Outlays 10.90 GST Outlays 10.90
Cash at Bank 11 870.10 Cash at Bank 11 870.10
4. Cash 9 800 Cash 9 800
Accounts Receivable 13 520 Accounts Receivable 13 520
Sales 21 200 Sales 21 200
GST Collections 2 120 GST Collections 2 120
Cost of Sales 10 600
Inventory 10 600
5. Sales Returns & Allowances 860 Sales Rtns & Allows 860
GST Collections 86 GST Collections 86
Accounts Receivable 946 Accounts Receivable 946
Inventory 430
Cost of Sales 430
C.
MUSONDA’S MARKETS
Periodic Perpetual
Physical count at period end $13 200 Inventory balance Perpetual System $14 590
No entry required under periodic system.
Inventory loss included in calculation of Cost of Sales. $13860(balance) + $11570(purchase) – $670(return) – $10600(sale) + $430(sale return) = $14 590
Inventory Shortage Expense 1 390
Inventory 1 390
Inventory loss $14 590 – $13 200 = $1390
D.
The perpetual inventory system is the only system which can identify inventory discrepancies. This system maintains an accurate record of how many inventory units should be on hand at any one time. The system can then identify any discrepancy between recorded inventory balances and the stocktake or physical count of inventory numbers.
In this case the inventory shortage amount of $1 390 is significant and the owner of the business needs to investigate the cause. Is it theft? Is the inventory being discarded because it has perished? Is it a combination of factors? What can be done about it?
