Accounting For Merchandising Operations,Ssss


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  • Accounting For Merchandising Operations,Ssss

    1. 1. Accounting for Merchandising Operations Chapter 5
    2. 2. Learning Objectives <ul><li>Describe merchandising activities and identify income components for a merchandising company. </li></ul><ul><li>Identify and explain the inventory asset of a merchandising company. </li></ul><ul><li>Describe both perpetual and periodic inventory systems. </li></ul><ul><li>Analyze and record transactions for merchandise purchases using a perpetual system . </li></ul><ul><li>Analyze and record transactions for merchandise sales using a perpetual system. </li></ul><ul><li>Analyze and interpret cost flows and operating activities of a merchandising company. </li></ul><ul><li>Prepare adjustments and close accounts for a merchandising company. </li></ul><ul><li>Define and prepare multiple-step and single-step income statements. </li></ul><ul><li>Record and compare merchandising transactions using both periodic and perpetual inventory systems. </li></ul>
    3. 3. Merchandising Activities <ul><li>Service organizations sell time to earn revenue. </li></ul><ul><ul><li>Examples: accounting firms, law firms, and plumbing services </li></ul></ul>Revenues Expenses Minus Net income Equals
    4. 4. Merchandising Activities Manufacturer Wholesaler Retailer Customer Merchandising Companies
    5. 5. Reporting Income for a Merchandiser <ul><li>Merchandising companies sell products to earn revenue. </li></ul><ul><ul><li>Examples: sporting goods, clothing, and auto parts stores </li></ul></ul>Cost of Goods Sold Gross Profit Expenses Net Income Net Sales Minus Equals Minus Equals
    6. 6. Operating Cycle for a Merchandiser <ul><li>Begins with the purchase of merchandise and ends with the collection of cash from the sale of merchandise. </li></ul>Purchases Merchandise inventory Credit sales Account receivable Cash collection Purchases Merchandise inventory Cash sales Cash Sale Credit Sale
    7. 7. Inventory Systems + + Beginning inventory Net cost of purchases Merchandise available for sale Ending Inventory Cost of Goods Sold =
    8. 8. Inventory Systems Perpetual Inventory System Periodic Inventory System Detailed records of the cost of each item are maintained, and the cost of each item sold is determined from records when the sale occurs . Cost of goods sold is determined only at the end of an accounting period . Applied in this chapter
    9. 9. Accounting for Merchandise Purchases On 20 June, Jason Inc. purchased $14,000 of Merchandise Inventory paying cash.
    10. 10.  Seller  Invoice date  Purchaser  Order number  Credit terms  Freight terms  Goods  Invoice amount        
    11. 11. Trade Discounts <ul><li>Used by manufacturers and wholesalers to offer better prices for greater quantities purchased. </li></ul>Example Matrix, Inc. offers a 30% trade discount on orders of 1,000 units or more of their popular product Racer. Each Racer has a list price of $5.25.
