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Alpha company is a trading company that purchases and sales fruits and vegetables. During the year 2020, the company shows the following transactions and events
Alpha company is a trading company that purchases and sales fruits and vegetables. During the year 2020, the company shows the following transactions and events
- The company uses the perpetual inventory system to account for its inventory at December 31, 2020 and its financial statements are disclosed without delay.
- The company records sales when cash is received from customers and delay expenses for the next year.
- For credit purchase transactions, the accountant debit (merchandise inventory) and credit (accounts receivable).
- The company assumes the freight charges to its customers. The accountant debit (freight in expenses) and credit (merchandise inventory).
- One customer returned fruits to Alpha that were damaged. The accountant of the company debit (purchase returns) and credit (accounts payable).
- The cost of goods sold is determined after each sale as follow: beginning inventory purchases + ending inventory.
- Net profit is computed by subtracting operating expenses from the cost of goods sold.
- For each case, identify the anomaly and propose the correct accounting treatment/answer
- The accountant records merchandise inventory (stock) in the expenses section of the income statement.
- The company assumes that physical inventory is not important as it uses the perpetual inventory system during the year.
- The driver of the company has access to the inventory, he delivers the merchandise, receives the cash and has access to the company books.
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