Slide
5-1
Replace with Title Page for Weygandt Financial 7e
Slide
5-2
Chapter 5
Accounting forAccounting for
MerchandisingMerchandising
OperationsOperations
Financial Accounting,
Sev...
Slide
5-3
1. Identify the differences between service and
merchandising companies.
2. Explain the recording of purchases u...
Slide
5-4
Forms ofForms of
FinancialFinancial
StatementsStatements
Forms ofForms of
FinancialFinancial
StatementsStatement...
Slide
5-5
Merchandising OperationsMerchandising OperationsMerchandising OperationsMerchandising Operations
SO 1 Identify t...
Slide
5-6
Merchandising OperationsMerchandising OperationsMerchandising OperationsMerchandising Operations
Income Measurem...
Slide
5-7
The operating
cycle of a
merchandising
company
ordinarily is
longer than that
of a service
company.
Illustration...
Slide
5-8
Perpetual System
1. Purchases increase Merchandise Inventory.
2. Freight costs, Purchase Returns and Allowances ...
Slide
5-9
1. Purchases of merchandise increase Purchases.
2. Ending Inventory determined by physical count.
3. Calculation...
Slide
5-10
Slide
5-11
Made using cash or
credit (on account).
Normally recorded when
goods are received.
Purchase invoice should
supp...
Slide
5-12
Under the perpetual inventory system, companies record in the
Merchandise Inventory account the purchase of goo...
Slide
5-13
Illustration 5-6
Seller places goods Free
On Board the carrier, and
buyer pays freight costs.
Seller places goo...
Slide
5-14
Illustration: Assume upon delivery of the goods on May 6,
Sauk Stereo pays Acme Freight Company $150 for freigh...
Slide
5-15
Purchaser may be dissatisfied because goods are
damaged or defective, of inferior quality, or do not
meet speci...
Slide
5-16
In a perpetual inventory system, a return of
defective merchandise by a purchaser is
recorded by crediting:
a. ...
Slide
5-17
Recording Purchases of MerchandiseRecording Purchases of MerchandiseRecording Purchases of MerchandiseRecording...
Slide
5-18
Credit terms may permit buyer to claim a cash
discount for prompt payment.
Advantages:
Purchaser saves money.
S...
Slide
5-19
Purchase Discount TermsTerms
Recording Purchases of MerchandiseRecording Purchases of MerchandiseRecording Purc...
Slide
5-20
Merchandise Inventory 70
Accounts payable 3,500May 14
Recording Purchases of MerchandiseRecording Purchases of ...
Slide
5-21
Accounts payable 3,500June 3
Recording Purchases of MerchandiseRecording Purchases of MerchandiseRecording Purc...
Slide
5-22
Should discounts be taken when offered?
Purchase Discounts
Recording Purchases of MerchandiseRecording Purchase...
Slide
5-23
Merchandise Inventory
Debit Credit
$3,800 8th
- Return$300
Balance
4th
- Purchase
$3,580$3,580
70 14th
- Discou...
Slide
5-24
Made for cash or credit (on account).
Normally recorded when
earned, usually when
goods transfer from
seller to...
Slide
5-25
Two Journal Entries to Record a Sale
Cash or Accounts receivable XXX
Sales XXX
Recording Sales of MerchandiseRe...
Slide
5-26
Recording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of Me...
Slide
5-27
“Flipside” of purchase returns and allowances.
Contra-revenue account (debit).
Sales not reduced (debited) beca...
Slide
5-28
Illustration: Prepare the entry PW Audio Supply would make
to record the credit for returned goods that had a $...
Slide
5-29
Illustration: Assume the returned goods were defective and
had a scrap value of $50, PW Audio would make the fo...
Slide
5-30
The cost of goods sold is determined and recorded
each time a sale occurs in:
a. periodic inventory system only...
Slide
5-31
Slide
5-32
Offered to customers to promote prompt payment.
“Flipside” of purchase discount.
Contra-revenue account (debit)...
Slide
5-33
Recording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of Me...
Slide
5-34
Generally the same as a service company.
One additional adjustment to make the records
agree with the actual in...
Slide
5-35
Completing the Accounting CycleCompleting the Accounting CycleCompleting the Accounting CycleCompleting the Acc...
Slide
5-36
Completing the Accounting CycleCompleting the Accounting CycleCompleting the Accounting CycleCompleting the Acc...
