Retail operations and retail inventory Spottie Ltd began business on 1 January 2018. The business will sell ‘Spot the dog’ soft toys via an online store. The business is not registered for GST. The following transactions occurred during January 2018: Date: Details: 1 Jan Spottie Ltd issued 10,000 x $2 shares to Mr Spot and Mrs Spot. $20,000 received from the share issue was deposited into the business bank account. 3 Jan Inventory purchase (400 soft toys) from Plush Toys Ltd on account for $2,400 on terms of n/30. 6 Jan Sale of inventory (160 soft toys) to Rainbow Preschool on account for $1,600 on terms of n/30. 9 Jan Inventory purchase (300 soft toys) from Plush Toys Ltd via EFT for $2,100. 12 Jan Paid Plush Toys Ltd for purchases made on 3 January, via EFT. 15 Jan Received $1,600 from Rainbow Preschool in payment of their account. 20 Jan Sale of inventory (200 soft toys) to Sydney Children’s Hospital for $2,000 on terms of n/30. 22 Jan Inventory purchase (150 soft toys) from Plush Toys Ltd on account for $1,050 on terms of 2/10, n/30. 24 Jan Paid Plush Toys Ltd for purchases made on 22 January, via EFT. 25 Jan Sale of inventory (200 soft toys) for $2,400 to online customers, with customers paying via EFT. 31 Jan Mr & Mrs Spot completed a stocktake, and the number of soft toys on hand was 290. Required: i) Mr and Mrs Spot have heard of the two inventory methods – periodic and perpetual methods, and they have also heard of the terms ‘First-in-first-out’ and ‘Weighted average cost’, but don’t really know anything more about them. Prepare a memo to Mr and Mrs Spot explaining each of these methods/terms. ii) After Mr and Mrs Spot received your memo above, they both agree that the ‘First-in-first-out’ method suits their business. They are still undecided about which inventory method should be used (either the perpetual or periodic methods), and have asked you to prepare journal entries for all of the company’s transactions for January using the two different methods (using the ‘First-in-first-out’ basis), so that they can see how the journal entries differ. Show workings where necessary.

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Memo to Mr and Mrs Spot Inventory Methods and Costing Techniques 1 Inventory Methods There are two primary methods for accounting for inventory a Peri... View the full answer