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Chapter 5 - Recording Inventory Purchases and Sales (Perpetual Inventory System) - PART 1 - YouTube
Channel: Else Grech Accounting
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hi else here and in this video you'll be
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learning about basic purchases and sales
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of inventory under the perpetual
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inventory system let's first recall all
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the accounts we'll need to use in order
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to record inventory transactions I a
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merchandiser inventory is a finished
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good that merchandisers buy today so
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they can generate revenue by reselling
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it to their customers for more tomorrow
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inventory is most often occur in asset
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because it's sold in the upcoming twelve
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months although that really depends on
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the industry the merchandiser is in cash
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is a current asset because it's
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controlled by the business has future
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benefits since it can be used to
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generate revenue and is due to an inflow
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from a past transaction accounts
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receivable often called AR is also a
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current asset it represents the legal
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right to collect cash from customers due
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to a past sale the cash will be
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collected at some point in the future
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accounts payable called ap is a current
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liability it represents a future
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obligation to pay your supplier due to
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something you purchased from them in the
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past sales revenue belongs to the
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financial reporting element revenues
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it's earned when a good is delivered
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note the past tense the business has to
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have done their job completed what they
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had to do before they can claim that
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they have earned
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sales revenue last is cost of goods sold
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or cost of sales which you know belongs
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in the element expense it is a total
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value of all inventories sold during the
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period it's an expense because it is
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used to generate revenue now that you
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know the accounts you will be using and
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the financial reporting elements they
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belong in let's remind ourselves are the
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questions you should ask yourself
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whenever you analyze a business activity
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recall that these are divided into
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critical questions and enhancing
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questions let's start with the critical
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questions what did the business get what
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did the business give away using these
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critical questions should allow you to
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determine the impact of the business
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activity but if you still don't
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understand the impact you can move on to
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the enhancing questions what did the
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business earn
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what did the business use consume or
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incur to help generate revenue what does
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the business Oh to either creditors or
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owners these are the questions that you
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should ask yourself every single time
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you read a business activity and need to
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analyze its impact on the financial
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reporting elements okay
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now you're ready to record basic
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inventory purchases and sales will use
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green ink as our business green ink is a
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wholesaler recall that a wholesaler
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purchases inventory in bulk and then
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sells smaller amounts to retailers at a
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higher price it is then the retailer's
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who will sell the product to the public
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for even more green ink sells widgets to
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retailers you're likely thinking what is
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a widget well a widget ism' their
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doohickeys or whatchamacallit
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thingamajigs widget is a word we use in
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accounting for a small gadget or
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mechanical device whose name is unknown
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it represents a product a unit of
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inventory we use it when we don't want
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to name something think of it as an
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electronic device that will be invented
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manufactured and sold in the future it
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represents an inventory item and that's
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why we use it because it can represent
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anything so green ink buys their widgets
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for two dollars each and they sell them
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for $5 each they sell only to retailers
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never to the public in order to follow
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along with these transactions I suggest
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you download the business activities of
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greening from my Dropbox the link is in
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the description of this video directly
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below the video as always I recommend
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you read the business activities first
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and analyze them using the critical
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enhancing questions before I solve it
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all for you that will enhance your
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learning note that you can also download
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the transcript of this video it's also
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posted in my Dropbox and the link is
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immediately below this video now that
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we've got the housekeeping out of the
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way we'll start analyzing the
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transactions for green ink in our next
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video
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