Slide
5-37
Shows several steps in determining net income.
Two steps relate to principal operating activities.
Distinguishe...
Slide
5-38
Illustration 5-8
Income Statement Presentation of Sales
Multiple-Step Income StatementMultiple-Step Income Stat...
Slide
5-39
SO 6 Explain the computation and importance of gross profit.SO 6 Explain the computation and importance of gros...
Slide
5-40
Forms ofForms of
FinancialFinancial
StatementsStatements
Forms ofForms of
FinancialFinancial
StatementsStatemen...
Slide
5-41
Forms ofForms of
FinancialFinancial
StatementsStatements
Forms ofForms of
FinancialFinancial
StatementsStatemen...
Slide
5-42
The multiple-step income statement for a
merchandiser shows each of the following features
except:
a. gross pro...
Slide
5-43
Subtract total expenses from total revenues
Two reasons for using the single-step format:
1) Company does not r...
Slide
5-44
Illustration 5-14
Single-
Step
Forms of Financial StatementsForms of Financial StatementsForms of Financial Sta...
Slide
5-45
Forms of Financial StatementsForms of Financial StatementsForms of Financial StatementsForms of Financial State...
Slide
5-46
Periodic System
Separate accounts used to record purchases,
freight costs, returns, and discounts.
Company does...
Slide
5-47
Calculation of Cost of Goods Sold
$316,000
Illustration 5A-1
SO 7 Explain the recording of purchases and sales ...
Slide
5-48
SO 7 Explain the recording of purchases and sales ofSO 7 Explain the recording of purchases and sales of
invent...
Slide
5-49
SO 7 Explain the recording of purchases and sales ofSO 7 Explain the recording of purchases and sales of
invent...
Slide
5-50
SO 7 Explain the recording of purchases and sales ofSO 7 Explain the recording of purchases and sales of
invent...
Slide
5-51
SO 7 Explain the recording of purchases and sales ofSO 7 Explain the recording of purchases and sales of
invent...
Slide
5-52
No entry is recorded for cost of goods sold at the time
of the sale under a periodic system.
SO 7 Explain the r...
Slide
5-53
SO 7 Explain the recording of purchases and sales ofSO 7 Explain the recording of purchases and sales of
invent...
Slide
5-54
SO 7 Explain the recording of purchases and sales ofSO 7 Explain the recording of purchases and sales of
invent...
Slide
5-55
SO 7 Explain the recording of purchases and sales ofSO 7 Explain the recording of purchases and sales of
invent...
Slide
5-56
SO 7 Explain the recording of purchases and sales ofSO 7 Explain the recording of purchases and sales of
invent...
Slide
5-57
Illustration 5B-1
SO 8SO 8
Worksheet for a Merchandising CompanyWorksheet for a Merchandising CompanyWorksheet ...
Slide
5-58
“Copyright © 2010 John Wiley & Sons, Inc. All rights reserved.
Reproduction or translation of this work beyond ...
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Financial accounting ch.5

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Financial accounting ch.5

  1. 1. Slide 5-1 Replace with Title Page for Weygandt Financial 7e
  2. 2. Slide 5-2 Chapter 5 Accounting forAccounting for MerchandisingMerchandising OperationsOperations Financial Accounting, Seventh Edition
  3. 3. Slide 5-3 1. Identify the differences between service and merchandising companies. 2. Explain the recording of purchases under a perpetual inventory system. 3. Explain the recording of sales revenues under a perpetual inventory system. 4. Explain the steps in the accounting cycle for a merchandising company. 5. Distinguish between a multiple-step and a single-step income statement. 6. Explain the computation and importance of gross profit. Study ObjectivesStudy ObjectivesStudy ObjectivesStudy Objectives
  4. 4. Slide 5-4 Forms ofForms of FinancialFinancial StatementsStatements Forms ofForms of FinancialFinancial StatementsStatements Accounting for Merchandising OperationsAccounting for Merchandising OperationsAccounting for Merchandising OperationsAccounting for Merchandising Operations Freight costsFreight costs PurchasePurchase returns andreturns and allowancesallowances PurchasePurchase discountsdiscounts Summary ofSummary of purchasingpurchasing transactionstransactions MerchandisingMerchandising OperationsOperations MerchandisingMerchandising OperationsOperations RecordingRecording Purchases ofPurchases of MerchandiseMerchandise RecordingRecording Purchases ofPurchases of MerchandiseMerchandise RecordingRecording Sales ofSales of MerchandiseMerchandise RecordingRecording Sales ofSales of MerchandiseMerchandise CompletingCompleting thethe AccountingAccounting CycleCycle CompletingCompleting thethe AccountingAccounting CycleCycle OperatingOperating cyclescycles Flow of costsFlow of costs —perpetual—perpetual and periodicand periodic inventoryinventory systemssystems Sales returnsSales returns andand allowancesallowances SalesSales discountsdiscounts AdjustingAdjusting entriesentries Closing entriesClosing entries Summary ofSummary of merchandisingmerchandising entriesentries Multiple-stepMultiple-step incomeincome statementstatement Single-stepSingle-step incomeincome statementstatement ClassifiedClassified balance sheetbalance sheet
  5. 5. Slide 5-5 Merchandising OperationsMerchandising OperationsMerchandising OperationsMerchandising Operations SO 1 Identify the differences between service and merchandising companies.SO 1 Identify the differences between service and merchandising companies. Merchandising CompaniesMerchandising Companies Buy and Sell Goods Wholesaler Retailer Consumer The primary source of revenues is referred to as sales revenue or sales.
