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danhanson2008
Feb 21, 2008, 09:40 PM
Beginning Inventory is: $150
Purchases: $1,600
Purchase returns and allowances: $40
Net Purchases: Don't know
Freight-in: $110
Cost of goods purchases: don't know
Cost of goods available for sale: $1,820
Ending Inventory: $310
Cost of goods sold: don't know

Please Help, How do I solve the other blanks to get the cost of goods sold answer? How do I solve Net purchases, Cost of goods purchased, to get to the answer for cost of goods sold?

morgaine300
Feb 22, 2008, 08:31 PM
You need to learn the following:

Beginning Inventory
+Net Cost of Purchases
=Cost of Goods Available for Sales
-Ending Inventory
=Cost of Goods Sold

If you're going to work with the perpetual method then you need to have the above memorized. It's basically just saying that if you take what you started with and add on everything you bought, that gives you the total amount you had. Well, some of those got sold and you're left with ending inventory. So if you subtract out the ending inventory count, that'll tell you what you sold. (The cost of what you sold.)

Then net cost of purchases is:
Purchases
-Discounts
-Returns
=Net Purchases
+Freight
=Net Cost of Purchases

That is accounting for the fact that your discounts and returns have been kept track of separately, but now must be subtracted off the purchases for the net amount. And then freight is considered part of the cost of making the purchases, so that then gets add on.

When shown on a statement, you might see these two intermingled with each other, but to work on this problem I would keep them separated out.

What you need to do is take what numbers you have and insert them where they belong into these "equations." Leave the others blank with question marks. You will then have to start working through the math. If you see anything obvious that you can do immediately, like two things that can be added or subtracted directly, do that first and get some other numbers in. Then you have to start working backwards. Remember that if it's something that gets added, then to work backwards you must subtract. And if it's something that would be subtracted, then to work backwords you must add.

For instance:

100
+ ?
= 150

You add to get to 150, so you need to subtract them (150-100) to work backwards to get the missing number of 50.

Net cost of purchases is the only number in both parts. If you get stuck on one, go to the other and work through it. Once you have that number, it can be inserted into the other equation and you can then work from there.

Give it a shot.