I thought I knew what I was doing, but am not sure.
I have a company that converted to Retail inventory method.
All the examples of Retail method are only showing beginning inventory plus purchases= goods avail. for sale (to figure cost ratio). I don't see any examples of how (in the retail side of equation) sales returns and allowances figures into this?
For instance, in this problem the beginning inventory (retail $622,800, purchases $1,008,400, purchases returns&allowances $34,800. My answer to goods avail for sale (retail) is then: $1,596,400. But then there is a $28,000 Sales Returns &Allowances. Does this get SUBTRACTED from the $1,596,400? If so, do I then use the net figure (after subtracting) to figure my cost ratio (I am okay with the Cost side figures)???? OR do I use the $1,596,400 as my amount to determine my cost ratio? By the way, my goods avail. on the COST side is $1,205,282. So, if I use the above figure my ratio is 75.5%. But I just don't know where to subtract (add?) the Sales returns/allowances. Therefore, cannot figure my correct ending inventory at retail.
I am then supposed to use the cost ratio to reduce the retail value of the physical inventory at cost. (Counted physical inventory was $508,200).
Last, I need to calculate the estimated amount of inventory SHORTAGE at cost and at Retail.
THERE ARE NO EXAMPLES anywhere in my book. They barely touch on the retail inventory method. HELP!!