BUS-FPX4060 Assessment 2 Instructions: Adjusting Entries, Inventory, and Cost of Goods Sold

Complete two accounting exercises in which you prepare adjusting journal entries and income statements and compute financial ratios, inventory costs, and gross profit using a provided worksheet.

Introduction

This assessment extends your analysis of merchandising activities by focusing on the valuation of the organization’s inventory that is available for sale to wholesalers and point-of-sale consumers. An understanding of inventory accounting helps in the analysis and interpretation of financial statements prepared by large retailers and small owner-operated specialty retailers.

Merchandise Business Accounting

The first assessment dealt with accounting and reporting activities for businesses that provide services to their customers. In contrast to this business type, merchandisers earn their revenues through the purchase and resale of goods. The two most common types of merchandisers are wholesalers and retailers. A wholesaler generally purchases goods from a manufacturer and sells them to retailers or other intermediaries. A retailer buys direct from either the manufacturer or a wholesaler and resells these goods to consumers. There are some fundamental differences between accounting for merchandise and service operations.

Merchandise Inventory

Accounting for inventory affects both the balance sheet and the income statement. The major goal in accounting for inventory is to properly match costs with sales and, as such, use the matching principle to decide how much of the cost of goods available for sale is deducted from sales and how much is carried forward as inventory and matched against future sales.

Overview

This assessment consists of two accounting exercises. The exercises are provided in the Adjusting Entries, Inventory, and Cost of Goods Sold Worksheet. Use this worksheet to record and submit your solutions for Exercises 2-1 and 2-2.

Preparation

In addition, practice problems for each exercise are provided in the Assessment 2 Practice Problems Worksheet.The worksheet and answer key can be found in the Capella Resources activity of this assessment and are optional.

The following resource is required to complete the assessment.

CAPELLA RESOURCES

Click the link provided to complete the assignement worksheet:

Submission Guidelines

Submit your completed Adjusting Entries, Inventory, and Cost of Goods Sold Worksheet for faculty evaluation. Please make sure to show ALL work. 

 

Competencies Measured

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

  • Competency 2: Apply accounting principles as the language of business.
    • Prepare adjusting journal entries for merchandising operations.
  • Competency 3: Communicate the effects of business events on an organization’s financial structure.
    • Prepare a multiple- or single-step income statement for merchandizing operations.
    • Compute current and acid test financial ratios.
    • Compute inventory costs using three inventory valuation methods.
    • Compute gross profit using three inventory valuation methods.

 

The following e-books or articles from the Capella University Library are linked directly in this course:

A Capella University library guide has been created specifically for your course business research. You are encouraged to refer to the resources in the Business Research Library Guide to help direct your research. See the Accounting tab for specialized resources.

 

The resource listed below is relevant to the topics and assessments in this course and is not required. 

  • Wild, J. J., & Shaw, K. W. (2022). Financial and managerial accounting: Information for decisions (9th ed.). McGraw-Hill. Available in the courseroom via the VitalSource Bookshelf link. 
    • Chapter 4, “Accounting for Merchandising Operations.”
      • This chapter covers the multiple-step and single-step income statements, gross profit, and financial ratios calculated based on information provided in the income statements.
    • Chapter 5, “Inventories and Cost of Sales.”
      • This chapter covers the FIFO, LIFO, weighted average, and specific identification inventory cost methods, as well as the calculation of gross profit based on COGS.

 

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