After making this second adjustment, the balance in Merchandise Inventory reflects the inventory on hand at the end of the accounting period. Determine Cost of Goods Sold First-Start with the amount of beginning inventory. Add beginning inventory and Net purchases to determine Cost of Goods Available for Sale. Subtract the amount of Ending Inventory from Cost of Goods Available for Sale. Cost of Goods Sold.
Some businesses require payment before delivering a product or performing a service.
Examples include insurance companies, magazine publishers, apartment complexes, college food services, and professional sports and theater companies that sell season tickets. The cash received in advance is called unearned revenue. Since the cash has been received in advance, the company owes the customers the product or service, or must refund their money. Thus, unearned revenue is reported as a liability on the balance sheet. At the end of the accounting period, all or part of the Unearned Revenue may have been earned.