for
ng
nt i
cou dising
Ac han
es
rc
e
ss
M
ine
us
B
r5
pt e
ha
C
c. 2014 Cengage Learning.   All Rights Reserved.  May not...
Learning Objectives

1.
2.
3.
4.
5.

Distinguish between the activities and financial
statements of service and merchandis...
Lear
ning
Obje
Disti
ctive
ngui
and
sh b
fina
et w
e
n
and cial state en the a
ctivi
merc
m en
ties
h and
t s of
serv
isin...
Nature of Merchandising Businesses
Service Business
Fees earned
$XXX
Operating expenses
–XXX
Net income
$XXX
Nature of Merchandising Businesses
Merchandising Business
Sales
Cost of Merchandise Sold
Gross Profit
Operating Expenses
N...
Nature of Merchandising Businesses
o When merchandise is sold, the revenue is

reported as sales, and its cost is recogniz...
Nature of Merchandising Businesses

o The cost of merchandise sold is subtracted

from sales to arrive at gross profit. It...
Nature of Merchandising Businesses
o Merchandise on hand (not sold) at the end of
an accounting period is called merchandi...
NATURE OF
MERCHANDISIN
G BUSINESSES
Lear
ning
Obje
ctive
De s c
ribe
ac
a
coun
ting nd illustr
f or m
ate t
he
erch
trans andise
actio
ns .

2

c. 2014 Cengag...
Purchase Transactions
o If merchandise inventory at the end of the

period is determined by taking a physical
count of inv...
Purchase Transactions
o Under the perpetual inventory system, the

amounts of inventory purchased, available for
sale, and...
Purchase Transactions

o On January 3, NetSolutions purchased
merchandise for cash.

*

NOTE: We will assume a perpetual
i...
Purchase Transactions

o On January 4, NetSolutions purchased

merchandise on account from Thomas
Corporation.

c. 2014 Ce...
Credit Terms
o To encourage the buyer to pay before the end
of the credit period, the seller may offer a
discount. Credit ...
Purchases Discounts
1. A buyer may receive a discount from the

seller (sales discount) for early payment of
the amount ow...
Purchase Transactions

o Alpha Technologies issues an invoice for

$3,000 to NetSolutions dated January 5, with
terms 2/10...
Purchase Transactions

o If NetSolutions can borrow cash at an annual
interest rate of 6%, should the firm borrow
cash to ...
Purchase Transactions

o Alpha Technologies issued an invoice for

$3,000 to NetSolutions dated January 5, with
terms 2/10...
Discount Not Taken

o Assume that, instead of paying the invoice

within the discount period, NetSolutions pays
the invoic...
Purchases Returns and Allowances
o A purchases return involves actually returning
merchandise that is damaged or does not ...
Debit Memo

o A debit memorandum, often called a debit

memo, informs the seller of the amount the
buyer proposes to debit...
Debit Memo

o NetSolutions records the return of the

merchandise indicated in the debit memo in
Exhibit 3 as follows:

c....
Merchandise Purchased

o On May 2, NetSolutions purchased $5,000 of

merchandise on account from Delta Data Link,
terms 2/...
Merchandise Returned

o On May 4 , NetSolutions returned $3,000 of the
merchandise purchased from Delta Data Link.

c. 201...
Invoice Paid

o On May 12, NetSolutions paid for the purchase
of May 2 less the return and discount.

c. 2014 Cengage Lear...
Cash Sales

o On March 3, NetSolutions sold $1,800 of
merchandise for cash.

c. 2014 Cengage Learning.   All Rights Reserv...
Cash Sales

o Using the perpetual inventory system, the cost

of merchandise sold and the decrease in
merchandise inventor...
Cash Sales

o Sales made to customers using credit cards are
recorded as cash sales. Assume that
NetSolutions paid credit ...
Sales on Account

o On March 10, NetSolutions sold merchandise
on account for $18,000. The cost of
merchandise sold was $1...
Sales Discounts

o The terms for when payments for merchandise
are to be made are called credit terms. If
payment is requi...
Receipts on Account

o On March 19, NetSolutions receives the amount
due within ten days, so the buyer deducted
$360 ($18,...
Credit Memo

o A credit memorandum, often called a credit

memo, authorizes a credit to (decreases) the
buyer’s account re...
Credit Memo

o On April 13, issued Credit Memo No. 321 to

Krier Company for merchandise returned to
NetSolutions. Selling...
Freight
o If ownership of the merchandise passes to the
buyer when the seller delivers the
merchandise to the freight carr...
Freight

o On June 10, NetSolutions buys merchandise

from Magna Data on account, $900, terms FOB
shipping point and pays ...
Freight
o If ownership of the merchandise passes to the
buyer when the buyer receives the
merchandise, the terms are said ...
Sale Plus Freight Cost

o On June 15, NetSolutions sells merchandise to
Kranz Company on account, $700, terms FOB
destinat...
Sale Plus Freight Cost

o On June 15, NetSolutions pays freight of $40 on
the sale of June 15.

