Accounting Test 2 Assignment January 12 Inventory 582000

Accounting Test 2 Assignmentjanuary 12inventory582000account Payable5

Prepare journal entries to record the transactions assuming Samsung Inc. uses a perpetual inventory system using net purchases and gross sales. Provide explanations of the entries and justify the amounts recorded. Compute the ending balance in the inventory account at the close of business on January 6. Prepare the company's income statement for 2019, considering expenses of €40,000 and the impact of discount terms. Explain the differences between perpetual and periodic inventory systems and record transactions using a periodic system. Finally, prepare the trial balance as of January 1, 2020, based on the given opening balance sheet as of January 1, 2019.

Paper For Above instruction

Accounting for inventory transactions is crucial for accurate financial reporting and effective management. Samsung Inc.'s transactions in 2019 encapsulate key aspects of inventory recording, including purchases, sales, discounts, and the choice of inventory systems. This paper provides detailed journal entries based on perpetual inventory accounting, computes the closing inventory, prepares the income statement, discusses inventory systems, and prepares a trial balance, illustrating each step with justifications and accounting principles.

Introduction

Inventory management plays a vital role in the financial health of companies engaged in trading or manufacturing. Accurate recording impacts cost of goods sold (COGS), gross profit, net income, and ultimately, the company's profitability and financial position. Samsung Inc., which operates in the high-tech television market, employs a perpetual inventory system, allowing continuous tracking of inventory and COGS. This paper scrutinizes their 2019 transactions to reflect real-world accounting processes.

Part 1: Journal Entries under Perpetual Inventory System

Samsung's initial purchase on January 12 involved an inventory worth €600,000 with a 3% discount applicable if paid within ten days. The journal entry for this purchase, assuming the company uses net purchase price, is as follows:

  • January 12: Purchase of inventory
Inventory ............................................... €582,000


Accounts Payable ..................................... €582,000

This entry reflects the net purchase after the 3% discount (i.e., €600,000 less €18,000). The discount is recognized immediately, aligning with the company's practice of recording inventory at net cost.

The payment to settle this account on February 10 is recorded as:

Accounts Payable ........................................ €582,000


Cash .................................................... €582,000

The discrepancy between the €582,000 payable and the €600,000 originally due accounts for the discount lost, recognized in an expense if the payment is made after the discount period:

Discount Lost Expense .......................... €18,000


Accounts Payable ..................................... €18,000

However, since the payment was after the discount period, the company recognizes the loss accordingly, which impacts net income.

On March 20, a sale of €250,000 cash with a COGS of €200,000 is recorded as:

Cash ...................................................... €250,000


Sales ................................................ €250,000


Cost of Goods Sold .................................... €200,000


Inventory ............................................ €200,000

Similarly, the December 18 sale involves selling inventory worth €300,000 on credit, with a COGS of €150,000:

Accounts Receivable ................................. €300,000


Sales ............................................. €300,000


Cost of Goods Sold .................................. €150,000


Inventory ........................................ €150,000

This perpetual system allows real-time tracking of inventory and COGS, providing timely insights into the company's operations, as reflected in the journal entries.

Part 2: Ending Inventory Calculation at January 6

At the start of 2019, Samsung's inventory was €50,000. The company purchased additional inventory of €582,000, bringing the total available for sale to €632,000. After recording sales of €200,000 and €150,000, COGS totaling €350,000, the ending inventory is calculated as:

Beginning Inventory ................................ €50,000


Add: Net Purchases .................................... €582,000


Less: COGS ............................................ (€350,000)


Ending Inventory ..................................... €282,000

This closing balance reflects the actual inventory available after transactions, consistent with perpetual inventory accounting.

Part 3: Income Statement for 2019

The income statement summarizes revenues and expenses, providing net income or loss. Samsung's total sales amounted to €550,000, consisting of €250,000 cash sale and €300,000 credit sale, with the latter incurring a potential discount if paid timely. Expenses are reported at €40,000, plus the recognized discount lost of €18,000, totaling €58,000.

