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    vmop30's Avatar
    vmop30 Posts: 9, Reputation: 1
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    #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


    Increase in trade accounts payable
    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's Avatar
    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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