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Accounting in Merchandising Companies

6.4. T-accounts of transactions for illustration #2 of accounting for inventory

It is time to transfer the amounts to T-accounts.

Illustration 11: T-accounts of transaction for illustration #2

Finally, financial statements prepared for 20X6 and 20X7 are shown below.

Illustration 12: Financial statements for Dav's books for 20X6 and 20X7

Dav's Books Income Statement For the Period Ended 20X6 and 20X7
	For the Period Ended 20X6	For the Period Ended 20X7
Net Sales	$5,500	$3,430
Cost of Goods Sold	(2,000)	(1,750)
Gross Margin	$3,500	$1,680
Less: Operating Expense Transportation-out Selling Expense	(300) (400)	(400) 0
Operating Income	$2,800	$1,280
Non-Operating Items	0	0
Net Income	$2,800	$1,280

Dav's Books Balance Sheet Periods Ended 20X6 and 20X7
	Period Ended 20X6	Period Ended 20X7
Assets Cash Accounts Receivable Merchandise Inventory	$9,600 0 5,200	$8,024 0 8,056
Total Assets	$14,800	$16,080

Liabilities Accounts Payable	$ 0	$ 0
Total Liabilities	$ 0	$ 0

Equity Contributed Capital Retained Earnings	$12,000 2,800	$12,000 4,080
Total Equity	$14,800	$16,008

Total Liabilities and Equity	$14,800	$16,080

Dav's Books Statement of Changes in Equity Periods Ended 20X6 and 20X7
	Period Ended 20X6	Period Ended 20X7
Beginning Contributed Capital Plus: Capital Acquisition	$ 0 12,000	$12,000 0
Ending Contributed Capital	$12,000	$12,000

Beginning Retained Earnings Plus: Net Income Less: Distributions	$ 0 2,800 0	$2,800 1,280 0
Ending Retained Earnings	$2,800	$4,080

Total Equity	$14,800	$16,080

Dav's Books Statement of Cash Flows For Periods Ended 20X6 and 20X7
	For Period Ended 20X6	For Period Ended 20X7
Cash Flows from Operating Activities Cash Receipts from Sales Revenue Cash Payments for Expenses	$5,500 (4,900)	$3,430 (5,006)
Net Cash Flow from Operating Activities	$600	(1,576)

Net Cash Flow from Investing Activities	$ 0	$ 0

Cash Flows from Financing Activities Cash Receipts from Capital Contrib.	$9,000	$ 0
Net Cash Flows from Financing Activities	$9,000	$ 0

Net Change in Cash Plus: Beginning Cash Balance	$9,600 0	(1,576) 9,600
Ending Cash Balance	$9,600	$8,024

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1. Definition of inventory	1
2. Inventory costs. Product and period costs	1
3. Cost of goods available for sale and cost of goods sold	1
4. Perpetual and periodic inventory systems	2
5. Illustration #1 of accounting for inventory (period 1)	2
5.1. Analysis of capital contribution transaction	2
5.2. Analysis of inventory acquisition transaction	2
5.3. Analysis of transportation-in costs	3
5.4. Analysis of the inventory sale transaction	3
5.5. Analysis of transportation-out expenses	3
5.6. Analysis of selling expenses transaction	3
5.7. Journal entries and T-accounts for illustration #1 of accounting for inventory	4
6. Illustration #2 of accounting for inventory (period 2)	5
6.1. Effects of transactions for illustration #2 of accounting for inventory	5
6.2. Analysis of transactions for illustration #2 of accounting for inventory	6
6.3. Journal entries for illustration #2 of accounting for inventory	6
6.4. T-accounts of transactions for illustration #2 of accounting for inventory	7
6.5. Financial statements for illustration #2 of accounting for inventory	7
6.6. Multiple-step and single-step income statements	8
7. Comparison of the periodic and perpetual inventory systems	8

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