  6. 6. Slide 5-6 Merchandising OperationsMerchandising OperationsMerchandising OperationsMerchandising Operations Income MeasurementIncome Measurement Illustration 5-1 Cost of goods sold is the total cost of merchandise sold during the period. Not used in a Service business. Net Income (Loss) Less LessEquals Equals Sales Revenue Cost of Goods Sold Gross Profit Operating Expenses SO 1 Identify the differences between service and merchandising companies.SO 1 Identify the differences between service and merchandising companies.
  7. 7. Slide 5-7 The operating cycle of a merchandising company ordinarily is longer than that of a service company. Illustration 5-2 SO 1 Identify the differences between service and merchandising companies.SO 1 Identify the differences between service and merchandising companies. Merchandising OperationsMerchandising OperationsMerchandising OperationsMerchandising Operations Operating Cycle
  8. 8. Slide 5-8 Perpetual System 1. Purchases increase Merchandise Inventory. 2. Freight costs, Purchase Returns and Allowances and Purchase Discounts are included in Merchandise Inventory. 3. Cost of Goods Sold is increased and Merchandise Inventory is decreased for each sale. 4. Physical count done to verify Merchandise Inventory balance. The perpetual inventory system provides a continuous record of Merchandise Inventory and Cost of Goods Sold. SO 1 Identify the differences between service and merchandising companies.SO 1 Identify the differences between service and merchandising companies. Merchandising OperationsMerchandising OperationsMerchandising OperationsMerchandising Operations Flow of Costs
  9. 9. Slide 5-9 1. Purchases of merchandise increase Purchases. 2. Ending Inventory determined by physical count. 3. Calculation of Cost of Goods Sold: Beginning inventory $ 100,000 Add: Purchases, net 800,000 Goods available for saleSO 1 Identify the differences between service and merchandising companies.SO 1 Identify the differences between service and merchandising companies. Merchandising OperationsMerchandising OperationsMerchandising OperationsMerchandising Operations Flow of Costs Periodic System
  10. 10. Slide 5-10
  11. 11. Slide 5-11 Made using cash or credit (on account). Normally recorded when goods are received. Purchase invoice should support each credit purchase. Recording Purchases of MerchandiseRecording Purchases of MerchandiseRecording Purchases of MerchandiseRecording Purchases of Merchandise SO 2 Explain the recording of purchases under a perpetual inventory system.SO 2 Explain the recording of purchases under a perpetual inventory system. Illustration 5-5
  12. 12. Slide 5-12 Under the perpetual inventory system, companies record in the Merchandise Inventory account the purchase of goods they intend to sell. Illustration:Illustration: From INVOICE NO. 731 (Illustration 5-5) record the journal entry Sauk Stereo would make to record its purchase from PW Audio Supply. Merchandise inventory 3,800May 4 Accounts payable 3,800 Recording Purchases of MerchandiseRecording Purchases of MerchandiseRecording Purchases of MerchandiseRecording Purchases of Merchandise SO 2 Explain the recording of purchases under a perpetual inventory system.SO 2 Explain the recording of purchases under a perpetual inventory system.