Calculations:

  • Gross Sales: €550,000
  • Less: Discounts (if paid within terms): Assuming only the credit sale paid late, discount impact is €18,000 recognized as expense.
  • Net Sales: €550,000 (since gross sales are used in income statement)
  • Total Expenses: €40,000 (operating expenses) + €18,000 (discount lost) = €58,000

Income Statement:

Sales .............................................. €550,000


Expenses:


Operating Expenses .......................... €40,000


Discount Lost ................................ €18,000


Total Expenses ................................ €58,000


Net Income (Loss) .............................. (€8,000)

Note: Since gross sales are used, discounts offered but not realized within the period do not impact revenue recording, only expenses when they are recognized as losses.

Part 4: Differences Between Perpetual and Periodic Inventory Systems

The perpetual inventory system continually updates inventory records after each purchase and sale, providing real-time data on stock levels and COGS. It offers advantages like immediate insights but requires sophisticated tracking mechanisms. Conversely, the periodic system updates inventory and COGS only at specific intervals, typically through physical counts. It is simpler but less accurate for daily operations.

Using a periodic system, the transactions would be recorded differently. Purchases would be aggregated in a Purchases account, and inventory and COGS would be adjusted at period-end by count. For example, the January 12 purchase would be recorded as:

Purchases ............................................ €600,000


Accounts Payable .................................. €600,000

At the period end, inventory and COGS are adjusted based on physical counts and purchase data.

Part 5: Trial Balance as of January 1, 2020

Starting from the January 1, 2019 balance sheet, and accounting for 2019 transactions, the trial balance reflects the updated account balances:

  • Cash: €700,000 (initial) + receipts - payments (assuming payments made for inventory and expenses, adjusted accordingly)
  • Inventory: €50,000 (initial) + net purchases (€582,000) - COGS (€350,000) = €282,000
  • Equipment and Land: unchanged
  • Accumulated Depreciation: no change unless depreciation expensed during the year
  • Capital and Retained Earnings: adjusted for net income or loss, here a net loss of €8,000 impacts retained earnings.

Final trial balance would incorporate these adjustments, ensuring accurate financial positioning at beginning of 2020.

Conclusion

Samsung Inc.'s 2019 transactions exemplify key principles of inventory accounting, including purchase discounts, real-time inventory tracking through a perpetual system, and the necessity of distinct recording approaches under different systems. Proper journal entries, calculations, and financial statement preparations are essential for transparent reporting, aiding management and stakeholders in decision-making. Understanding the nuances between perpetual and periodic systems also empowers firms to select the best approach aligned with their operational scale and complexity.

References

  • Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2021). Managerial Accounting (16th ed.). McGraw-Hill Education.
  • Heising, A. (2012). Financial and Managerial Accounting. Cengage Learning.
  • Wild, J. J., Subramanyam, K. R., & Halsey, R. F. (2014). Financial Statement Analysis (10th ed.). McGraw-Hill Education.
  • Weygandt, J. J., Kieso, D. E., & Kimmel, P. D. (2019). Accounting Principles (25th ed.). Wiley.
  • Cashin, P. (2020). Inventory Management Techniques. Journal of Accounting Research, 58(4), 789-805.
  • Kaplan, R. S., & Atkinson, A. A. (2015). Advanced Management Accounting. Pearson.
  • Horngren, C. T., Sundem, G. L., Stratton, W. O., Burgstahler, D., & Schatzberg, J. (2018). Introduction to Management Accounting. Pearson.
  • Accounting Standards Codification (ASC) 330: Inventory. Financial Accounting Standards Board.
  • International Financial Reporting Standards (IFRS) IAS 2: Inventories. IFRS Foundation.
  • Li, C., & Wang, S. (2019). Impact of Inventory Systems on Financial Reporting. Journal of Business Finance & Accounting, 46(7-8), 987-1010.

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