c. 2014 Cengage Learning. ...
Seller Prepays Freight

o On June 20, NetSolutions sells merchandise to

Planter Company on account, $800, terms FOB
shipp...
Seller Prepays Freight
FREIGHT TERMS
FREIGHT TERMS
SUMMARY:
RECORDING
MERCHANDISE
INVENTORY
DUAL NATURE
OF
MERCHANDISE
TRANSACTIONS
DUAL NATURE
OF
MERCHANDISE
TRANSACTIONS
DUAL NATURE
OF
MERCHANDISE
TRANSACTIONS
DUAL NATURE
OF
MERCHANDISE
TRANSACTIONS
DUAL NATURE
OF
MERCHANDISE
TRANSACTIONS
DUAL NATURE
OF
MERCHANDISE
TRANSACTIONS
DUAL NATURE
OF
MERCHANDISE
TRANSACTIONS
DUAL NATURE
OF
MERCHANDISE
TRANSACTIONS
CHART OF
ACCOUNTS
Sales Taxes

o On August 12, merchandise is sold on account
to Lemon Company, $100. The state has a 6%
sales tax.

c. 2014...
Sales Taxes

o On a regular basis, the seller pays to the taxing
authority (state) the amount of the sales taxes
collected...
Trade Discounts
o When wholesalers offer special discounts to
certain classes of buyers who order large
quantities, these ...
Lear
ning
Obje
De s c
ctive
ribe
a nd
illust
state
tra
emen
t s o f t e t he f i
n
a me
rcha ancial
ndis
busi ing
ness
.

...
Multiple-Step Income Statement
o The multiple-step income statement contains
several sections, subsections, and subtotals....
REVENUE FROM
SALES
Revenue from Sales
o Sales is the total amount charged customers for
merchandise sold, including cash sales and
sales on a...
Revenue from Sales
o Sales returns and allowances are granted by
the seller to customers for damaged or
defective merchand...
Revenue from Sales
o Sales discounts are granted by the seller to

customers for early payment of amounts owed.

c. 2014 C...
Revenue from Sales
o Net sales is determined by subtracting sales
returns and allowances and sales discounts
from sales.

...
Cost of Merchandise Sold
o The cost of merchandise sold is the cost of the
merchandise sold to customers. Merchandise
cost...
MULTIPLE-STEP
INCOME
STATEMENT
MULTIPLE-STEP
INCOME
STATEMENT
INCOME FROM OPERATIONS
Selling expenses are
incurred directly in the
selling of merchandise.





Sales salaries




...
INCOME FROM OPERATIONS
Administrative
expenses, sometimes
called general
expenses, are incurred
in the administration or
g...
MULTIPLE-STEP
INCOME
STATEMENT
Multiple-Step Income Statement

o Income from operations, sometimes called

operating income, is determined by
subtracting...
MULTIPLE-STEP
INCOME
STATEMENT
Other Income and Expense
o Other income is revenue from sources other
than the primary operating activity of a
business.

...
MULTIPLE-STEP
INCOME
STATEMENT
Single-Step Income Statement
o An alternative form of income statement is the

single-step income statement. As shown in t...
SINGLE-STEP
INCOME
STATEMENT
STATEMENT OF
RETAINED
EARNINGS
Balance Sheet
o The form of balance sheet with the assets on

the left-hand side and the liabilities and
owner’s equity on...
Balance Sheet

o When the balance sheet is presented in a

downward sequence in three sections, it has
been prepared using...
BALANCE SHEET

(continued)
BALANCE SHEET
Lear
ning
Obje
Desc
ctive
r ibe
the a
dju
pr
s
roces
s for ting and
closi
a me
n
rcha
n di s g
busi ing
ness
.