  13. 13. Slide 5-13 Illustration 5-6 Seller places goods Free On Board the carrier, and buyer pays freight costs. Seller places goods Free On Board to the buyer’s place of business, and seller pays freight costs. Recording Purchases of MerchandiseRecording Purchases of MerchandiseRecording Purchases of MerchandiseRecording Purchases of Merchandise Freight Costs – Terms of Sale– Terms of Sale Freight costs incurred by the seller are an operating expense. SO 2SO 2
  14. 14. Slide 5-14 Illustration: Assume upon delivery of the goods on May 6, Sauk Stereo pays Acme Freight Company $150 for freight charges, the entry on Sauk Stereo’s books is: Merchandise inventory 150May 6 Cash 150 Recording Purchases of MerchandiseRecording Purchases of MerchandiseRecording Purchases of MerchandiseRecording Purchases of Merchandise SO 2 Explain the recording of purchases under a perpetual inventory system.SO 2 Explain the recording of purchases under a perpetual inventory system. Assume the freight terms on the invoice in Illustration 5-5 had required PW Audio Supply to pay the freight charges, the entry by PW Audio Supply would have been: Freight-out (or Delivery Expense) 150May 6 Cash 150
  15. 15. Slide 5-15 Purchaser may be dissatisfied because goods are damaged or defective, of inferior quality, or do not meet specifications. Purchase Returns and Allowances Recording Purchases of MerchandiseRecording Purchases of MerchandiseRecording Purchases of MerchandiseRecording Purchases of Merchandise Return goods for credit if the sale was made on credit, or for a cash refund if the purchase was for cash. May choose to keep the merchandise if the seller will grant an allowance (deduction) from the purchase price. Purchase Return Purchase Allowance SO 2 Explain the recording of purchases under a perpetual inventory system.SO 2 Explain the recording of purchases under a perpetual inventory system.
  16. 16. Slide 5-16 In a perpetual inventory system, a return of defective merchandise by a purchaser is recorded by crediting: a. Purchases b. Purchase Returns c. Purchase Allowance d. Merchandise Inventory QuestionQuestion Recording Purchases of MerchandiseRecording Purchases of MerchandiseRecording Purchases of MerchandiseRecording Purchases of Merchandise SO 2 Explain the recording of purchases under a perpetual inventory system.SO 2 Explain the recording of purchases under a perpetual inventory system.
  17. 17. Slide 5-17 Recording Purchases of MerchandiseRecording Purchases of MerchandiseRecording Purchases of MerchandiseRecording Purchases of Merchandise SO 2 Explain the recording of purchases under a perpetual inventory system.SO 2 Explain the recording of purchases under a perpetual inventory system. Illustration: Assume that on May 8 Sauk Stereo returned to PW Audio Supply goods costing $300. Accounts payable 300May 8 Merchandise inventory 300
  18. 18. Slide 5-18 Credit terms may permit buyer to claim a cash discount for prompt payment. Advantages: Purchaser saves money. Seller shortens the operating cycle. Purchase Discounts Recording Purchases of MerchandiseRecording Purchases of MerchandiseRecording Purchases of MerchandiseRecording Purchases of Merchandise Example: Credit terms of 2/10, n/30, is read “two-ten, net thirty.” 2% cash discount if payment is made within 10 days. SO 2 Explain the recording of purchases under a perpetual inventory system.SO 2 Explain the recording of purchases under a perpetual inventory system.
  19. 19. Slide 5-19 Purchase Discount TermsTerms Recording Purchases of MerchandiseRecording Purchases of MerchandiseRecording Purchases of MerchandiseRecording Purchases of Merchandise 2% discount if paid within 10 days, otherwise net amount due within 30 days. 1% discount if paid within first 10 days of next month. 2/10, n/30 1/10 EOM Net amount due within the first 10 days of the next month. n/10 EOM SO 2 Explain the recording of purchases under a perpetual inventory system.SO 2 Explain the recording of purchases under a perpetual inventory system.
