View
225
Download
2
Category
Preview:
Citation preview
Accounting For Merchandising
By Rachelle Agatha, CPA, MBA
Slides by Rachelle Agatha, CPA, with excerpts from Warren, Reeve, Duchac
2
1.Distinguish between the activities and financial statements of service and merchandising businesses.
2.Describe and illustrate the financial statements of a merchandising business.
After studying this chapter, you should be able to:
3
3.Describe and illustrate the accounting for merchandise transactions including: sale of merchandise purchase of merchandise transportation costs, sales taxes, trade
discounts dual nature of merchandising
transactions.
After studying this chapter, you should be able to:
4. Describe the adjusting and closing process for a merchandising business.
4
Objective 1Objective 15-2
Distinguish between the activities and
financial statements of
service and merchandising
businesses.
5
Service Business
Fees earned
$XXXOperating expenses
–XXXNet income
$XXX
6-1
6
Merchandising Business
Sales $XXXCost of Merchandise Sold –XXXGross Profit $XXXOperating Expenses –XXXNet Income $XXX
6-1
Sales -Cost
Merch Sold
=Gross Profit
Gross Profit
-Operating Expenses
=Net
Income
8
When merchandise is sold, the revenue is reported as
sales, and its cost is recognized as an expense
called cost of merchandise sold or Cost of Goods Sold.
6-1
9
The cost of merchandise sold is subtracted from sales to arrive at gross profit. This amount is
called gross profit because it is the profit before deducting the operating expenses.
6-1
10
Merchandise on hand (not sold) at the end of an accounting period is called merchandise
inventory.
6-1
12
Describe and illustrate the
financial statements of a merchandising
business.
Objective 2Objective 2
6-2
13
The multiple-step income
statement contains several
sections, subsections, and
subtotals.
6-2Multiple-Step Income Statement
14
The Sales account provides the total
amount charged to customers for
merchandise sold, including cash sales
and sales on account.
6-2
15
Sales returns and allowances are
granted by the seller to customers for
damaged or defective
merchandise.
6-2
16
Sales discounts are granted by the seller to customers for early payment of amounts
owed.
6-2
17
Net sales is determined by
subtracting sales returns and allowances
and sales discounts from sales.
6-2
Revenue from sales:Sales 750,000$ Less: Sales returns and
allowances 15,000$ Sales discounts 6,000 21,000 Net sales 729,000$
19
Cost of merchandise sold
was discussed earlier. It is the cost of the merchandise sold to
customers.
6-2
20
Sellers may offer customers sales
discounts for early payment of their bills.
From the buyer’s perspective, such
discounts are referred to as purchase
discounts.
6-2
21
The buyer may return merchandise to the seller (a purchase return), or the
buyer may receive a reduction in the initial price at which the merchandise
was purchased (a purchase allowance).
6-2
Purchases 481,400$
Less:Purchases returns and allowances
8,500$
Purchases discounts 1,500 (10,000) Net purchases 471,400
Cost of merchandise sold:Merchandise inventory, March 1 88,370$ Purchases 481,400$
Less:Purchases returns and allowances
8,500$
Purchases discounts 1,500 (10,000) Net purchases 471,400 Add transportation in 3,180
Cost of merchandise purchased 474,580 Merchandise available for sale 562,950 Less merchandise inventory, March 31 (125,550) Cost of merchandise sold 437,400$
Revenue from sales:Sales 750,000$ Less: Sales returns and
allowances 15,000$ Sales discounts 6,000 21,000 Net sales 729,000$
Cost of merchandise sold 437,400 Gross profit 291,600$
GROSS PROFIT
25
Understand the accounting for merchandise transactions including: sale, purchase, transportation costs, sales taxes, and trade discounts.
Objective 3Objective 36-3
Sale Transaction
DR CR
Accounts Receivable 12,250Sales 12,250
Cost of Merchandise Sold 7,400Merchandise Inventory 7,400
(record sale of inventory)
28
The terms for when payments for merchandise are to be made, agreed on by the buyer and the seller, are called credit terms. If buyer is allowed an amount of time to pay, it is known as
the credit period.
6-3Sales Discounts
Payment Transaction
Cash 12,005Sales Discounts 245
Accounts Receivable 12,250(record receipt of payment on account)
Sales Returns & Allowance 225Accounts Receivable 225
(Record Credit Memo)
Merchandise Inventory 140Cost of Merch Sold 140
(Return of Merch)
MERCHANDISE IS RETURNED: SOLD FOR $225, COST WAS $140)
Purchase Inventory (Perpetual System)
DR CR
Merchandise Inventory 2,510Cash 2,510
(Purchased Inventory for cash)
Merchandise Inventory 2,510Accounts Payable 2,510
(Purchased Inventory on account)
DR CR
Accounts Payable 300Merchandise Inventory 300
(Returned inventory - debit memo)
Accounts Payable 2,210Cash 2,210
(Paid on account - $2,510 - 300))
Return & Payment on Account
DR CR
June 1 Merchandise Inventory 4,500Acounts Payable 4,500
(Purchased Inventory on account, terms 2/10 n 30)
June 4 Accounts Payable 2,000Merchandise Inventory 2,000
(Returned inventory - debit memo)
June 9 Accounts Payable 2,500Cash 2,450Merchandise Inventory 50
(Paid Invoice ([$4,500 - $2,000]*2%) = $50)$2,500 - $50 = $2,450)
Payment with Discount
The buyer bears the transportation cost
Add cost to inventory
FOB (Free On Board) Shipping Point
DR CR
Merchandise Inventory 900Accounts Payable 900
(Purchased Inventory FOB Shipping Point)
Merchandise Inventory 45Cash 45
(Paid shipping cost on inventory purchased)
FOB (Free On Board) Shipping Point
The seller bears the transportation cost
Cost is delivery expense
FOB (Free On Board) Destination
FOB (Free On Board) DestinationDR CR
Accounts Receivable 700Sales 700
(record sale of inventory)
Cost of Merchandise Sold 480Merchandise Inventory 480
(Record cost of merch sold)
Delivery expense 40Cash 40
(Paid shipping - FOB Destination)
DR CRSeller. journal entries:
Cash ($5,250 - $650 - $92) 4,508Sales Discounts [($5,250 - $650) × 2%] 92
Accounts Receivable-Buyer ($5,250 - $650) 4,600
Buyer. journal entries:
Accounts Payable-Seller ($5,250 - $650) 4,600Merchandise Inventory [($5,250 - $650) × 2%] 92Cash ($5,250 - $650 - $92) 4,508
Buyer vs. Seller
Record Shrinkage
DR CR
Cost of Merch Inv Sold 150Merchandise Inventory 150
(Inventory shrinkage - physical inventory performed)
Perform physical inventory and
difference is shrinkage
Periodic vs. Perpetual System
Periodic system:
Revenues are recorded when sales occur
No inventory is recorded or cost of sales
Physical inventory taken and inventory is adjusted
Summary Merchandising business
Operating Cycle
Sales Transactions
Purchase Transactions
Financial Statements
.
Recommended