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hho_acctg09GE_inppt05_ppt.ppt
1.
Copyright © 2012
Pearson Education Chapter 5 1
2.
Copyright © 2012
Pearson Education 2 Describe and illustrate merchandising operations and the two types of inventory systems Account for the purchase of inventory using a perpetual system Account for the sale of inventory using a perpetual system Adjust and close the accounts of a merchandising business
3.
Copyright © 2012
Pearson Education 3 Prepare a merchandiser’s financial statements Use gross profit percentage, inventory turnover, and days in inventory to evaluate a business Account for the sale of inventory using a periodic system (Appendix 5A) Prepare worksheets for a merchandiser (see Appendix 5B, located at myaccountinglab.com)
4.
Copyright © 2012
Pearson Education Describe and illustrate merchandising operations and the two types of inventory systems 4 1
5.
Copyright © 2012
Pearson Education Businesses that sell a product to customers New Accounts Balance Sheet Inventory Asset account Income Statement Sales (Sales Revenue) Cost of Goods Sold Expense account 5
6.
Copyright © 2012
Pearson Education 6 * Smart Touch, in textbook Chapters 1-4, is a service company. ** Greg’s Tunes, in your textbook, is an example of a merchandising company.
7.
Copyright © 2012
Pearson Education 7
8.
Copyright © 2012
Pearson Education 8
9.
Copyright © 2012
Pearson Education PERIODIC Goods counted periodically to determine quantity Used by small businesses Less popular due to computerized inventory systems 9
10.
Copyright © 2012
Pearson Education PERPETUAL Record of Units purchased and cost amount Units sold and sales and cost amounts The quantity of inventory on hand and its cost Better control of inventory Popular due to bar codes Physical count once a year 10
11.
Copyright © 2012
Pearson Education 11 Used to: Record Sales and Cost of goods sold Updates Inventory count Updates purchasing and generates purchase orders
12.
Copyright © 2012
Pearson Education Account for the purchase of inventory using a perpetual system 12 2
13.
Copyright © 2012
Pearson Education The inventory account is increased with each purchase The vendor submits an invoice for payment The invoice contains: The seller The purchaser The date of purchase (or shipment) Credit terms Total amount due The due date 13
14.
Copyright © 2012
Pearson Education 14 The Inventory account, an asset–used only for goods purchased Debit for gross amount of purchase The method of payment is credited Accounts payable, if on account Cash, if purchased with cash
15.
Copyright © 2012
Pearson Education Discount for early payment Expressed as follows: Other terms: 2/10 , n/30 2% discount if paid within 10 days Full amount due within 30 days n/30 No discount, full amount due in 30 days eom Full amount due by the end of month 15
16.
Copyright © 2012
Pearson Education Debit Accounts payable for invoice amount Credit Cash for the actual payment amount (Gross amount – discount amount) Credit Inventory for the discount amount 16 16 If payment is sent after the discount period Credit cash for the full invoice amount Do not reduce the inventory account
17.
Copyright © 2012
Pearson Education Purchase return Merchandise returned by the purchaser Purchase allowance Seller reduces amount owed Incentive for purchaser to keep goods 17
18.
Copyright © 2012
Pearson Education Debit Accounts payable for amount returned Credit Inventory for the amount returned Reverses original purchase entry Entry the same for a purchase allowance Company keeps the inventory 18
19.
Copyright © 2012
Pearson Education FOB Shipping Point Buyer owns inventory when shipped Purchaser normally pays freight charges Freight in Increases cost of inventory 19
20.
Copyright © 2012
Pearson Education Seller Buyer Title transfers to buyer Buyer pays freight charges Increases cost of inventory Goods 20
21.
Copyright © 2012
Pearson Education 21 FOB Destination Buyer owns inventory when goods arrive Seller normally pays freight Freight out Selling expense to the seller
22.