  20. 20. Slide 5-20 Merchandise Inventory 70 Accounts payable 3,500May 14 Recording Purchases of MerchandiseRecording Purchases of MerchandiseRecording Purchases of MerchandiseRecording Purchases of Merchandise (Discount = $3,500 x 2% = $70) SO 2 Explain the recording of purchases under a perpetual inventory system.SO 2 Explain the recording of purchases under a perpetual inventory system. Illustration: Assume Sauk Stereo pays the balance due of $3,500 (gross invoice price of $3,800 less purchase returns and allowances of $300) on May 14, the last day of the discount period. Prepare the journal entry Sauk makes to record its May 14 payment. Cash 3,430
  21. 21. Slide 5-21 Accounts payable 3,500June 3 Recording Purchases of MerchandiseRecording Purchases of MerchandiseRecording Purchases of MerchandiseRecording Purchases of Merchandise Cash 3,500 SO 2 Explain the recording of purchases under a perpetual inventory system.SO 2 Explain the recording of purchases under a perpetual inventory system. Illustration: If Sauk Stereo failed to take the discount, and instead made full payment of $3,500 on June 3, the journal entry would be:
  22. 22. Slide 5-22 Should discounts be taken when offered? Purchase Discounts Recording Purchases of MerchandiseRecording Purchases of MerchandiseRecording Purchases of MerchandiseRecording Purchases of Merchandise Discount of 2% on $3,500 70.00$ $3,500 invested at 10% for 20 days 19.18 Savings by taking the discount 50.82$ Example: 2% for 20 days = Annual rate of 36.5% (365/20 = 18.25 twenty-day periods x 2% = 36.5%) Passing up the discount offered equates to paying an interest rate of 2% on the use of $3,500 for 20 days. SO 2 Explain the recording of purchases under a perpetual inventory system.SO 2 Explain the recording of purchases under a perpetual inventory system.
  23. 23. Slide 5-23 Merchandise Inventory Debit Credit $3,800 8th - Return$300 Balance 4th - Purchase $3,580$3,580 70 14th - Discount Recording Purchases of MerchandiseRecording Purchases of MerchandiseRecording Purchases of MerchandiseRecording Purchases of Merchandise Summary of Purchasing TransactionsSummary of Purchasing Transactions 1506th – Freight-in IllustrationIllustration SO 2 Explain the recording of purchases under a perpetual inventory system.SO 2 Explain the recording of purchases under a perpetual inventory system.
  24. 24. Slide 5-24 Made for cash or credit (on account). Normally recorded when earned, usually when goods transfer from seller to buyer. Sales invoice should support each credit sale. Recording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of Merchandise SO 3 Explain the recording of sales revenuesSO 3 Explain the recording of sales revenues under a perpetual inventory system.under a perpetual inventory system. Illustration 5-5
  25. 25. Slide 5-25 Two Journal Entries to Record a Sale Cash or Accounts receivable XXX Sales XXX Recording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of Merchandise SO 3 Explain the recording of sales revenuesSO 3 Explain the recording of sales revenues under a perpetual inventory system.under a perpetual inventory system. #1 Cost of goods sold XXX Merchandise inventory XXX #2 Selling Price Cost
  26. 26. Slide 5-26 Recording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of Merchandise SO 3 Explain the recording of sales revenuesSO 3 Explain the recording of sales revenues under a perpetual inventory system.under a perpetual inventory system. Accounts receivable 3,800May 4 Sales 3,800 Illustration: Assume PW Audio Supply records its May 4 sale of $3,800 to Sauk Stereo (Illustration 5-5) as follows. Assume the merchandise cost PW Audio Supply $2,400. Cost of goods sold 2,4004 Merchandise inventory 2,400
  27. 27. Slide 5-27 “Flipside” of purchase returns and allowances. Contra-revenue account (debit). Sales not reduced (debited) because:  would obscure importance of sales returns and allowances as a percentage of sales.  could distort comparisons between total sales in different accounting periods. Sales Returns and Allowances Recording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of Merchandise SO 3 Explain the recording of sales revenuesSO 3 Explain the recording of sales revenues under a perpetual inventory system.under a perpetual inventory system.