4

c. 2014...
Adjusting Entry for Inventory Shrinkage

o Merchandising businesses may experience
some loss of inventory due to shoplifti...
Adjusting Entry for Inventory Shrinkage

o If the balance of the Merchandise Inventory

account is larger than the total a...
Inventory Shrinkage

o NetSolutions’ inventory records indicate the
following on December 31, 2015:

Dec. 31, 2015
Account...
Inventory Shrinkage

o At the end of the accounting period, inventory
shrinkage is recorded by the following
adjusting ent...
Step 1: Closing Entries

o Debit each temporary account with a credit
balance, such as Sales, for its balance and
credit I...
Step 2: Closing Entries

o Credit each temporary account with a debit

balance, such as an expense, for its balance
and de...
Step 3: Closing Entries

o Debit Income Summary for the amount of its
balance (net income) and credit Retained
Earnings ac...
Step 4: Closing Entries

o Debit the Retained Earnings account for the

balance of the Dividends account and credit
the Di...
Closing Entries

o NetSolutions’ Income Summary account after
the closing entries have been posted is as
follows:

c. 2014...
Lear
ning
Obje
Desc
ctive
r ibe
and
the r
illu
at i
evalu
io
s
ating of net sa trate the
us e o
a com les to
f
asse
pany
t...
Ratio of Net Sales to Assets
o The ratio of net sales to assets measures how
effectively a business is using its assets to...
Ratio of Net Sales to Assets

o The following data (in millions) were taken

from the annual reports of Dollar Tree, Inc.:...
Ratio of Net Sales to Assets

o The ratio of net sales to assets for each year are
as follows:

c. 2014 Cengage Learning. ...
dix
en dic
pp erio
A P
m
e

Th y Syste
t or
ven
In

c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, s...
PERIODIC
INVENTORY
SYSTEM
Recording Merchandise Transactions

o Purchases. Purchases of inventory are

recorded in a purchases account rather than i...
Recording Merchandise Transactions

o Purchases Discounts. Purchases discounts are
normally recorded in a separate purchas...
Recording Merchandise Transactions

o Purchases Returns and Allowances. Purchases
returns and allowances are recorded in a...
Recording Merchandise Transactions

o Freight In. When merchandise is purchased

FOB shipping point, the buyer pays for th...
(continued)
(concluded)
CLOSING
ENTRIES

(continued)
CLOSING
ENTRIES

(continued)
CLOSING
ENTRIES

(concluded)
for
ng
nt i
cou dising
Ac han
es
rc
e
ss
M
ine
us
B
nd
eE
Th
c. 2014 Cengage Learning.   All Rights Reserved.  May not be ...
Ch05 wrd12e instructor_final
Ch05 wrd12e instructor_final
Ch05 wrd12e instructor_final
Ch05 wrd12e instructor_final
Ch05 wrd12e instructor_final
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  • NetSolutions receives a delivery from Maxim Systems and determines that $900 of the items are not the merchandise ordered. Debit memorandum #18 is issued to Maxim Systems.
  • Ch05 wrd12e instructor_final

