Financial accounting

1、Chapter 6: Accounting for retailingSolutions Manualto accompanyFinancial Accounting7ebyJohn HoggettLew EdwardsJohn MedlinMatthew TillingJohn Wiley & Sons Australia, LtdCHAPTER 6ACCOUNTING FOR RETAILINGCONTENTSPageDISCUSSION QUESTIONS SOLUTIONS6.3EXERCISE SOLUTIONS:Exercise 6.1Journal entries for

2、 both buyer and seller- periodic inventory system6.10Exercise 6.2Journal entries perpetual inventory no GST6.13Exercise 6.3Journal entries perpetual inventory GST 6.15Exercise 6.4Journal entries periodic inventory no GST6.17Exercise 6.5Journal entries periodic inventory GST6.18Exercise 6.6Journal en

3、tries for buyer and seller perpetual inventory system6.19Exercise 6.7Journal entries perpetual inventory system with GST6.20Exercise 6.8Discounts and returns6.22Exercise 6.9Journal entries freight costs and discounts6.24Exercise 6.10Income Statement - periodic inventory system6.25Exercise 6.11Income

4、 Statement - perpetual inventory system6.26Exercise 6.12Completion of worksheet periodic inventory system6.27Exercise 6.13Closing entries periodic inventory system6.28Exercise 6.14Closing entries perpetual inventory system6.29Exercise 6.15Missing data and profitability analysis6.30PROBLEM SOLUTIONS:

5、Problem 6.1Journal entries perpetual inventory system6.31Problem 6.2Journal entries for both buyer and seller periodic inventory system6.34Problem 6.3Journal entries perpetual and periodic inventorysystems6.38Problem 6.4Journal entries, discounts, closing entries and income statements both perpetual

6、 and periodic inventory systems6.39Problem 6.5Journal entries involving discounts, closingentries, and income statements - both perpetual and periodic inventory systems6.44Problem 6.6Journal entries involving GST, discounts, closing entries and income statement perpetual inventory system6.47Problem

7、6.7Journal entries involving discounts, closing entries, income statement periodic inventory system6.50Problem 6.8Worksheet and completion of accounting cycle- perpetual inventory system6.53Problem 6.9Journal entries, T accounts, closing entries perpetual inventory syste6.58Problem 6.10Income statem

8、ent and ratios6.61Problem 6.11Worksheet, adjusting and closing entries and financial statements periodic inventory system6.63Problem 6.12Profitability analysis6.72Problem 6.13Correction of errors6.73Problem 6.14Worksheet and completion of accounting cycle perpetual inventory system6.75Problem 6.15Jo

9、urnal entries, worksheet and completion of accounting cycle with GST periodic inventory system6.81CASE STUDY SOLUTIONSDecision CaseBookshop inventory records6.90Critical Thinking CaseLiquid assets6.92Communication/Group ActivityInventory of cola cans6.93Using the webE-commerce in retailing6.95Financ

10、ial Reporting CaseDavid Jones Limited6.96CHAPTER 6ACCOUNTING FOR RETAILINGDISCUSSION QUESTIONSSOLUTIONS1. Define the term “inventory” as used in the accounting standard AASB 102/IAS 2 Inventories. Are office supplies included in inventory? Why or why not?The term “inventory” is defined in AASB 102/I

11、AS 2 as assets:(a) held for sale in the ordinary course of business;(b) in the process of production for such sale; or(c) in the form of materials or supplies to be consumed in the production process or in the rendering of services.For a retail organisation, inventory is the term which applies to go

12、ods or property purchased and held for sale in the ordinary course of business. Other assets held for future sale but not normally sold as part of the regular business activities, such as an item of used office equipment that is no longer needed, are not included in the inventory category. Office su

13、pplies also are not regarded as inventory, as such supplies are not held for sale in the ordinary course of business activities. 2. Discuss the purpose and content of source documents which are used by a business registered for GST to record the purchase and sale of inventory. How would your answer

14、differ if the business was not GST-registered?§ For GST registered businesses, the same source documents are used as for a non-GST registered business, except that for GST registered businesses, registered business documents must conform to the requirements of the GST legislation, e.g. invoices

15、 must be labelled “Tax Invoice”. If a business is not registered, its sales documents need not comply with GST Regulations. However, purchases documentation could differ if goods/services are purchased both from GST registered and non-GST registered businesses.§ In any accounting system, for th

16、e purchase of merchandise, the following documents are used: purchase requisition, purchase order, receiving report, delivery note, purchase invoice, adjustment (debit memo), cheques, credit card slips (if not using EFTPOS). See also Chapter 7. For the sale of merchandise, the entity will normally u

17、se the following documents: sales invoice, adjustment note (credit memo), cash docket, cheques received, credit card slips. In computerised systems, many of these documents are generated by the computer rather than by hand, thus speeding up the handling of such transactions.§ For all sales in e