  28. 28. Slide 5-28 Illustration: Prepare the entry PW Audio Supply would make to record the credit for returned goods that had a $300 selling price (assume a $140 cost). Assume the goods were not defective. Recording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of Merchandise SO 3 Explain the recording of sales revenuesSO 3 Explain the recording of sales revenues under a perpetual inventory system.under a perpetual inventory system. Sales returns and allowances 300May 8 Accounts receivable 300 Merchandise inventory 1408 Cost of goods sold 140
  29. 29. Slide 5-29 Illustration: Assume the returned goods were defective and had a scrap value of $50, PW Audio would make the following entries: Recording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of Merchandise SO 3 Explain the recording of sales revenuesSO 3 Explain the recording of sales revenues under a perpetual inventory system.under a perpetual inventory system. Sales returns and allowances 300May 8 Accounts receivable 300 Merchandise inventory 508 Cost of goods sold 50
  30. 30. Slide 5-30 The cost of goods sold is determined and recorded each time a sale occurs in: a. periodic inventory system only. b. a perpetual inventory system only. c. both a periodic and perpetual inventory system. d. neither a periodic nor perpetual inventory system. Review QuestionReview Question Recording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of Merchandise SO 3 Explain the recording of sales revenuesSO 3 Explain the recording of sales revenues under a perpetual inventory system.under a perpetual inventory system.
  31. 31. Slide 5-31
  32. 32. Slide 5-32 Offered to customers to promote prompt payment. “Flipside” of purchase discount. Contra-revenue account (debit). Sales Discount Recording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of Merchandise SO 3 Explain the recording of sales revenuesSO 3 Explain the recording of sales revenues under a perpetual inventory system.under a perpetual inventory system.
  33. 33. Slide 5-33 Recording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of Merchandise SO 3 Explain the recording of sales revenuesSO 3 Explain the recording of sales revenues under a perpetual inventory system.under a perpetual inventory system. Cash 3,430May 14 Accounts receivable 3,500 Sales discounts 70 * [($3,800 – $300) X 2%] * Illustration: Assume Sauk Stereo pays the balance due of $3,500 (gross invoice price of $3,800 less purchase returns and allowances of $300) on May 14, the last day of the discount period. Prepare the journal entry PW Audio Supply makes to record the receipt on May 14.
  34. 34. Slide 5-34 Generally the same as a service company. One additional adjustment to make the records agree with the actual inventory on hand. Involves adjusting Merchandise Inventory and Cost of Goods Sold. Adjusting Entries Completing the Accounting CycleCompleting the Accounting CycleCompleting the Accounting CycleCompleting the Accounting Cycle SO 4 Explain the steps in the accounting cycle for a merchandising company.SO 4 Explain the steps in the accounting cycle for a merchandising company.
  35. 35. Slide 5-35 Completing the Accounting CycleCompleting the Accounting CycleCompleting the Accounting CycleCompleting the Accounting Cycle SO 4 Explain the steps in the accounting cycle for a merchandising company.SO 4 Explain the steps in the accounting cycle for a merchandising company. Illustration: Suppose that PW Audio Supply has an unadjusted balance of $40,500 in Merchandise Inventory. Through a physical count, PW Audio determines that its actual merchandise inventory at year-end is $40,000. The company would make an adjusting entry as follows. Cost of goods sold 500 Merchandise inventory 500
  36. 36. Slide 5-36 Completing the Accounting CycleCompleting the Accounting CycleCompleting the Accounting CycleCompleting the Accounting Cycle Closing Entries Dividends
  37. 37. Slide 5-37 Shows several steps in determining net income. Two steps relate to principal operating activities. Distinguishes between operating and non- operating activities. Multiple-Step Income Statement Forms of Financial StatementsForms of Financial StatementsForms of Financial StatementsForms of Financial Statements SO 5 Distinguish between a multiple-step and a single-step income statement.SO 5 Distinguish between a multiple-step and a single-step income statement.
  38. 38. Slide 5-38 Illustration 5-8 Income Statement Presentation of Sales Multiple-Step Income StatementMultiple-Step Income StatementMultiple-Step Income StatementMultiple-Step Income Statement SO 5 Distinguish between a multiple-step and a single-step income statement.SO 5 Distinguish between a multiple-step and a single-step income statement.