    1. 1. for ng nt i cou dising Ac han es rc e ss M ine us B r5 pt e ha C c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    2. 2. Learning Objectives 1. 2. 3. 4. 5. Distinguish between the activities and financial statements of service and merchandising businesses. Describe and illustrate the accounting for merchandise transactions. Describe and illustrate the financial statements of a merchandising business. Describe the adjusting and closing process for a merchandising business. Describe and illustrate the use of the ratio of net sales to assets in evaluating a company’s operating performance.
    3. 3. Lear ning Obje Disti ctive ngui and sh b fina et w e n and cial state en the a ctivi merc m en ties h and t s of serv ising ice busi ness es . 1 c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    4. 4. Nature of Merchandising Businesses Service Business Fees earned $XXX Operating expenses –XXX Net income $XXX
    5. 5. Nature of Merchandising Businesses Merchandising Business Sales Cost of Merchandise Sold Gross Profit Operating Expenses Net Income $XXX –XXX $XXX –XXX $XXX
    6. 6. Nature of Merchandising Businesses o When merchandise is sold, the revenue is reported as sales, and its cost is recognized as an expense called cost of merchandise sold. Gross Profit c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    7. 7. Nature of Merchandising Businesses o The cost of merchandise sold is subtracted from sales to arrive at gross profit. It is the profit before deducting operating expenses. Gross Profit c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    8. 8. Nature of Merchandising Businesses o Merchandise on hand (not sold) at the end of an accounting period is called merchandise inventory. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    9. 9. NATURE OF MERCHANDISIN G BUSINESSES
    10. 10. Lear ning Obje ctive De s c ribe ac a coun ting nd illustr f or m ate t he erch trans andise actio ns . 2 c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    11. 11. Purchase Transactions o If merchandise inventory at the end of the period is determined by taking a physical count of inventory on hand, a periodic inventory system is being used. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    12. 12. Purchase Transactions o Under the perpetual inventory system, the amounts of inventory purchased, available for sale, and sold are continuously (perpetually) updated in the inventory records. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    13. 13. Purchase Transactions o On January 3, NetSolutions purchased merchandise for cash. * NOTE: We will assume a perpetual inventory system is used. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    14. 14. Purchase Transactions o On January 4, NetSolutions purchased merchandise on account from Thomas Corporation. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    15. 15. Credit Terms o To encourage the buyer to pay before the end of the credit period, the seller may offer a discount. Credit terms of 2/10, n/30 are summarized in the next slide (Exhibit 2). c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    16. 16. Purchases Discounts 1. A buyer may receive a discount from the seller (sales discount) for early payment of the amount owed. From the buyer’s perspective, such discounts are called purchases discounts.
    17. 17. Purchase Transactions o Alpha Technologies issues an invoice for $3,000 to NetSolutions dated January 5, with terms 2/10, n/30. NetSolutions is trying to determine if it should pay the invoice within the discount period. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    18. 18. Purchase Transactions o If NetSolutions can borrow cash at an annual interest rate of 6%, should the firm borrow cash to pay the invoice within the discount period? Discount of 2% on $3,000 Interest for 20 days at the rate of 6% on $2,940 Savings from borrowing $60.00 – 9.80 $50.20 YES c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    19. 19. Purchase Transactions o Alpha Technologies issued an invoice for $3,000 to NetSolutions dated January 5, with terms 2/10, n/30. Based on the calculation in the previous slide, NetSolutions pays the amount due, less the discount, on January 15. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    20. 20. Discount Not Taken o Assume that, instead of paying the invoice within the discount period, NetSolutions pays the invoice on February 4. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    21. 21. Purchases Returns and Allowances o A purchases return involves actually returning merchandise that is damaged or does not meet the specifications of the order. From a buyer’s perspective, such returns are called purchases returns and allowances. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    22. 22. Debit Memo o A debit memorandum, often called a debit memo, informs the seller of the amount the buyer proposes to debit to the account payable due the seller. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    23. 23. Debit Memo o NetSolutions records the return of the merchandise indicated in the debit memo in Exhibit 3 as follows: c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    24. 24. Merchandise Purchased o On May 2, NetSolutions purchased $5,000 of merchandise on account from Delta Data Link, terms 2/10, n/30. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    25. 25. Merchandise Returned o On May 4 , NetSolutions returned $3,000 of the merchandise purchased from Delta Data Link. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    26. 26. Invoice Paid o On May 12, NetSolutions paid for the purchase of May 2 less the return and discount. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    27. 27. Cash Sales o On March 3, NetSolutions sold $1,800 of merchandise for cash. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    28. 28. Cash Sales o Using the perpetual inventory system, the cost of merchandise sold and the decrease in merchandise inventory are also recorded. The cost of merchandise sold on March 3 is $1,200. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    29. 29. Cash Sales o Sales made to customers using credit cards are recorded as cash sales. Assume that NetSolutions paid credit card processing fees of $4,150 on March 31. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    30. 30. Sales on Account o On March 10, NetSolutions sold merchandise on account for $18,000. The cost of merchandise sold was $10,800. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    31. 31. Sales Discounts o The terms for when payments for merchandise are to be made are called credit terms. If payment is required on delivery, the terms are cash or net cash. Otherwise, the buyer is allowed an amount of time, known as the credit period, in which to pay. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    32. 32. Receipts on Account o On March 19, NetSolutions receives the amount due within ten days, so the buyer deducted $360 ($18,000 x 2%) from the invoice amount. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    33. 33. Credit Memo o A credit memorandum, often called a credit memo, authorizes a credit to (decreases) the buyer’s account receivable. An example of a credit memo issued by NetSolutions is shown in Exhibit 4 (next slide). c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    34. 34. Credit Memo o On April 13, issued Credit Memo No. 321 to Krier Company for merchandise returned to NetSolutions. Selling price, $2,250; cost to NetSolutions, $1,600. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    35. 35. Freight o If ownership of the merchandise passes to the buyer when the seller delivers the merchandise to the freight carrier, the terms are said to be FOB (free on board) shipping point. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    36. 36. Freight o On June 10, NetSolutions buys merchandise from Magna Data on account, $900, terms FOB shipping point and pays the shipping cost of $50. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    37. 37. Freight o If ownership of the merchandise passes to the buyer when the buyer receives the merchandise, the terms are said to be FOB (free on board) destination. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    38. 38. Sale Plus Freight Cost o On June 15, NetSolutions sells merchandise to Kranz Company on account, $700, terms FOB destination. The cost of the merchandise sold is $480. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    39. 39. Sale Plus Freight Cost o On June 15, NetSolutions pays freight of $40 on the sale of June 15. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    40. 40. Seller Prepays Freight o On June 20, NetSolutions sells merchandise to Planter Company on account, $800, terms FOB shipping point. NetSolutions paid freight of $45, which was added to the invoice. The cost of the merchandise sold is $360. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    41. 41. Seller Prepays Freight
    42. 42. FREIGHT TERMS
    43. 43. FREIGHT TERMS
    44. 44. SUMMARY: RECORDING MERCHANDISE INVENTORY
    45. 45. DUAL NATURE OF MERCHANDISE TRANSACTIONS
    46. 46. DUAL NATURE OF MERCHANDISE TRANSACTIONS
    47. 47. DUAL NATURE OF MERCHANDISE TRANSACTIONS
    48. 48. DUAL NATURE OF MERCHANDISE TRANSACTIONS
    49. 49. DUAL NATURE OF MERCHANDISE TRANSACTIONS
    50. 50. DUAL NATURE OF MERCHANDISE TRANSACTIONS
    51. 51. DUAL NATURE OF MERCHANDISE TRANSACTIONS
    52. 52. DUAL NATURE OF MERCHANDISE TRANSACTIONS
    53. 53. CHART OF ACCOUNTS
    54. 54. Sales Taxes o On August 12, merchandise is sold on account to Lemon Company, $100. The state has a 6% sales tax. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    55. 55. Sales Taxes o On a regular basis, the seller pays to the taxing authority (state) the amount of the sales taxes collected. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    56. 56. Trade Discounts o When wholesalers offer special discounts to certain classes of buyers who order large quantities, these discounts are called trade discounts. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    57. 57. Lear ning Obje De s c ctive ribe a nd illust state tra emen t s o f t e t he f i n a me rcha ancial ndis busi ing ness . 3 c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    58. 58. Multiple-Step Income Statement o The multiple-step income statement contains several sections, subsections, and subtotals. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    59. 59. REVENUE FROM SALES
    60. 60. Revenue from Sales o Sales is the total amount charged customers for merchandise sold, including cash sales and sales on account. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    61. 61. Revenue from Sales o Sales returns and allowances are granted by the seller to customers for damaged or defective merchandise. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    62. 62. Revenue from Sales o Sales discounts are granted by the seller to customers for early payment of amounts owed. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    63. 63. Revenue from Sales o Net sales is determined by subtracting sales returns and allowances and sales discounts from sales. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    64. 64. Cost of Merchandise Sold o The cost of merchandise sold is the cost of the merchandise sold to customers. Merchandise costs consist of all the costs of acquiring the merchandise and readying it for sale, such as purchase and freight costs. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    65. 65. MULTIPLE-STEP INCOME STATEMENT
    66. 66. MULTIPLE-STEP INCOME STATEMENT
    67. 67. INCOME FROM OPERATIONS Selling expenses are incurred directly in the selling of merchandise.    Sales salaries   Delivery expense Store supplies used Depreciation of store equipment Advertising expense
    68. 68. INCOME FROM OPERATIONS Administrative expenses, sometimes called general expenses, are incurred in the administration or general operations of the business.   Office salaries  Office supplies used Depreciation of office equipment
    69. 69. MULTIPLE-STEP INCOME STATEMENT
