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Adjusting Entries, Inventory, and Cost of Goods Sold

Adjusting Entries, Inventory, and Cost of Goods Sold

 Complete two accounting exercises in which you prepare adjusting journal entries and income statements and compute financial ratios, inventory costs, and gross profit using a provided worksheet.

Introduction

This assessment extends your analysis of merchandising activities by focusing on the valuation of the organization’s inventory that is available for sale to wholesalers and point-of-sale consumers. An understanding of inventory accounting helps in the analysis and interpretation of financial statements prepared by large retailers and small owner-operated specialty retailers.

Merchandise Business Accounting

The first assessment dealt with accounting and reporting activities for businesses that provide services to their customers. In contrast to this business type, merchandisers earn their revenues through the purchase and resale of goods. The two most common types of merchandisers are wholesalers and retailers. A wholesaler generally purchases goods from a manufacturer and sells them to retailers or other intermediaries. A retailer buys direct from either the manufacturer or a wholesaler and resells these goods to consumers. There are some fundamental differences between accounting for merchandise and service operations.

Merchandise Inventory

Accounting for inventory affects both the balance sheet and the income statement. The major goal in accounting for inventory is to properly match costs with sales and, as such, use the matching principle to decide how much of the cost of goods available for sale is deducted from sales and how much is carried forward as inventory and matched against future sales.

Overview

This assessment consists of two accounting exercises. The exercises are provided in the Adjusting Entries, Inventory, and Cost of Goods Sold Worksheet. Use this worksheet to record and submit your solutions for Exercises 2-1 and 2-2.

Preparation

In addition, practice problems for each exercise are provided in the Assessment 2 Practice Problems Worksheet. The worksheet and answer key can be found in the Capella Resources activity of this assessment and are optional.

The following resource is required to complete the assessment.

CAPELLA RESOURCES

Click the link provided to view the following resource:

Submission Guidelines

Submit your completed Adjusting Entries, Inventory, and Cost of Goods Sold Worksheet for faculty evaluation. Please do not submit completed practice problems with your assessment.

Competencies Measured

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

  • Competency 2: Apply accounting principles as the language of business.
    • Prepare adjusting journal entries for merchandising operations.
  • Competency 3: Communicate the effects of business events on an organization’s financial structure.
    • Prepare a multiple- or single-step income statement for merchandizing operations.
    • Compute current and acid test financial ratios.
    • Compute inventory costs using three inventory valuation methods.
    • Compute gross profit using three inventory valuation methods.

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