  39. 39. Slide 5-39 SO 6 Explain the computation and importance of gross profit.SO 6 Explain the computation and importance of gross profit. Illustration 5-13 Key Items:Key Items: Net salesNet sales Gross profitGross profit Gross profitGross profit raterate Illustration 5-10 Gross Profit Multiple-Step Income StatementMultiple-Step Income StatementMultiple-Step Income StatementMultiple-Step Income Statement
  40. 40. Slide 5-40 Forms ofForms of FinancialFinancial StatementsStatements Forms ofForms of FinancialFinancial StatementsStatements Key Items:Key Items: Net salesNet sales Gross profitGross profit OperatingOperating expensesexpenses SO 5 Distinguish between a multiple-step and a single-step income statement.SO 5 Distinguish between a multiple-step and a single-step income statement. Illustration 5-13 Multiple- Step
  41. 41. Slide 5-41 Forms ofForms of FinancialFinancial StatementsStatements Forms ofForms of FinancialFinancial StatementsStatements Key Items:Key Items: Net salesNet sales Gross profitGross profit OperatingOperating expensesexpenses NonoperatingNonoperating activitiesactivities Net incomeNet income SO 5 Distinguish between a multiple-step and a single-step income statement.SO 5 Distinguish between a multiple-step and a single-step income statement. Illustration 5-13
  42. 42. Slide 5-42 The multiple-step income statement for a merchandiser shows each of the following features except: a. gross profit. b. cost of goods sold. c. a sales revenue section. d. investing activities section. Review QuestionReview Question Forms of Financial StatementsForms of Financial StatementsForms of Financial StatementsForms of Financial Statements SO 5 Distinguish between a multiple-step and a single-step income statement.SO 5 Distinguish between a multiple-step and a single-step income statement.
  43. 43. Slide 5-43 Subtract total expenses from total revenues Two reasons for using the single-step format: 1) Company does not realize any type of profit until total revenues exceed total expenses. 2) Format is simpler and easier to read. Single-Step Income Statement Forms of Financial StatementsForms of Financial StatementsForms of Financial StatementsForms of Financial Statements SO 5 Distinguish between a multiple-step and a single-step income statement.SO 5 Distinguish between a multiple-step and a single-step income statement.
  44. 44. Slide 5-44 Illustration 5-14 Single- Step Forms of Financial StatementsForms of Financial StatementsForms of Financial StatementsForms of Financial Statements SO 5 Distinguish between a multiple-step and a single-step income statement.SO 5 Distinguish between a multiple-step and a single-step income statement.
  45. 45. Slide 5-45 Forms of Financial StatementsForms of Financial StatementsForms of Financial StatementsForms of Financial Statements Illustration 5-15 Classified Balance Sheet SO 5 Distinguish between a multiple-step and a single-step income statement.SO 5 Distinguish between a multiple-step and a single-step income statement.
  46. 46. Slide 5-46 Periodic System Separate accounts used to record purchases, freight costs, returns, and discounts. Company does not maintain a running account of changes in inventory. Ending inventory determined by physical count. SO 7 Explain the recording of purchases and sales ofSO 7 Explain the recording of purchases and sales of inventory under a periodic inventory system.inventory under a periodic inventory system. Periodic Inventory SystemPeriodic Inventory SystemPeriodic Inventory SystemPeriodic Inventory System
  47. 47. Slide 5-47 Calculation of Cost of Goods Sold $316,000 Illustration 5A-1 SO 7 Explain the recording of purchases and sales ofSO 7 Explain the recording of purchases and sales of inventory under a periodic inventory system.inventory under a periodic inventory system. Periodic Inventory SystemPeriodic Inventory SystemPeriodic Inventory SystemPeriodic Inventory System
  48. 48. Slide 5-48 SO 7 Explain the recording of purchases and sales ofSO 7 Explain the recording of purchases and sales of inventory under a periodic inventory system.inventory under a periodic inventory system. Illustration:Illustration: On the basis of the sales invoice (Illustration 5-5) and receipt of the merchandise ordered from PW Audio Supply, Sauk Stereo records the $3,800 purchase as follows. Purchases 3,800May 4 Accounts payable 3,800 Recording Purchases under Periodic SystemRecording Purchases under Periodic SystemRecording Purchases under Periodic SystemRecording Purchases under Periodic System