Copyright © 2012
Pearson Education Seller Buyer Title transfers to buyer Seller pays freight charges Increases expenses Goods 22
23.
Copyright © 2012
Pearson Education Discount applied to inventory cost only No discount computed on shipping cost 23
24.
Copyright © 2012
Pearson Education Suppose KC Toys buys $185,800 worth of MegoBlock toys on credit terms of 2/10, n/30. Some of the goods are damaged in shipment, so KC Toys returns $18,530 of the merchandise to MegoBlock. 1. How much must KC Toys pay MegoBlock a. After the discount period? b. Within the discount period? 24 Original purchase amount $185,800 Less: Purchase returns 18,530 Cost of inventory kept by KC Toys $167,270 Cost of inventory kept by KC Toys $167,270 Less: Discount amount 3,345 Cost of inventory with discount $163,925
25.
Copyright © 2012
Pearson Education Refer to the KC Toys facts in Short Exercise 5-2. 1. Journalize the following transactions. Explanations are not required. a. Purchase of the goods on July 8, 2012. b. Return of the damaged goods on July 12, 2012. c. Payment on July 15, 2012. 25 July 8 Inventory 185,800 Accounts payable 185,800 July 8 Accounts payable 18,530 Inventory 18,530 July 8 Accounts payable 167,270 Inventory 3,345 Cash 163,925
26.
Copyright © 2012
Pearson Education Refer to the KC Toys facts in Short Exercise 5-2. 2. In the final analysis, how much did the inventory cost KC Toys? 26 Cost of inventory kept by KC Toys $167,270 Less: Discount amount 3,345 Cost of inventory with discount $163,925
27.
Copyright © 2012
Pearson Education Account for the sale of inventory using a perpetual system 27 3
28.
Copyright © 2012
Pearson Education Sales revenue Amount earned from selling inventory Revenue account Cost of goods sold Cost of inventory sold to customers Expense account 28
29.
Copyright © 2012
Pearson Education Two journal entries: Record the sale Cash sale Credit sale Update the inventory 29
30.
Copyright © 2012
Pearson Education Sales returns and allowances When customer returns goods or refuses services Contra revenue account (debit balance) Sales allowance Seller grants a reduction in price to customer Merchandise is defective, damaged, or otherwise unsuitable 30
31.
Copyright © 2012
Pearson Education Process the return (opposite of sale) Sales returns and allowances (debit, reducing sales) Refund Cash or reduce Accounts receivable (credit) Increase inventory (debit, if returned and sellable) Reduce Cost of goods sold (credit) Process the allowance (same first entry) Reduce Sales (Sales returns and allowances) Refund Cash or reduce Accounts receivable 31
32.
Copyright © 2012
Pearson Education Sales discounts Customer pays within the discount period Seller has credit terms Reduce Sales (Contra revenue account) Sales discount debited
33.
Copyright © 2012
Pearson Education Sales made to customers Sales Returns & Allowances Sales Discounts Net Sales minus minus equals 33
34.
Copyright © 2012
Pearson Education Net Sales Cost of Goods Sold Gross Profit minus equals 34
35.
Copyright © 2012
Pearson Education Suppose Piranha.com sells 2,500 books on account for $15 each (cost of these books is $22,500) on October 10, 2012. One hundred of these books (cost $900) were damaged in shipment, so Piranha.com later received the damaged goods as sales returns on October 13, 2012. Then the customer paid the balance on October 22, 2012. Credit terms offered to the customer were 2/15, net 60. Requirement 1. Journalize Piranha.com’s October 2012 transactions. 35
36.
Copyright © 2012
Pearson Education Recall that Piranha.com sells 2,500 books on account for $15 each (cost of these books is $22,500) on October 10, 2012. Now, journalize cost of goods sold. 36 Oct 10 Accounts Receivable 37,500 Sales revenue 37,500 Oct 10 Cost of goods sold 22,500 Inventory 22,500
37.
