Accounting assignment

Explanations

Jan 12: inventory was booked using net purchases hence the value is shown after the discount was taken off. The initial value was 600,000 but after the 3% discount the value amounted to 582,000.

Feb 10: the cash booking represents the amount Samsung Inc. paid for the inventory received on Jan 12. This amounted to 600,000 as it was paid off after the discounting period. The account payable does not amount to the full 600,000 as previously it was booked with the discount in mind, another entry was added called discount lost in order to balance out the journal entries and show why this amount was paid.

March 20: a sale was made for 250,000 hence showing that Samsung Inc. received 250,000 in cash. Samsung Inc. uses a perpetual inventory system and this is why the booking was made for COGS (cost of goods sold) to the left and inventory to the right; this booking shows that Samsung Inc.’s inventory has decreased by the equivalent of 200,000 euros.

December 18: the company made another sale for 300,000 on account with discount terms of 3% if paid within 10 days. The discount was not shown in the booking as the company uses gross sales so the initial amount should be booked. Again, the inventory is also booked as a cause of the perpetual inventory system.

B) Compute the ending balance in the Inventory account at the close of business on January 6 Explain your answer.

50,000 + 582,000= 632,000

632,000 – 200,000= 432,000

432,000- 150,000= 282,000

Explanation

The inventory started with was 50,000. Then the company bought some more inventory for 582,000. There were 2 sales made after that amounting to 200,000 and 150,000. Once the calculations were made using there figures, the inventory left amounted to 282,000 euros.

C) Prepare the company’s income statement for the year 2019 taking into account that the remaining expenses of the company during the whole year amounted to 40.000€. Explain the different entries of the income statement and in particular the effects of the discount terms on the operations where applicable.

Samsung Inc.

Income statement (year 2019)

Explanation

Samsung Inc. made 2 sales in the year for 550,000 in total, one of them had discount terms but was not paid within the discount period and hence did not apply. Gross sales was applied and so the discount term does not appear in the income statement as, with gross sales, the full amount is recorded and not the discounted amount. Samsung Inc. used net purchases though and this means the discount terms should be shown when they make purchases. In this case they bought inventory worth 600,000 but was given a discount of 3% making it 582,000 as long as it was paid within 10 days. The payment was made outside the discount period and this is why there is an entry in the income statement showing discount lost under the expenses.

D) Explain the main differences between the perpetual and periodic inventory system and record the transactions using a periodic inventory system

A periodic inventory system is when the companies count their inventory after a certain amount of days to check how much they have left whereas a perpetual inventory system is when the company constantly keeps track of their inventory; this is done by accounting for their inventory after every purchase or sale. In a perpetual inventory system, the inventory is booked in the journal entries right under the entries for sales to show how much inventory has left the business which would make it easier for the company to keep track of the inventory they are holding. Periodic inventory is easier to have for the day to day bookings but perpetual inventory system makes it easier for the business to check what they have in their storage without having to physically go and check every single unit they have.

E) Prepare the company’s trial balance at January 1, 2020 taking into account a Balance sheet at January 1 2019 as follow