Perpetual Inventory system: This method records the inventory and the cost of goods sold continuously on the occurrence of a sale or a purchase transaction. Gross Method: Under this method of accounting, sales are recorded at gross invoice value and if cash discount is availed by the customer, then accounts receivable are adjusted by passing an entry. Journal entries : It is the first and foremost step in maintaining books of accounts. Journal entries record the economic transactions made for the business in a chronological order. Credit terms: These are the agreed terms between the buyer and the seller and show the payment terms and the discount availed if the payment made timely, etc. Discount period: Discount period is the period during which the cash discount is available and the purchaser needs to pay the net invoice price i.e., invoice amount less discount. To Prepare: Journal entries for sales, sales return made and its receipt considering company using the gross method to record purchases and a perpetual inventory system.

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Chapter 5, Problem 22QS

To determine

Concept Introduction:

Perpetual Inventory system:

This method records the inventory and the cost of goods sold continuously on the occurrence of a sale or a purchase transaction.

Gross Method:

Under this method of accounting, sales are recorded at gross invoice value and if cash discount is availed by the customer, then accounts receivable are adjusted by passing an entry.

Journal entries:

It is the first and foremost step in maintaining books of accounts. Journal entries record the economic transactions made for the business in a chronological order.

Credit terms:

These are the agreed terms between the buyer and the seller and show the payment terms and the discount availed if the payment made timely, etc.

Discount period:

Discount period is the period during which the cash discount is available and the purchaser needs to pay the net invoice price i.e., invoice amount less discount.

To Prepare:

Journal entries for sales, sales return made and its receipt considering company using the gross method to record purchases and a perpetual inventory system.

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Selected comparative financial statements of Korbin Company follow. Sales KORBIN COMPANY Comparative Income Statements For Years Ended December 31 2021 2020 $ 512,008 $ 392,240 2019 $ 272,200 Cost of goods sold 308,229 245,542 174,208 Gross profit 203,779 146,698 97,992 Selling expenses 72,705 54,129 35,930 Administrative expenses 46,081 34,517 22,593 Total expenses 118,786 88,646 58,523 Income before taxes .84,993 58,052 39,469 Income tax expense 15,809 11,901 8,012 Net income $ 69,184 $ 46,151 $ 31,457 KORBIN COMPANY Comparative Balance Sheets Assets Current assets Long-term investments Plant assets, net Total assets Liabilities and Equity Current liabilities Common stock Other paid-in capital Retained earnings December 31 2021 2020 2019 $ 54,370 0 $ 36,390 600 $ 48,645 3,870 99,436 90,776 53,339 Total liabilities and equity $ 153,806 $ 127,766 $ 105,854 $ 22,456 $ 19,037 $ 18,524 68,000 68,000 50,000 8,500 8,500 5,556 54,850 32,229 31,774 $ 153,806 $ 127,766 $ 105,854

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