vmop30 Posts: 9, Reputation: 1 New Member #1 Jan 27, 2007, 03:25 PM
Cost of Goods Sold
I need help with the following question:

The following information is available for Ace Company for 2007:

Disbursements for purchases
\$1,050,000

75,000

Decrease in merchandise inventory
30,000

Costs of goods sold for 2007 was:

I'm not sure how to get the CofGS with the info provided.
 adiwsusanto Posts: 5, Reputation: 1 New Member #2 Mar 12, 2008, 03:06 AM
You need to understand the relation between AP, inventory and COGS. Draw a T a/c of AP & inventory. With limited info, you have to assume on the BALANCES.

1. Disbursement of 1,050
Dr. INVENTORY; CR AP

2. Increase in AP (assume that it's for purchase of inventory, so it's a similar entry)
Dr. INVENTORY; CR AP

3. Decrease in Inventory (assume that it's for Sales of inventory)
Dr. COGS; CR INVENTORY

with no balance info, I assume that there is no beginning/ ending balance. As such, your inventory T a/c will shows 0 beginning balance, Dr of 75 + 1050, Cr of 30. 0 ending balance. To balance thing you will need another Cr of 1095. With the 30 COGS have been booked, your total COGS then is 30 + 1095 = 1125

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