18、xcess of $50, a tax invoice must comply with the GST legislation. Requirements for tax invoices vary depending on whether the total amount payable on the invoices is $1000 or more. Requirements common to all tax invoices are:·the words tax invoice stated prominently on the invoice·the ABN

19、of the entity issuing the invoice·the date of issue of the invoice·the name of the supplier·a brief description of the items being supplied·if the invoice is for a taxable supply and either a GST-free or input taxed supply, the invoice must show each supply, the GST payable on ea

20、ch supply, and the total amount payable on the invoice as a whole.For tax invoices where the total payable is less than $1000, there is another requirement in addition to those above where the GST payable is exactly 1/11 of the total price, either the total price includes GST must appear on the invo

21、ice, or alternatively the GST amount on the supply can be shown separately.For tax invoices where the total payable is more than $1000, the requirements in addition to those above are:·the name of the recipient of the invoice·the ABN or the address of the recipient·the quantity of the

22、 goods or extent of the services being supplied.Where the total amount is exactly 1/11 of the total price, the invoice amount should show either a statement such as the total price includes GST or the amount of GST. A tax invoice for a total amount less than $1000 is illustrated in figure 6.2 in the

23、 text (assuming a cash sale), and an invoice for a total amount of $1000 or more is illustrated in figure 6.3 in the text (assuming a credit sale with the offer of a cash settlement discount for prompt payment).3. Discuss how gross profit on sales in calculated for a retail entity. Why are sales ret

24、urns and allowances and purchase returns and allowances recorded in contra accounts to sales and purchases respectively? Why is freight inwards added to purchases but freight outwards treated as an expense?This question assumes the use of the periodic inventory system. To calculate gross profit on s

25、ales, subtract the cost of inventory sold from the dollar amount of net sales. The cost of inventory sold, or cost of sales, is determined, in monetary terms, as follows:Beginning inventory for the period+ Purchases + Freight Inwards- Purchases Returns and allowances- Ending inventory for the period

26、Net sales equals sales revenue less sales returns and allowances.Under a periodic inventory system, sales returns and purchases returns are kept in separate contra accounts to provide better information as to the value, volume and proportion of sales which are returned from customers and purchases w

27、hich are returned to suppliers. Under the periodic system, no detailed records are kept of inventory movements in or out, so recording these items in separate accounts at least provides some information on inventory movements for management use.Freight inwards is included in the cost of inventory be

28、cause the cost of inventory, under the requirements of AASB 102/IAS 2, includes the invoice amount plus the costs incurred in the normal course of business in bringing inventories to their present location and condition. Freight outwards is regarded not as a cost of inventory but as a delivery expen

29、se resulting from a sale.4. What is a cash discount? What are the benefits to the seller of allowing cash discounts? Distinguish between a cash discount and a trade discount.A “cash discount” is a percentage reduction on the invoice amount offered for payment of a credit sale within the discount per

30、iod and is an incentive offered to the purchaser to pay for goods purchased early. The seller benefits by having the cash available earlier than the end of the normal credit period, and this can potentially reduce losses from bad debts.A “trade discount” is a percentage reduction granted to a custom

31、er from the normal list price. In contrast to a cash discount, a trade discount is not related to early payment but is used in determining the actual invoice price to the customer. Trade discounts enable the business to print one price list but nevertheless vary prices in dealing with different cust

32、omers. Trade discounts are not recorded in the accounts by either the buyer or the seller, and are disclosed as reductions in the list price on the sales invoice. 5. For the credit terms 1/15, n/45, what is the length of the discount period and the credit period. Using the perpetual inventory system

33、 and assuming a GST of 10%, prepare the journal entry to record a $600 (ex GST) sale on credit of an item of inventory which cost the entity $450. Also record the cash collection within the discount period.Discount period 15 days; credit period 45 days.Accounts Receivable660Sales600GST Collections60

34、Sales on credit plus 10% GST.Cost of Sales450Inventory450Cost of the goods sold.Cash at Bank653.40Discount Allowed6.00GST Collections0.60Accounts Receivable660Receipt of cash net of discount and GST6. What is the meaning of the terms DPP and EXW? Discuss the impact of such terms on the buyers and se

35、llers accounting system. Provide an example to illustrate.EXW stands for ex works, and DDP stands for delivered duty paid. If goods are sold EXW named place of sellers business, freight costs incurred from the point of shipment are paid by the buyer. If goods are sold DDP named place of destination,

36、 the seller bears all the costs of delivering the goods to the buyer. For example, EXW Sydney warehouse means that the buyer pays freight costs from the suppliers warehouse in Sydney; DDP Brisbane head office means that the seller of the goods pays for the freight costs to the buyers head office in

37、Brisbane.In the accounting cycle, if the terms of the sale are DDP and the freight cost is $450, the seller normally records the payment of freight costs as a debit to a Freight Outwards account for $450. Freight outwards is reported as a selling and distribution expense in the income statement. If

