Session 7-8

Question 1

How to file your Tax Remittance

Answer 1

GST Payable (Debit)
- GST Receivable (Credit)
+
QST Payable (Debit)
- QST Receivable (Credit)
= Total Remittance (in cash)

Question 2

Perpetual inventory system

Answer 2

• Keeps a running record of all inventory as it is bought and sold.
• Cost of goods sold (COGS) is calculated every time a good is sold
• Inventory is still physically counted at the end of the year (in case there was theft or spoilage)
• Use Inventory account for good bought

Question 3

Cost of goods sold

Answer 3

Beginning inventory + Costs of goods purchased = Goods available for sale - ending inventory = (COGS)

Question 4

Periodic inventory system

Answer 4

• Does not keep a running record f all good bought and sold
• Inventory has to be counted at least once a year to determine inventory on hand (it is mandatory)
• COGS is only calculated at the end of the period
• Use Purchases account to record goods bought
• Example Slide 40 (session 7 PowerPoint)

Beginning inventory + net purchases + freight in = costs of goods available for sale - ending inventory = COGS

Question 5

Gross Margin Ratio

Answer 5

• It indicates how much gross profit is generated per dollar of sales
• Reflects the relation between sales and cost of goods sold

Gross Margin/ Net sales revenue

Question 6

Inventory turnover

Answer 6

• It indicates how rapidly inventory is sold

Cost of goods sold/ Average inventory

Question 7

Days’ sales in inventory

Answer 7

365/Inventory turnover

Question 8

Sales Discounts and Sales R&A

Answer 8

• They are contra accounts to Sales Revenue
• It means that they increase on the DEBIT side, just like our expense accounts
• This means we have specific accounts for Sales Discounts and for Sales Returns and Allowances, but they increase on the debit side.

Question 9

FOB Shipping point

Answer 9

Buyer pays for freight duties

Question 10

FOB Destination

Answer 10

Seller pays for freight duties

Question 11

Recording Sales of Inventory under Periodic Inventory system

Answer 11

• Accounting for sales (sales discounts and sales returns and allowances) is the same as in the perpetual inventory system except that there are no entries to Inventory and Cost of Goods Sold throughout the year, as there is no running record of inventory to maintain.

Question 12

(Perpetual) Purchases Account

Answer 12

Inventory(debit)
Accounts Payable(credit)

Question 13

(Perpetual) Purchases Discounts

Answer 13

Accounts Payable(debit)
Cash(credit)
Inventory(credit)

Question 14

(Perpetual) Purchases R&A

Answer 14

Accounts payable(debit)
Inventory(credit)

Question 15

(Perpetual) Transportation expense account

Answer 15

Inventory(debit)
Cash(credit)

Question 16

(Perpetual) Sales account

Answer 16

Accounts Receivable(debit)
Sales Revenue(credit)
Cost of goods sold(debit)
Inventory(credit)

Question 17

(Perpetual) Sales Discounts

Answer 17

Cash(debit)
Sales discounts(debit)
Accounts Receivable(credit)

Question 18

(Perpetual) Sales R&A

Answer 18

Accounts Receivable(credit)
Inventory(debit)
Cost of goods sold(credit)

Question 19

(Periodic) Purchases account

Answer 19

Purchases(debit)
Accounts payable(credit)

Question 20

(Periodic) Purchases discounts

Answer 20

Accounts payable(debit)
Cash(credit)
Purchase discounts(credit)

Question 21

(Periodic) Purchases R&A

Answer 21

Accounts payable(debit)
Purchased R&A(credit)

Question 22

(Periodic) Transportation expense

Answer 22

Freight in(debit)
Cash(credit)

Question 23

(Periodic) Sales account

Answer 23

Accounts receivable(debit)
Sales revenue(credit)

Question 24

(Periodic) Sales discounts

Answer 24

Cash(debit)
Sales discounts(debit)
Accounts receivable(credit)

Question 25

(Periodic) Sales R&A

Answer 25

Sales R&A(debit)
Accounts receivable(credit)

Question 26

Recap on COGS

Answer 26

Ending inventory = Numbers of units on hand x unit cost

Cost of goods sold = Number of units sold x unit cost

Unit cost = Purchase price - purchase discounts - quantity discounts + any costs necessary to put the unit in a saleable condition, such as freight in, customs duties and insurance.