Use the following TRANSACTIONS AND ADDITIONAL INFORMATION to complete the General Journal Entries, Ledger, Worksheet and Financial Statements for the first of the month of operations for The Golf Club.
PERPETUAL INVENTORY METHOD
'Perpetual' means "to keep a running total" of the amount of inventory you have on hand at any point in time.
To follow the 'Perpetual Method' every time the company makes a purchase of additional inventory, you need to increase (debit) the inventory accounts, and credit either cash or accounts payable, depending if the company paid cash or an account.
Every time the company makes a sale of merchandise to a customer, it requires (2) journal entries to update the accounting records:
(1) The first journal entry Is required to record the sale itself, whether cash or credit sale, and
(2) The second is needed to update the Inventory records to show that some goods have left inventory and the account should be reduced. Once inventory has been sold, it is now recorded as COGS (debit Cost of Goods Sold...an expense on the income Statement.)
1. Record a purchase of inventory
inventory xx
Cash or Account Payable xx
The dollar amount of the debit & credit L. (# units x $ cost)
2. Reran the Sale: Record the Revenue at the Selling Price (Retail)
Cash or A/R xx
Sales Revenue xx
The dollar amount of the debit & credit = (# units x $ Selling Price)
3. Update the 'Inventory' Account: Reduce the Inventory at the Cost of the merchandise that has now been sold.
COGS xx
Inventory xx
The dollar amount of the debit & credit = (# units x $ Cost)
- Journal entries (2) & (3) must ALWAYS be done together (i.e. for each and every sale of merchandise to a customer it requires these 2 entries)
WHAT HAPPENS AT THE ENO OF THE MONTH:
When a company uses the perpetual method to keep track of its inventory, the accounting records can be used to tell management how much inventory they should have on hand at the end of the period, based on the sales recorded. The company would always want to take a physical count of the inventory to verify how much merchandise is actually on hand. Once the physical count is taken, it is then compared to the ending balance for inventory in the accounting records. If there is a difference, management knows they have suffered some type of theft, loss, or shrinkage of merchandise during the period. All losses are, reported on the Income Statement and should be recorded as an AJE at month end as follows:
Loss on Shrinkage xx
Inventory xx
The dollar amount of the loss is determined by: (# units missing x $ cost)
Practice Problem in Accounting - The Golf Club
TRANSACTIONS
Sept 1 - At the beginning of September, 2016, three brothers organized The Golf Club by contributing $50,000 each to begin the new business in exchange for shares of stock.
Sept 2 - Signed a one-year lease on an existing golf club and golf course for The Golf Club and made a $30,000 advance payment for the first three month's rent.
Sept 2 - The Golf Club purchased the following fixed assets paying 25% down and giving a two-year, 4% APR note for the balance Principle and interest are due at maturity.
Furniture - $ 15,000
Fixtures - 4,500
Equipment - 72,010
Total - $ 91,500
Sept 3 - Purchased a 6-month insurance policy on The Golf Club and its contents and paid the premium of $4,200 in advance
Sept 3 - Purchased office supplies for $500 on an open account from Kelli's Office Supplies The Golf Club has 30 days to pay for the supplies.
Sept 3 - Purchased on account a total of 70 shirts with an embroidered Golf Club logo from C & C Creations at a price of $15 per shirt. These shirts are available for resale to customers.
Sept 3 - Purchased concessions for $2,500 from Delta Distributing, Inc. These concessions consist of energy drinks, chips, crackers, nuts etc , and are available for resole to customers The Golf Club paid 20% down and put the balance on account.
Sept 3 - Sold sixty, twelve-month memberships to The Golf Club for $2,750 each. All membership dues wore collected in cash.
Sept 3 - Purchased a 6-month maintenance contract with Larry's Landscaping to provide grounds maintenance. Paid $6.000 In advance for this service.
Sept 5 - Provided 40 hours of golf lessons to members. Fees are charged at a rate of $45/hour. Of those fees, $650 was collected in cash and the balance was billed to individual member's accounts.
Seat 6 - Received a bill for $350 from The Golf Club's attorney for legal services rendered.
Sept 8 - Sold twenty-two shirts to a corporate member. Allen & Associates for $2450 each collected $224 in cash and the balance is owned to the Golf Club on account.
Sept 14 - Purchased on additional $100 in office supplies on open account from Kelli's Office Supplies.
Sept 15 - Paid wages and salaries or $2,300 to Golf Club employees.
Sept 15 - Sold thirty, twelve-month memberships to the club for $2,750 each. Collected the dues in cash.
Sept 15 - The concessions stand reported sales of merchandise for $4,800 for the first half of the month. The concessions that were sold had an original cost of $2,400. All of these transactions were billed directly to each member's account.
Sept 16 - Purchased additional concessions for $1,200 from Delta Distributing on open account.
Sept 18 - Paid the total amounts due to C&C creations, the Golf Club's attorney and Kelli's Office Supplies.
Sent 19 - Sold thirty-six shirts to individual customers for $30 each Collected 30% in cash, the balance Is owed to the Golf Club on account
Sect 22 - The Golf Club paid a dividend of $900 to each shareholder.
Sept 26 - Collected the balance of what was owed on account from Allen & Associates.
Sept 28 - Received a utility bill that totaled $880 for the month, it is due Oct. 14.
Sept 30 - The Golf Club provided you with the following information regarding the remaining activities for the month of September:
a. Fees for golf lessons for the last half of September (billed to members' accounts) - $3,330
b. Cash sales of shirts (5 @ $30 each) - 150
c. Sales for concessions during the last half of September (20% collected in cash) - 2,200
Cost of concessions sold from September 16-30 - 1,100
d. Cash received during September for services billed to member's accounts - 4,400
e. Cash received for visitor's greens fees (fee to play the golf course) - 1,000
Sept 30 - Purchased additional fixtures for the go9lf club totaling $2,650. The total amount was paid in cash.
Additional information -
1. Operation expense for the month of September should be calculated using the straight line method with the following useful lives
Furniture - 5 years
Fixture - 5 years
Equipment - 3 years
2. At the end of the month, a physical count was taken of the Golf Club assets investment and supplies, it revealed the following information:
a. Four of the shirts for resale were on hand at September 30.
b. Concession merchandise still on hand as of September 30 amounted to $175.
3. Salaries earned by employees but unpaid at September 30 totaled $2,540.
4. There was $150 of Office Supplies still on hand as of Somber 30.