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College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570

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BuyFindarrow_forward

College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570
Textbook Problem

BURT’S BEES, Durham, North Carolina

Burt’s Bees describes itself as an “Earth-Friendly, Natural Personal Care Company” that produces products for health, beauty, and personal hygiene. The company manufactures over 197 products distributed in nearly 30,000 retail outlets worldwide. As a merchandising company, Burt’s Bees follows its inventory closely. This requires monitoring the receipt, production, purchasing, and planning of inventory. At the end of each time period, Burt’s Bees must make adjusting entries to prepare its financial statements accurately. Many of the adjustments are entries you have already learned, such as depreciation, expiration of prepaid expenses, adjustment of supplies used, and recording of accrued expenses. However, merchandising companies also require adjusting entries related to merchandise inventory. Companies such as Burt’s Bees monitor inventory, prepare a worksheet, and record adjusting entries using either the perpetual or periodic inventory system. Using your book and/or conducting a brief Internet search to find the differences between perpetual and periodic inventory systems, answer the following questions:

  1. 1. What type of inventory system do you think Burt’s Bees uses? Why?
  2. 2. Using the inventory system you selected in no. 1, what is an example of the type of journal entry Burt’s Bees would make when purchasing merchandise on account?
  3. 3. Using the inventory system you selected in no. 1, what journal entry would Burt’s Bees use to record the sale of merchandise on account?

1.

To determine

Explain with the reasons what type of inventory system should Company B use.

Explanation

Inventory Accounting Systems: Merchandise operation is an operation undertaken by the company to conclude sales of goods to the customer. The business must take into account its total inventory value. It needs to identify the worth of merchandise inventory. There are the two types of merchandise inventory systems which are as follows:

  • Periodic
  • Perpetual

Periodic inventory system: The method or system of recording the transactions related to inventory occasionally or periodically is referred as periodic inventory system. Under this system, cost of goods sold account and inventory account are updated only at the end of the period, when the physical count of inventory is taken...

2.

To determine

Give journal entry for purchasing merchandise on account.

3.

To determine

Give journal entry for sale of merchandise on account.

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