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Section 7 Section 7 Presentation Transcript

  • " The only place where success comes before work is in dictionary" Vidal Sassoon
  • No Cellphone
  • Principles Of Accounting (1) Chapter 5 Merchandising Operations Mohamed Mahmoud mmahmoud@eelu.edu.eg Tel: (+202) 33318449
  • Objectives : 1. Perpetual System and Periodic System 2. Single-step and multiple-step income statement 3. Gross Profit Rate
  • Exercises
  • Features: 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. 1. Perpetual System and Periodic System
  • Two Journal Entries to Record a Sale Cash or Accounts receivable XXX Sales XXX #1 Cost of goods sold XXX Merchandise inventory XXX #2 Selling Price Cost 1. Perpetual System and Periodic System (cont’d)
  • Contra-revenue account (debit). Sales Returns and Allowances FOB shipping point - seller places goods Free On Board the carrier, and buyer pays freight costs. Freight Costs 1. Perpetual System and Periodic System (cont’d) Sales returns and allowances 27,000 Accounts receivable 27,000 Merchandise inventory 19,800 Cost of goods sold 19,800 Cash 463,540 Accounts receivable 473,000 Sales discounts 9,460 FOB destination - seller places the goods Free On Board to the buyer’s place of business, and seller pays freight costs. Entry: Sales not reduced (debited) Entry:
  • Features: Periodic System 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 sale 900,000 Less: Ending inventory 125,000 Cost of goods sold $ 775,000 1. Perpetual System and Periodic System (cont’d)
  • Exercise 1 On October 1, Ahmad Bicycle Store had an inventory of 20 ten speed bicycles at a cost of $200 each. During the month of October, the following transactions occurred. Oct. 4 Purchased 30 bicycles at a cost of $200 each from Dreams Bicycle Company, terms 2/10, n/30. 6 Sold 18 bicycles to El-Nasr Team for $300 each, terms 2/10, n/30. 7 Received credit from Dreams Bicycle Company for the return of 2 defective bicycles. 13 Issued a credit memo to El-Nasr Team for the return of a defective bicycle. 14 Paid Dreams Bicycle Company in full, less discount. Instructions Prepare the journal entries to record the transactions assuming the company uses a perpetual inventory system.
  • Answers Oct. 4 Merchandise Inventory ........................................................ 6,000 Accounts Payable ....................................................... 6,000 6 Accounts Receivable ........................................................... 5,400 Sales........................................................................... 5,400 Cost of Goods Sold.............................................................. 3,600 Merchandise Inventory ............................................... 3,600 7 Accounts Payable................................................................ 400 Merchandise Inventory ............................................... 400 13 Sales Returns and Allowances............................................ 300 Accounts Receivable .................................................. 300 Merchandise Inventory ........................................................ 200 Cost of Goods Sold..................................................... 200 14 Accounts Payable ($6,000 – $400)...................................... 5,600 Cash ($5,600 × .98).................................................... 5,488 Merchandise Inventory ($5,600 × .02) ........................ 112
  • Exercise 2 The following information is available for Khaled Company: Debit Credit Khaled, Capital $ 50,000 Khaled, Drawing $ 32,000 Sales 510,000 Sales Returns and Allowances 20,000 Sales Discounts 7,000 Cost of Goods Sold 347,000 Freight-out 2,000 Advertising Expense 15,000 Interest Expense 19,000 Store Salaries Expense 45,000 Utilities Expense 18,000 Depreciation Expense 7,000 Interest Revenue 25,000 Instructions: Using the above information, prepare the closing entries for Khaled Company.
  • Answers Dec. 31 Interest Revenue.................................................................. 25,000 Sales .................................................................................... 510,000 Income Summary ........................................................ 535,000 31 Income Summary................................................................. 480,000 Sales Returns and Allowances ................................... 20,000 Sales Discounts .......................................................... 7,000 Cost of Goods Sold..................................................... 347,000 Freight-out .................................................................. 2,000 Advertising Expense ................................................... 15,000 Interest Expense......................................................... 19,000 Store Salaries Expense .............................................. 45,000 Utilities Expense ......................................................... 18,000 Depreciation Expense................................................. 7,000 31 Income Summary................................................................. 55,000 Khaled, Capital ............................................................... 55,000 31 Khaled, Capital ....................................................................... 32,000 Khaled, Drawing ............................................................ 32,000
  • Income Measurement 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 2. Single-step and multiple-step income statement
  • Prepare the sales revenue section of the income statement for Wheeler Company. 2. Single-step and multiple-step income statement (cont’d)
  • Chapter 5-16 Single- Step 2. Single-step and multiple-step income statement (cont’d)
  • Chapter 5-17 Key Items: Net sales Gross profit Gross profit rate Operating expenses
  • Chapter 5-18 Forms of Financial Statements Key Items: Net sales Gross profit Gross profit rate Operating expenses Nonoperating activities Net income
  • Exercise 3The adjusted trial balance of Jihad Company contained the following information: Debit Credit Sales $560,000 Sales Returns and Allowances $ 20,000 Sales Discounts 7,000 Cost of Goods Sold 386,000 Freight-out 2,000 Advertising Expense 15,000 Interest Expense 18,000 Store Salaries Expense 55,000 Utilities Expense 28,000 Depreciation Expense 7,000 Interest Revenue 30,000 Instructions 1. Use the above information to prepare a multiple-step income statement for the year ended December 31, 2008. 2. Prepare a single-step income statement for the year ended December 31, 2008.
  • Answers JIHAD COMPANY Income Statement For the Year Ended December 31, 2008 Sales revenues Sales..................................................................................................... $560,000 Less: Sales returns and allowances....................... $ 20,000 Sales discounts........................................................... 7,000…………….. 27,000 Net sales................................................................................................. 533,000 Cost of goods sold.................................................................................. 386,000 Gross profit ............................................................................................. 147,000 Operating expenses Selling expenses Store salaries expense .............. $55,000 Advertising expense ................... 15,000 Freight-out ................................... 2,000 Total selling expenses ............................ 72,000 Administrative expenses Utilities expense......................... 28,000 Depreciation expense ................. 7,000 Total administrative expenses ................ 35,000 Total operating expenses............................................... 107,000 Income from operations........................................................................ 40,000 Other revenues and gains Interest revenue................................................ 30,000 Other expenses and losses Interest expense .............................................. 18,000 …………….12,000 Net income ........................................................................................... $ 52,000
  • Answer (cont’d) JIHAD COMPANY Income Statement For the Year Ended December 31, 2008 Revenues Net sales................................................................................................ $533,000 Interest revenue........................................................................................ 30,000 Total revenues.................................................................................. 563,000 Expenses Cost of goods sold................................................................ $386,000 Selling expenses ...................................................................... 72,000 Administrative expenses.......................................................... 35,000 Interest expense ..................................................................... 18,000 Total expenses ................................................................................. 511,000 Net income ...................................................................................................... $ 52,000
  • 3. Gross Profit Rate:
  • Exercise 4 The following information is available for Ammar Company: • Administrative expenses $ 30,000 • Cost of goods sold 245,000 • Sales 350,000 • Sales returns and allowances 15,000 • Selling expenses 50,000 Instructions: Compute each of the following: (a) Net sales (b) Gross profit (c) Income from operations
  • Answer (a) Net sales = $335,000 ($350,000 – $15,000) (b) Gross profit = $90,000 ($335,000 – $245,000) (b) Gross profit rate = Net sales / Gross profit x100= 90,000 / 335,000 x100 = 26.8 % (c) Income from operations = $10,000 ($90,000 – $30,000 – $50,000)