38、the terms of the sale are EXW and the freight costs are $450, the buyer will normally record the freight costs in a Freight Inwards account for $450. This account is regarded as part of the cost of the purchase of inventory and is included in the calculation of cost of sales.7.The perpetual inventor

39、y system is superior to the periodic system. Discuss this statement.§ Advantages of the perpetual system over the periodic system.§ The perpetual system:ü keeps a continuous record of all inventory movements so that, at any time, the entity knows how much inventory it should have on h

40、and;ü allows the entity to calculate cost of sales at the time of the sale;ü allows better planning and control of the entitys inventory requirements through the provision of more timely information;ü is readily usable in computerised systems;ü allows accurate assessment of inven

41、tory stolen or lost when inventory records are compared with stocktake figures.Disadvantages of the perpetual system compared with the periodic system.§ The perpetual system:ü is more costly and more complicated to manage although this has become less significant with the use of computeris

42、ed systems.ü is unsuitable for small, inexpensive or immaterial items in that the cost of maintaining the perpetual records may exceed the benefits from having such detailed records.8.With the growing importance of computerised accounting systems, which inventory system (perpetual or periodic)

43、has become more popular? Explain why. Is this desirable. Why?The perpetual system is more popular in computerised systems because computers have allowed entities to gain better control over inventories by reducing the cost and time required to keep detailed inventory records. The availability of sui

44、table computerised integrated accounting packages for inventory has improved the ability of entities to account for all movements of inventory. The use of optical-scan cash registers at checkouts to read product bar codes means that the cash register of today has become a computer terminal for enter

45、ing inventory transactions into the accounting records at point of sale.9. When a periodic inventory system is used, what does the balance of the Inventory account during the period represent? What would be your answer if a perpetual inventory system were used?Under the periodic inventory system, th

46、e balance in the Inventory account represents the cost of inventory on hand at the beginning of the period. Under the perpetual inventory system, the balance of the Inventory account represents the cost of inventory on hand at the present moment, assuming that all postings have been made up to the p

47、resent point in time. (This will be further elaborated in chapter 7).10. Under a periodic inventory system, some entities prefer to treat adjustments to the Inventory account for the new ending inventory balance as adjusting entries rather than in closing entries. Discuss the relative merits of trea

48、ting inventory adjustments as adjusting entries rather than as closing entries.§ In the text, inventory adjustments under the periodic inventory system are treated as part of closing entries rather than as adjusting entries. However, it makes no difference to the final profit figure whether the

49、 beginning inventory balance is closed as part of adjusting entries rather than as part of closing entries. Some people prefer to treat inventory adjustments as adjusting entries. This permits inventory to be treated in a manner consistent with the accounting treatment to supplies on hand. The closi

50、ng entry procedure is adopted here because it is simple, and it restricts the use of the Profit and Loss Summary account to the closing process. If inventory is closed as an adjusting entry, the Profit and Loss Summary account is opened prior to the closing process.§ Alternatively, an adjusting

51、 entry for inventory can be made to an account called Cost of Sales to calculate such cost in the accounts under a periodic inventory system. This will cause further complications in the adjusting/closing process in that the cost of net purchases will also have to be transferred to Cost of Sales as

52、part of adjusting entries, and not to Profit and Loss Summary; hence, the adjusting and closing entries become more complicated. It is simpler to close the beginning inventory account balance as part of the closure of all debit balances in the closing process, and to open the closing inventory balan

53、ce when the balances in temporary credit accounts are closed.§11. Why do businesses that use a perpetual inventory system continue to perform a physical stocktake at least once a year?The physical stocktake is used to verify the accuracy of the inventory records and determine the loss, if any,

54、from theft, breakage and/or shrinkage.12. Having examined the income statements for the last 2 years, the manager of a small business noticed that, in spite of the prosperous result for the current year, the income recognised as discount received had fallen sharply from the previous year. Upon inves

55、tigation, she found that the new employee appointed to look after payment of the accounts had not paid several invoices within the discount period, giving the reason that it was not worth the effort because the discount to be received was only 1% on some invoices, and 2% on others, if paid within 10

56、 days. Discuss the importance (or otherwise) of paying creditors accounts within the discount period.The foregoing of cash discounts through late payment can become expensive for a business if due dates are consistently missed. For example, a creditor is owed $1 000 on terms of 2/10, n/30, the entit

57、y, if it foregoes the 2% discount, is paying $20 for the privilege of waiting an additional 20 days before payment. This is equivalent to an annual interest rate of 36.5%! 2% x 365 days/20 days. If the cash discount is only 1%, the entity would pay $10 for the use of an additional 20 days credit. This is equivalent to an annual interest rate of 18.25%. Can a business afford to keep missing cash discounts when t