Task Team of FUNDAMENTAL ACCOUNTING School of Business Sun Yat-sen University Net purchases=Purchases Purchase returnsand-Purchase discounts allowances Cost of goods purchased= Net purchases Transportation-in Cost of goods available for sale =Beginning inventory+Cost of goods purchased Cost of goods sold*=Cost of goods available for sale-Ending inventory* t *Under a perpetual inventory system, shrinkage, the difference between ending merchandise inventory per the physical count and ending merchandise inventory per the accounting records, is subtracted from ending inventory and added to cost of goods sold as an djustment at the end of the accounting period Y Under a periodic system, ending inventory is determined based on a physical count; therefore, both ending inventory and the resulting cost of goods sold are inclusive of shrinkage Closing entries The closing process is accomplished for a merchandising company by crediting those accounts that appear on the worksheet in the income statements debit column(including Sales returns and allowances, Sales discounts, and Cost of goods sold) and by debiting those accounts that appear on the worksheet in the income statements credit column(including Sales Discussion case: CIMC CIMC is the number one stock in China, mainly due to its"excellent"operating performance However, in early 2005, the operating performance of CIMC was challenged. Analysts argued that the surprisingly high operating performance is questionable. Specifically, abnormal growth was found in the following items, t sales revenue gross profits t Accounts receivable However, no growth was found in cash collected from customers t How to calculate the growth rates in sales, gross profits, inventory, accounts receivables, and cash? t Are there are relationships between the above items? Y How to verify the growth in above items? ry t The operating cycle of merchandise companies begins with the purchase of merchandise and end with the collection of cash from the sale of merchandise Perpetual method and periodic method are two inventory systems. Today perpetual ethod is more and more adopted Accounting for merchandise purchases records purchases, trade discount, cash discounts purchase returns and allowance, transportation costsTask Team of FUNDAMENTAL ACCOUNTING School of Business, Sun Yat-sen University 6 Net purchases=Purchases– allowances Purchase returnsand –Purchase discounts Cost of goods purchased = Net purchases + Transportation-in for sale Cost of goods available =Beginning inventory+Cost of goods purchased Cost of goods sold*=Cost of goods available for sale–Ending inventory*  *Under a perpetual inventory system, shrinkage, the difference between ending merchandise inventory per the physical count and ending merchandise inventory per the accounting records, is subtracted from ending inventory and added to cost of goods sold as an adjustment at the end of the accounting period.  Under a periodic system, ending inventory is determined based on a physical count; therefore, both ending inventory and the resulting cost of goods sold are inclusive of shrinkage. Closing entries The closing process is accomplished for a merchandising company by crediting those accounts that appear on the worksheet in the income statement’s debit column (including Sales returns and allowances, Sales discounts, and Cost of goods sold) and by debiting those accounts that appear on the worksheet in the income statement’s credit column (including Sales). Discussion case: CIMC CIMC is the number one stock in China, mainly due to its “excellent” operating performance. However, in early 2005, the operating performance of CIMC was challenged. Analysts argued that, the surprisingly high operating performance is questionable. Specifically, abnormal growth was found in the following items,  Sales revenue  Gross profits  Accounts receivable  Inventory However, no growth was found in cash collected from customers. Required:  How to calculate the growth rates in sales, gross profits, inventory, accounts receivables, and cash?  Are there are relationships between the above items?  How to verify the growth in above items? Summary  The operating cycle of merchandise companies begins with the purchase of merchandise and end with the collection of cash from the sale of merchandise.  Perpetual method and periodic method are two inventory systems. Today perpetual method is more and more adopted.  Accounting for merchandise purchases records purchases, trade discount, cash discounts, purchase returns and allowance, transportation costs