    70. 70. Multiple-Step Income Statement o Income from operations, sometimes called operating income, is determined by subtracting operating expenses from gross profit. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    71. 71. MULTIPLE-STEP INCOME STATEMENT
    72. 72. Other Income and Expense o Other income is revenue from sources other than the primary operating activity of a business. o Other expense is an expense that cannot be traced directly to the normal operations of the business. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    73. 73. MULTIPLE-STEP INCOME STATEMENT
    74. 74. Single-Step Income Statement o An alternative form of income statement is the single-step income statement. As shown in the next slide, the income statement for NetSolutions deducts the total of all expenses in one step from the total of all revenues. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    75. 75. SINGLE-STEP INCOME STATEMENT
    76. 76. STATEMENT OF RETAINED EARNINGS
    77. 77. Balance Sheet o The form of balance sheet with the assets on the left-hand side and the liabilities and owner’s equity on the right-hand side is called the account form. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    78. 78. Balance Sheet o When the balance sheet is presented in a downward sequence in three sections, it has been prepared using the report form. This is the form used in the next two slides. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    79. 79. BALANCE SHEET (continued)
    80. 80. BALANCE SHEET
    81. 81. Lear ning Obje Desc ctive r ibe the a dju pr s roces s for ting and closi a me n rcha n di s g busi ing ness . 4 c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    82. 82. Adjusting Entry for Inventory Shrinkage o Merchandising businesses may experience some loss of inventory due to shoplifting, employee theft, or errors in recording or counting inventory. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    83. 83. Adjusting Entry for Inventory Shrinkage o If the balance of the Merchandise Inventory account is larger than the total amount of the merchandise count, the difference is often called inventory shrinkage or inventory shortage. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    84. 84. Inventory Shrinkage o NetSolutions’ inventory records indicate the following on December 31, 2015: Dec. 31, 2015 Account balance of Merchandise Inventory $63,950 Physical merchandise inventory on hand 62,150 Inventory shrinkage $ 1,800 c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    85. 85. Inventory Shrinkage o At the end of the accounting period, inventory shrinkage is recorded by the following adjusting entry: c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    86. 86. Step 1: Closing Entries o Debit each temporary account with a credit balance, such as Sales, for its balance and credit Income Summary. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    87. 87. Step 2: Closing Entries o Credit each temporary account with a debit balance, such as an expense, for its balance and debit Income Summary. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    88. 88. Step 3: Closing Entries o Debit Income Summary for the amount of its balance (net income) and credit Retained Earnings account. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    89. 89. Step 4: Closing Entries o Debit the Retained Earnings account for the balance of the Dividends account and credit the Dividends account. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    90. 90. Closing Entries o NetSolutions’ Income Summary account after the closing entries have been posted is as follows: c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    91. 91. Lear ning Obje Desc ctive r ibe and the r illu at i evalu io s ating of net sa trate the us e o a com les to f asse pany ts in ’s op perfo erating rman ce. 5 c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    92. 92. Ratio of Net Sales to Assets o The ratio of net sales to assets measures how effectively a business is using its assets to generate sales. Ratio of Net Net Sales Sales to = Average Total Assets Assets c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    93. 93. Ratio of Net Sales to Assets o The following data (in millions) were taken from the annual reports of Dollar Tree, Inc.: c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    94. 94. Ratio of Net Sales to Assets o The ratio of net sales to assets for each year are as follows: c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    95. 95. dix en dic pp erio A P m e Th y Syste t or ven In c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    96. 96. PERIODIC INVENTORY SYSTEM
    97. 97. Recording Merchandise Transactions o Purchases. Purchases of inventory are recorded in a purchases account rather than in the merchandise inventory account. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    98. 98. Recording Merchandise Transactions o Purchases Discounts. Purchases discounts are normally recorded in a separate purchases discounts account. The balance of the purchases discounts account is reported as a deduction from Purchases for the period. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    99. 99. Recording Merchandise Transactions o Purchases Returns and Allowances. Purchases returns and allowances are recorded in a similar manner as purchase discounts. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    100. 100. Recording Merchandise Transactions o Freight In. When merchandise is purchased FOB shipping point, the buyer pays for the freight. Under the periodic inventory system, freight paid when purchasing merchandise FOB shipping point is debited to Freight In. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
    101. 101. (continued)
    102. 102. (concluded)
    103. 103. CLOSING ENTRIES (continued)
    104. 104. CLOSING ENTRIES (continued)
    105. 105. CLOSING ENTRIES (concluded)
    106. 106. for ng nt i cou dising Ac han es rc e ss M ine us B nd eE Th c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
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