Accounts Computations

Running Head: Accounts Computations 1
Accounts Computations
Name
Institute
Date

Accounts computations 2
Question 1
Part A
A merchandising company purchases merchandise inventory $ 100,000 on credit, the credit
terms are 2/10, n 30.
Journal Entries for Given Transaction
Particulars Debit Credit
Purchases 100,000
Accounts payable
(company purchased
inventory on credit)
100,000
Accounts payable 100,000
Cash 98,000
Discount(100,000x 0.02)
(The company paid the
amount due within ten days
and earned a discount)
2,000
Part B
Accounts payable
Debit $ Credit $
Cash 98,000 Purchases 100,000
Discount 2,000
Total 100,000 Total 100,000
Merchandise Inventory
Debit $ Credit $
Accounts payable 100,000
Bal carried down 100,000
Total 100,000 Total 100,000

Accounts computations 3
Question 2
There are four inventory costing methods. First in first out(FIFO), Average Costing, Last
in first out (LIFO), and specific identification method. We will cover FIFO and LIFO.
FIFO
This is an inventory system that works with the assumption that the first goods purchased
will be sold first. This method is beneficial when an organization wants to reduce losses due to
the expiry of goods as they have been kept for too long in storage. The organization is also able
to keep up with market costs (Samak-Kulkarni & Rajhans, 2013). Goods that are always at the
store have the current market price. It is only possible by disposing of goods that were previous
purchased leaving only the most current inventory. Consider the following example purchasing
200 units at $30, sold 180 units at $30, purchase 100 units for $20. The closing inventory will be;
¿
( 20 x 30 )+ ( 100 x 20 )=$ 2,600
LIFO
In this inventory method, the assumption is that the last bought goods will be the first to
be sold or used. This implies that the cost of the most recently purchased good will be treated as
an expense and recorded in the income statement as cost of goods sold(COGS) (Omer, Shelley &
Thompson, 2011). The lower cost of the older purchases will be recorded as the inventory. This
may help an organization make more profits. Consider the following example, Purchase 300 Unit
for $30, Sold 150 Unit, Purchase 200 Unit @ $50. The closing inventory will be;
( 200−150 ) x 50+ ( 300 x 30 )