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Introduction to merchandising business 02172013
 

Introduction to merchandising business 02172013

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    Introduction to merchandising business 02172013 Introduction to merchandising business 02172013 Presentation Transcript

    • Accounting for Merchandising Business February 17, 2013
    • Learning Objectives • Describe merchandising and identify business examples • Describe merchandising activities and identify the components of income for a merchandising entity • Describe the business documents used • Describe both perpetual and periodic inventory systems. • Analyze and record transactions for merchandise purchases
    • Service vs Merchandising Service Business • Net income is the difference between its revenues and the expenses incurred in providing the services Merchandising Business • Earns net income by buying and selling merchandise • Merchandise inventories represent goods intended for sale
    • Wholesale vs Retail Wholesaler • An intermediary that buys products from manufacturers or other wholesalers and sells them to retailers or other wholesalers Retailer • Buys products from the manufacturers or wholesalers and sells them to consumers Manufacturer Wholesaler Retailer Customer
    • Measuring Net Income • Net income to a merchandiser implies that revenue from selling merchandise exceeds both the cost of the merchandise sold to customers and the cost of other expenses for the period.
    • Measuring Net Income Net Income (Loss) Less LessEquals Equals Sales Revenue Cost of Goods Sold Gross Profit Operating Expenses Sales Revenue – income earned in selling merchandise Cost of Goods Sold – cost of merchandise sold during the period Operating Expenses – expenses incurred in running the business
    • Operating Cycle for a Merchandiser Purchases Merchandise inventory Credit sales Account receivable Cash collectionPurchases Merchandise inventory Cash sales
    • Business Documents Main Source, Inc. Invoice 614 Tech Avenue Date Number Nashville, TN 37651 5/4/05 358-BI S o l d T o Name: Barbee, Inc. Attn: Tom Bell Address: One Willow Plaza Cookeville, Tennessee 38501 P.O. 167 Sales: 25 Terms 2/10,n/30 Ship: FedEx Prepaid Item Description Quanity Price Amount AC417 250 Backup System 500 54.00$ 27,000$ Sub Total 27,000 We appreciate your business! Ship Chg. - Tax - Total 27,000$
    • Inventory Systems + + Beginning inventory Net cost of purchases Ending Inventory Cost of Goods Sold =
    • Inventory Systems Two alternative inventory accounting system: • Periodic Inventory System – cost of goods are determined only at the end of an accounting period – Low Value, High Quantity Inventories • Perpetual Inventory System – maintains detailed records of the cost of each inventory item and continuously show the inventory that should be on hand – High Value, Low Quantity Inventories
    • Periodic Inventory System • Purchases – is debited when goods are bought from supplier; classified as part of the account Cost of Goods Sold upon sale or as Merchandising Inventory, an asset account, if unsold. • The purchase account is used only for goods purchased for resale.
    • • The purchase transaction is normally recorded by the purchaser when the goods are received from the seller. • Every purchase should be supported by business document that provide written evidence of the transaction. – Cash purchases – cash register receipt indicating the items purchased – Credit purchases – purchase invoice indicating the total purchase price and other relevant information Periodic Inventory System
    • • Purchase returns and allowances account represents reduction in the cost of goods purchased. It is a contra account to purchase and its normal balance is credit. • Debit memorandum – a document the purchaser issues to inform the supplier of a debit made to the supplier’s account, including the reason for the return or allowance. Periodic Inventory System
    • • Purchase discount is based on the invoice cost less returns and allowances, if any. • The Purchase Discount account is used to record the amount saved by paying promptly. It is a contra account having a normal credit balance. Periodic Inventory System
    • Types of Discount DISCOUNT CASH DISCOUNT TRADE DISCOUNT PURCHASE DISCOUNT SALE DISCOUNT
    • • Trade discounts are given to reduce the list price to actual sales price which may be due to the volume of transactions. • A buyer and or the seller does not record the list prices and the trade discounts in its accounts. Instead, a buyer/seller records purchases or sales net of the trade discount (at invoice price). Trade Discount
    • • Cash discounts are normally given to encourage prompt payment. • Some common examples of cash discount terms: – 2/10, n/30 – 2/10, 1/15, n/30 – 2/10 EOM, n/60 Cash Discount
    • • On May 5, ABC Co. purchased merchandise from XYZ Co. worth P100,000 less 10, terms 2/10, n/30. • On May 8, ABC Co. returned defective merchandise worth P10,000. • On May 15, ABC Co. paid his balance to XYZ Co. in full. Sample Transaction