SCENARIO: You are a new hire for a major corporation completing your eight-week rotation related to accounting, financial reporting, budgeting, cost control, and profit maximization. As part of your rotation you are learning about the accounting process and how to use accounting information to make managerial decisions.

Review your SEC 10-K companys balance sheet (statement of position) and income statement (statement of earnings). Your SEC 10-K company should have inventory reported on the balance sheet and Cost of Goods Sold reported on the income statements.

Each time inventory is sold, two transactions occur: revenues (sales) are recorded, and inventory is used up to become an expense. This means two journal entries are recorded:

DR Cash (or accounts receivable if on account) CR Sales (to record sales revenues earned)

DR Cost of Goods Sold CR Inventory (To record inventory becoming the expense of the sale)

Consider the impact of recording these two transactions. What key profit factor do you learn from this journal entry? What does recording this transaction tell you about the gross profit on each sale? Does this gross profit indicate overall profitability? (Hint: is the cost of selling inventory the only expense incurred during routine operations?)

• Why do companies go through a closing process? What accounts are closed in that process? Are they really closed and erased from the accounting system?
• Discuss the additional accounting issues faced by merchandisers/retailers that service companies do not address.
• What does a system of internal controls achieve? (You can apply this to internal controls over cash, or a general discussion of internal controls.)
• What topic(s) gave you trouble this week (if any)?/What topic(s) do you feel you were able to grasp? Post questions in the homework discussion thread!