  49. 49. Slide 5-49 SO 7 Explain the recording of purchases and sales ofSO 7 Explain the recording of purchases and sales of inventory under a periodic inventory system.inventory under a periodic inventory system. Illustration:Illustration: If Sauk pays Acme Freight Company $150 for freight charges on its purchase from PW Audio Supply on May 6, the entry on Sauk’s books is: Freight-in (Transportation-in) 150May 6 Cash 150 Freight CostsFreight Costs Recording Purchases under Periodic SystemRecording Purchases under Periodic SystemRecording Purchases under Periodic SystemRecording Purchases under Periodic System
  50. 50. Slide 5-50 SO 7 Explain the recording of purchases and sales ofSO 7 Explain the recording of purchases and sales of inventory under a periodic inventory system.inventory under a periodic inventory system. Illustration:Illustration: Sauk Stereo returns $300 of goods to PW Audio Supply and prepares the following entry to recognize the return. Accounts payable 300May 8 Purchase returns and allowances 300 Purchase Returns and AllowancesPurchase Returns and Allowances Recording Purchases under Periodic SystemRecording Purchases under Periodic SystemRecording Purchases under Periodic SystemRecording Purchases under Periodic System
  51. 51. Slide 5-51 SO 7 Explain the recording of purchases and sales ofSO 7 Explain the recording of purchases and sales of inventory under a periodic inventory system.inventory under a periodic inventory system. Illustration:Illustration: On May 14 Sauk Stereo pays the balance due on account to PW Audio Supply, taking the 2% cash discount allowed by PW Audio for payment within 10 days. Sauk Stereo records the payment and discount as follows. Accounts payable 3,500May 14 Purchase discounts 70 Purchase DiscountsPurchase Discounts Cash 3,430 Recording Purchases under Periodic SystemRecording Purchases under Periodic SystemRecording Purchases under Periodic SystemRecording Purchases under Periodic System
  52. 52. Slide 5-52 No entry is recorded for cost of goods sold at the time of the sale under a periodic system. SO 7 Explain the recording of purchases and sales ofSO 7 Explain the recording of purchases and sales of inventory under a periodic inventory system.inventory under a periodic inventory system. Illustration:Illustration: PW Audio Supply, records the sale of $3,800 of merchandise to Sauk Stereo on May 4 (sales invoice No. 731, Illustration 5-5) as follows. Accounts receivable 3,800May 4 Sales 3,800 Recording Sales under Periodic SystemRecording Sales under Periodic SystemRecording Sales under Periodic SystemRecording Sales under Periodic System
  53. 53. Slide 5-53 SO 7 Explain the recording of purchases and sales ofSO 7 Explain the recording of purchases and sales of inventory under a periodic inventory system.inventory under a periodic inventory system. Illustration:Illustration: To record the returned goods received from Sauk Stereo on May 8, PW Audio Supply records the $300 sales return as follows. Sales returns and allowances 300May 4 Accounts receivable 300 Sales Returns and AllowancesSales Returns and Allowances Recording Sales under Periodic SystemRecording Sales under Periodic SystemRecording Sales under Periodic SystemRecording Sales under Periodic System
  54. 54. Slide 5-54 SO 7 Explain the recording of purchases and sales ofSO 7 Explain the recording of purchases and sales of inventory under a periodic inventory system.inventory under a periodic inventory system. Illustration:Illustration: On May 14, PW Audio Supply receives payment of $3,430 on account from Sauk Stereo. PW Audio honors the 2% cash discount and records the payment of Sauk’s account receivable in full as follows. Sales DiscountsSales Discounts Cash 3,430May 14 Accounts receivable 3,500 Sales discounts 70 Recording Sales under Periodic SystemRecording Sales under Periodic SystemRecording Sales under Periodic SystemRecording Sales under Periodic System
  55. 55. Slide 5-55 SO 7 Explain the recording of purchases and sales ofSO 7 Explain the recording of purchases and sales of inventory under a periodic inventory system.inventory under a periodic inventory system. Illustration 5A-2 Comparison of Entries-Perpetual vs. PeriodicComparison of Entries-Perpetual vs. PeriodicComparison of Entries-Perpetual vs. PeriodicComparison of Entries-Perpetual vs. Periodic
  56. 56. Slide 5-56 SO 7 Explain the recording of purchases and sales ofSO 7 Explain the recording of purchases and sales of inventory under a periodic inventory system.inventory under a periodic inventory system. Illustration 5A-2 Comparison of Entries-Perpetual vs. PeriodicComparison of Entries-Perpetual vs. PeriodicComparison of Entries-Perpetual vs. PeriodicComparison of Entries-Perpetual vs. Periodic
  57. 57. Slide 5-57 Illustration 5B-1 SO 8SO 8 Worksheet for a Merchandising CompanyWorksheet for a Merchandising CompanyWorksheet for a Merchandising CompanyWorksheet for a Merchandising Company
  58. 58. Slide 5-58 “Copyright © 2010 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.” CopyrightCopyrightCopyrightCopyright
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