Homework SourseService providers use this account similarly to the cost of
Service providers use this account similarly to the cost of merchandise sold account used by merchandisers.
Solution
Accounts Used in Merchandising Activities
[COGS = Cost of Goods Sold]
Periodic
Perpetual
| Method >>> | Periodic | Perpetual |
| Account used to record inventory purchases: | Purchases | Inventory |
| Appears on: | Income Statement | Balance Sheet |
| When a sale is made: | No adjustment to inventory is necessary; merchandise cost is already on the Income Statement | Merchandise cost is transferred from Inventory to Cost of Goods Sold -an Income Statement account |
| Year-end procedures: | Adjust Inventory balance to agree with year-end physical count and merchandise value | Adjust Inventory balance to agree with year-end physical count and merchandise value |
| Other procedures: | Transfer Purchases balance to Cost of Goods Sold | Balances should now be correct |