    12. 12. Purchase Discounts <ul><li>A deduction from the invoice price granted to induce early payment of the amount due. </li></ul>Terms Time Due Discount Period Full amount less discount Credit Period Full amount due Purchase or Sale
    13. 13. Purchase Discounts 2/10,n/30 Discount Percent Number of Days Discount Is Available Otherwise, Net (or All) Is Due Credit Period
    14. 14. Purchase Discounts <ul><li>On 7 May, Jason Inc. purchased $27,000 of Merchandise Inventory on account, credit terms are 2/10, n/30. </li></ul>
    15. 15. Purchase Discounts <ul><li>On 15 May, Jason Inc. paid the amount due on the purchase of 7 May. </li></ul>$27,000 × 2% = $540 discount
    16. 16. Purchase Discounts <ul><li>After we post these entries, the accounts involved look like this: </li></ul>Merchandise Inventory Accounts Payable 5/7 27,000 5/7 27,000 5/15 540 5/15 27,000 Bal. 26,460 Bal. 0
    17. 17. Failure to Pay Within the Discount Period <ul><li>If we fail to take a 2/10, n/30 discount, is it really expensive? </li></ul>365 days ÷ 20 days × 2% = 36.5% annual rate Days in a year Number of additional days before payment Percent paid to keep money
    18. 18. Purchase Returns and Allowances <ul><li>Purchase Return . . . </li></ul><ul><ul><li>Merchandise returned by the purchaser to the supplier. </li></ul></ul><ul><li>Purchase Allowance . . . </li></ul><ul><ul><li>A reduction in the cost of defective merchandise received by a purchaser from a supplier. </li></ul></ul>
    19. 19. Purchase Returns and Allowances <ul><li>On 9 May, Matrix Inc. purchased $20,000 of Merchandise Inventory on account, credit terms are 2/10, n/30. </li></ul>
    20. 20. Purchase Returns and Allowances <ul><li>On 10 May, Matrix Inc. returned $500 of defective merchandise to the supplier. </li></ul>
    21. 21. Purchase Returns and Allowances <ul><li>On 18 May, Matrix Inc. paid the amount owed for the purchase of 9 May. </li></ul>
    22. 22. Transportation Costs FOB shipping point (buyer pays) FOB destination (seller pays) Merchandise Seller Buyer
    23. 23. Transportation Costs <ul><li>On 12 May, Jason Inc. purchased $8,000 of Merchandise Inventory for cash and also paid $100 transportation costs. </li></ul>
    24. 24. Quick Check  On 6 July 2005 Seller Co. sold $7,500 of merchandise to Buyer Co.; terms of 2/10,n/30. The shipping terms were FOB shipping point. The shipping cost was $100. Which of the following will be part of Buyer’s 6July journal entry? a. Credit Sales $7,500 b. Credit Purchase Discounts $150 c. Debit Merchandise Inventory $100 d. Debit Accounts Payable $7,450 FOB shipping point indicates the buyer ultimately pays the freight. This is recorded with a debit to Merchandise Inventory .
    25. 25. Itemized Cost of Merchandise Purchased
    26. 26. Accounting for Merchandise Sales Sales discounts and returns and allowances are Contra Revenue accounts.
    27. 27. Sales of Merchandise <ul><li>On 18 March, Diamond Store sold $25,000 of merchandise on account. The merchandise was carried in inventory at a cost of $18,000. </li></ul>
    28. 28. Sales Discounts <ul><li>On 8 June, Barton Co. sold merchandise costing $3,500 for $6,000 on account. Credit terms were 2/10, n/30. Let’s prepare the journal entries. </li></ul>
    29. 29. Sales Discounts <ul><li>On 17 June, Barton Co. received a check for $5,880 in full payment of the 8 June sale. </li></ul>
    30. 30. Sales Returns and Allowances <ul><li>On 12 June, Barton Co. sold merchandise costing $4,000 for $7,500 on account The credit terms were 2/10, n/30. </li></ul>
    31. 31. Sales Returns and Allowances <ul><li>On 14 June, merchandise with a sales price of $800 and a cost of $470 was returned to Barton. The return is related to the 12 June sale. </li></ul>
    32. 32. Sales Returns and Allowances <ul><li>On 20 June, Barton received the amount owed to it from the sale of 12 June. </li></ul>
    33. 33. Let’s complete the accounting cycle by preparing the closing entries for Barton.
    34. 34. Step 1 : Close Credit Balances in Temporary Accounts to Income Summary.
    35. 35. Step 2 : Close Debit Balances in Temporary Accounts to Income Summary.
    36. 36. Step 3 : Close Income Summary to Owner’s Capital
    37. 37. Step 4 : Close Withdrawals Account to Owner’s Capital.
    38. 38. Income Statement Formats <ul><li>Multiple-Step </li></ul><ul><li>Single-Step </li></ul>
    39. 39. Multiple-Step Income Statement
    40. 40. Single-Step Income Statement
    41. 41. Classified Balance Sheet
    42. 42. End of Chapter 5