Chapter 6, Problem 6CCCP

(a)

To determine

Perpetual Inventory System

Perpetual Inventory System refers to the inventory system that maintains the detailed records of every inventory transactions related to purchases and sales on a continuous basis. It shows the exact on-hand-inventory at any point of time.

Periodic Inventory System: It is a system in which the inventory is updated in the accounting records on a periodic basis such as at the end of each month, quarter or year. In other words, it is an accounting method which is used to determine the amount of inventory at the end of each accounting period.

Journalizing: Journal is the book of original entry whereby all the financial transactions are recorded in chronological order. Under this method each transaction has two sides, debit side and credit side. Total amount of debit side must be equal to the total amount of credit side. In addition, it is the primary books of accounts for any entity to record the daily transactions and processed further till the presentation of the financial statements.

Adjusting Entries: Adjusting entries are those entries which are recorded in the books at the end of an accounting period in order to recognize the incomes and expenses in the period in which they were earned or incurred.

Accounting rules for journal entries:

• To Increase balance of the account: Debit assets, expenses, losses and credit all liabilities, capital, revenue and gains.
• To Decrease balance of the account: Credit assets, expenses, losses and debit all liabilities, capital, revenue and gains.

To Prepare: Journal entries and adjusting entries (perpetual inventory system)

(b)

To determine

T-Account: T-Account is a form of ledger account in which the debit entries are shown at the left side of the account and credit entries are shown at the right side of the account.

To Prepare: T-Accounts

(c)

To determine

Adjusted Trial Balance: An adjusted trial balance refers to the final trial balance resulting after posting the adjusting entries at the end of the period.

To Prepare: Adjusted Trial Balance

(d)

To determine

Income Statement: The income statement is that financial statement which shows the net income (or loss) of the Company. In the income statement, to calculate the net income, all expenses incurred by the Company are deducted from the total revenue of the Company.

Classified Balance Sheet: It represents the financial information under different heads of classification in order to make it easy for the users of financial statements to understand the financial position of the company.

To Prepare: Income statement and classified balance sheet

(e)

To determine

To Prepare: ending inventory and cost of goods sold under FIFO (periodic inventory system)

(f)

To determine

To Prepare: ending inventory and cost of goods sold under LIFO (periodic inventory system).