Copyright © 2012
Pearson Education Now, one hundred of these books (cost $900) were damaged in shipment, so Piranha.com later received the damaged goods as sales returns on October 13, 2012. Journalize cost of goods returned 37 Oct 13 Sales returns and allowances 1,500 Accounts receivable 1,500 Oct 13 Inventory 900 Cost of goods sold 900
38.
Copyright © 2012
Pearson Education Then the customer paid the balance on October 22, 2012. Credit terms offered to the customer were 2/15, net 60. 38 Oct 22 Cash 35,280 Sales discount 720 Accounts receivable 36,000
39.
Copyright © 2012
Pearson Education 1. Calculate net sales revenue for October 2012. 2. Calculate gross profit for October 2012. 39 Gross sales revenue $ 37,500 Less: Sales returns (1,500) Sales discount (720) Net sales revenue $ 35,280 Net sales revenue $ 35,280 Less: Cost of goods sold (21,600) Gross Profit $ 13,680
40.
Copyright © 2012
Pearson Education Adjust and close the accounts of a merchandising business 40 4
41.
Copyright © 2012
Pearson Education Physical count of inventory at least once per year Account may differ from the books due to: Theft or damage – Inventory shrinkage Errors 41
42.
Copyright © 2012
Pearson Education 1. Close revenues 2. Close expenses and contra revenues 42
43.
Copyright © 2012
Pearson Education 3. Close Income summary 4. Close Dividends 43
44.
Copyright © 2012
Pearson Education Rich’s Furniture’s Inventory account at year-end appeared as follows: Inventory Unadjusted balance 63,000 The physical count of inventory came up with a total of $61,900. 1. Journalize the adjusting entry. 44 Cost of goods sold 1,100 Inventory 1,100
45.
Copyright © 2012
Pearson Education Carolina Communications, reported the following figures in its financial statements: Cost of goods sold $385,000 Accumulated depreciation $39,000 Accounts payable 17,000 Cash 43,000 Rent expense 21,000 Sales revenue 696,000 Building 108,000 Depreciation expense 12,000 Rockwell, capital 208,000 Rockwell, drawing 61,000 Inventory 261,000 Sales discounts 9,000 1. Journalize the required closing entries for Rockwell RV Center for December 31, 2012. 45 Dec 31 Sales revenue 696,000 Income summary 696,000
46.
Copyright © 2012
Pearson Education Carolina Communications reported the following figures in its financial statements: Cost of goods sold $385,000 Accumulated depreciation $ 39,000 Accounts payable 17,000 Cash 43,000 Rent expense 21,000 Sales revenue 696,000 Building 108,000 Depreciation expense 12,000 Rockwell, capital 208,000 Rockwell, drawing 61,000 Inventory 261,000 Sales discounts 9,000 46 Dec 31 Income summary 427,000 Cost of goods sold 385,000 Rent expense 21,000 Depreciation expense 12,000 Sales discounts 9,000
47.
Copyright © 2012
Pearson Education Carolina Communications reported the following figures in its financial statements: Cost of goods sold $385,000 Accumulated depreciation $ 39,000 Accounts payable 17,000 Cash 43,000 Rent expense 21,000 Sales revenue 696,000 Building 108,000 Depreciation expense 12,000 Rockwell, capital 208,000 Rockwell, drawing 61,000 Inventory 261,000 Sales discounts 9,000 47 Income summary 269,000 Rockwell, capital 269,000 Rockwell, capital 61,000 Rockwell, drawing 61,000
48.
Copyright © 2012
Pearson Education Prepare a merchandiser’s financial statements 48 5
49.
