Birosel, Pauline P

Theory of Accounts: Practical

Case
3-HAC

Streetseshop is an online shop established on 2013 that sells thrift clothes in Instagram.
Its inventory records through a periodic system. The shop's policy is to sell their items at its
selling cost excluding the shipping fee and handling fee (in case of meet up purposes) for this
will be left upon the decision of the customer, if it will be via shipping or via meet up. The
owner, records the inventory item including the selling cost. StreetSeshop also allocates
allowance for returns for the month of January to June, however the owner have failed to allocate
returns for the month of July and August. If the transaction is thru shipping, the owner records
sales upon submission of the order form by the customer via online. If the transaction is thru
meet up, the owner records sales after meeting up the customer. The shop has incurred 8,000
worth of sales for the month of January up to August. 70% of the sales were thru shipping via
LBC and 30% of the sales were thru meet up. The owner failed to ask for the handling cost in the
3% of the sales via meet up and 2% of the inventory of the sales thru shipping was lost by LBC
due to typhoon that flooded the LBC storage house. 5 different clothes were returned by the
customer at the end of the month of July due to damaged.
Question 1: Base on the standards regarding recording of inventory, is it appropriate for the
seller to record its inventory item including the selling cost? Support your answer.

Question 2: If Streetseshop is to make an income statement, is it necessary to consider the lost of

item by LBC as an extraordinary item/? Explain.

Question 3: Base on the standards of revenue recognition, is the recording of sales via shipping
acceptable? Is the recording of sales via meet up, proper? Why or why not?
Question 4: Base on the given case, what are the following costs that are included in measuring
StreetSeshops inventory? What would be the effect via meet up of failing to ask for the
handling fee in the 3% sales?

Birosel, Pauline P

Theory of Accounts: Practical

Case
3-HAC

Question 5: What will be the effect of failing to allocate purchase allowances and return for the
month of July?