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Financial Accounting Star Track

The operating cycle of a merchandising company consists of purchasing inventory, selling the inventory, and collecting receivables from customers. STAR-TRACK records a cash sale and the cost of goods sold by debiting cash and inventory, and crediting sales and cost of goods sold. STAR-TRACK also records a purchase from Yamaha Corp on account by debiting inventory and crediting accounts payable. Subsidiary ledgers should be used to track accounts receivables, inventory, and accounts payable. STAR-TRACK calculates cost of goods sold as beginning inventory plus purchases minus ending inventory. Using a perpetual inventory system allows STAR-TRACK to immediately recognize changes to inventory from purchases, returns, and sales.

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701 views3 pages

Financial Accounting Star Track

The operating cycle of a merchandising company consists of purchasing inventory, selling the inventory, and collecting receivables from customers. STAR-TRACK records a cash sale and the cost of goods sold by debiting cash and inventory, and crediting sales and cost of goods sold. STAR-TRACK also records a purchase from Yamaha Corp on account by debiting inventory and crediting accounts payable. Subsidiary ledgers should be used to track accounts receivables, inventory, and accounts payable. STAR-TRACK calculates cost of goods sold as beginning inventory plus purchases minus ending inventory. Using a perpetual inventory system allows STAR-TRACK to immediately recognize changes to inventory from purchases, returns, and sales.

Uploaded by

ryanbalkaran
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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INTRO TO FINANCIAL ACCOUNTING

QUESTION #3

a) The operating cycle of a merchandising company mainly consists of 3 stages as follows:


-Purchase of merchandise (inventory)
-Sale of merchandise (credit sales)
-Collection of receivables (accounts receivables)
b)

STAR-TRACK
GENERAL JOURNAL
DATE
DESCRIPTION
January 3 Cash
Sales
To record cash sales of a tracking systems
to Mystery Mountain Resort.
Cost of goods sold
Inventory
To record the cost of goods sold and reduce
the inventory balance.
January 7 Inventory
Accounts payable (Yamaha Corp)
To record goods purchased on account
from Yamaha Corp.

DEBIT $
20,000

CREDIT $
20,000

11,200
11,200

10,000
10,000

c) A subsidiary ledger, also called a sub ledger, breaks out a single general ledger account
into subgroups that share common information. Individual transactions are posted to the
general ledger account, called the controlling account, and to the appropriate subsidiary
ledger.
From the entries above the following should be posted to subsidiary ledgers.
-Accounts receivables (Cash)
-Inventory
-Accounts payable
d)

Inventory control account


Beginning Inventory

$44,000

Less: Cost of goods sold

($11,200)

Add: Purchases@ January 7th

$10,000

Ending Inventory

e)

$42800

STAR-TRACK
GENERAL JOURNAL
DATE
DESCRIPTION
January 3 Cash
Sales
To record cash sales of tracking
systems to Mystery Mountain Resort.
January 7 Purchases
Accounts payable
To record goods purchased on account
from Yamaha Corp.

DEBIT $
20,000

CREDIT $
20,000

10,000
10,000

f) Cost of goods sold = Beginning inventory + Purchases Ending inventory


Beginning Inventory
Add: Purchases
Cost of goods available for sale
Less: Ending Inventory
Cost of goods sold

$44,000
$10,000
$54,000
($42,800)
$11,200

g) STAR-TRACK should use a perpetual system which will immediately recognize the
effects of those accounts which directly affects the inventory accounts such as purchases,
purchases returns and allowances, purchase discounts, sales, and sales returns. This
would very useful in determining the correct value of inventory at any time which is
useful for high-priced merchandise in this case satellite equipment of STAR-TRACK.
Another reason is that the perpetual system allows companies to compare the inventory
balance with year-end valuations to determine issues such as theft.

h) Gross Profit= Net Sales Cost of goods

Gross profit margin= Gross profit x 100


Net sales
1

Net Sales
Cost of goods sold
Gross profit

$20,000
($11,200)
$8,800

8,800 = .44 x 100 = 44%


20,000

sold

44% gross profit margin means that for every dollar generated in sales 44 cents is profit
generated.

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