Copyright © 2012
Pearson Education 49
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Pearson Education Selling Expenses Marketing and selling products Includes: Advertising Sales’ salaries Store rent, depreciation, taxes, utilities and insurance Freight out or delivery expenses 50
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Pearson Education General Expenses NOT marketing products Includes: Executive and staff salary Administrative office building rent, depreciation, taxes, utilities and insurance Not store related 51
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Pearson Education Statement of Retained Earnings Same as service company Balance Sheet Inventory account Current asset 52
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Pearson Education Multi-step Income Statement Lists several important subtotals Gross profit Operating income More popular 53
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Pearson Education Single-step Groups all revenues and all expenses together No subtotals Works well for service companies 54
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Pearson Education Use gross profit percentage, inventory turnover, and days in inventory to evaluate a business 55 6
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Pearson Education Calculation: Carefully watched measure Small increase may indicate rise in income Small decrease may indicate trouble 56 Gross Profit Net Sales Revenue
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Pearson Education Cost of goods sold Average inventory Calculation: Measures how rapidly inventory is sold The higher the turnover, the more quickly inventory is sold
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Pearson Education 365 days Inventory turnover ratio Calculation: Measures average number of days inventory held The higher the days, the longer inventory is being held
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Pearson Education LanWan Software earned sales revenue of $65,000,000 in 2012. Cost of goods sold was $39,000,000, and Net income reached $9,000,000, the company’s highest ever. Total current assets included Inventory of $3,000,000 at December 31, 2012. Inventory was $5,000,000 on December 31, 2011. 1. Compute the company’s gross profit percentage for 2012 2. Compute the rate of inventory turnover for 2012 59 Gross Profit Net Sales Revenue 65,000 – 39,000 26,000 65,000 65,000 40% = = = Cost of goods sold Average inventory = 39,000 0 (5,000) + (3,000) / 2 39,000 0 4,000 = = 9.75
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Pearson Education Account for the sale of inventory using a periodic system (Appendix 5A) 60 7
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Pearson Education Periodic system has separate accounts for: Purchases Purchases discount Purchase returns and allowance Transportation cost 61
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Pearson Education Separate purchase discount account Purchase returns and allowance 62
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Pearson Education 63 Purchases (debit) Purchase discounts (credit) Purchase returns and allowances (credit) Net purchases minus minus equals
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Pearson Education Costs to transport purchased inventory are debited to Freight in 64
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Pearson Education Must be calculated under periodic system 65
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Pearson Education If a company is using a price tag stamped on the good to ring up your purchase, the company is probably using a periodic inventory system. If a company is using a bar code scanner to ring up your purchase, the company is using a perpetual inventory system. All purchase transactions are between the company and a vendor. In a perpetual system, every transaction that affects the quantity or price of inventory is either debited or credited to the asset, Inventory, based on the rules of debit and credit. 66
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Pearson Education Increases debit Inventory (increase in quantity or cost per unit). Decreases credit Inventory (decrease in quantity or cost per unit). All sales transactions are between the company and a customer. In a perpetual system, each sales transaction has two entries. The first entry records the sales price to the customer (debit Cash or Accounts receivable and credit Sales revenue). The second entry updates the Inventory account (debit COGS and credit Inventory). 67
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Pearson Education When customers return goods, two entries are made. The first entry records the returned goods from the customer at their sales price (debit Sales returns and allowances and credit Cash or Accounts receivable). The second entry updates the Inventory account (debit Inventory and credit COGS). When customers pay early to take advantage of terms offered, it reduces the amount of cash the company receives and a Sales discount is recorded. 68
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Pearson Education Closing entries are made at the end of a period to all accounts that are temporary (not on the balance sheet). To close an account means to make the balance zero. The form of the income statement can give users more information for decisions. The multi-step income statement, with more subtotals, has more value than the single-step income statement. Regardless of the form, bottom line net income or loss is the same amount. 69
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Pearson Education The preparation of the statement of retained earnings and the balance sheet are the same for merchandising as for service companies. The only difference is the addition of the asset account, Inventory, on the balance sheet. Ratios serve as an alternate way to measure how well a company is managing its various assets. 70
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Pearson Education 72 Copyright All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.
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