<ul><li>Presented By: </li></ul><ul><li>-Anis Ul Hassan </li></ul><ul><li>-Hanan Elahi </li></ul><ul><li>-Raza Murad </li>...
Operating Cycle of a Merchandising Company 1. Purchase of merchandise 3. Collection of the receivables 2. Sale of merchand...
Comparing Merchandising Activities with Manufacturing Activities Merchandising Company Purchase inventory in  ready-to-sel...
Retailers and Wholesalers Retailers  sell merchandise directly to the public. Wholesalers  buy merchandise from several di...
Two Approaches Used in Accounting for Merchandise Inventories Perpetual Inventory System Periodic Inventory System
Perpetual Inventory Systems The inventory account is continuously updated to reflect items on hand. Let’s look at some ent...
Perpetual Inventory Systems <ul><li>On September 5, Worley Co. purchased 100 laser lights for resale for $30 per unit from...
Perpetual Inventory Systems <ul><li>On September 10, Worley Co. sold 10 laser lights for $50 per unit on account to ABC Ra...
Perpetual Inventory Systems <ul><li>On September 10, Worley Co. sold 10 laser lights for $50 per unit on account to ABC Ra...
Perpetual Inventory Systems <ul><li>On September 15, Worley Co. paid Electronic City $3,000 for the September 5 purchase. ...
Perpetual Inventory Systems <ul><li>On September 22, Worley Co. received $500 from ABC Radios as payment in full for their...
Taking a Physical Inventory In order to ensure the accuracy of their perpetual records, most businesses take a  complete p...
Taking a Physical Inventory Reasonable amounts of  inventory shrinkage  are viewed as a normal cost of doing business.   E...
Closing Entries in a Perpetual Inventory System <ul><li>Close Revenue accounts  (including Sales)  to Income Summary. </li...
Next is the periodic inventory system!
Periodic Inventory Systems No effort is made to keep up-to-date records of either inventory or cost of goods sold. Let’s l...
Periodic Inventory Systems <ul><li>On September 5, Worley Co. purchased 100 laser lights for resale for $30 per unit from ...
Periodic Inventory Systems <ul><li>On September 10, Worley Co. sold 10 laser lights for $50 per unit on account to ABC Rad...
Periodic Inventory Systems <ul><li>On September 15, Worley Co. paid Electronic City $3,000 for the September 5 purchase. <...
Periodic Inventory Systems <ul><li>On September 22, Worley Co. received $500 from ABC Radios as payment in full for their ...
Computing Cost of Goods Sold The accounting records of Party Supply show the following: Inventory, Jan. 1, 2005  $ 14,000 ...
Computing Cost of Goods Sold Cost of Goods Sold can be calculated as follows:
Creating a Cost of Goods Sold Account Now, Party Supply must create the  Cost of Goods Sold  account.
Creating a Cost of Goods Sold Account Now, Party Supply must record the  ending inventory  amount.
Completing the Closing Process <ul><li>Close Revenue accounts  (including Sales)  to Income Summary. </li></ul><ul><li>Clo...
Selecting an Inventory System
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    1. 2. <ul><li>Presented By: </li></ul><ul><li>-Anis Ul Hassan </li></ul><ul><li>-Hanan Elahi </li></ul><ul><li>-Raza Murad </li></ul><ul><li>-Misbah Nousheen </li></ul><ul><li>-Maham Javed </li></ul><ul><li>-Hamza Bhatti </li></ul>MERCHANDISING ACTIVITIES
    2. 3. Operating Cycle of a Merchandising Company 1. Purchase of merchandise 3. Collection of the receivables 2. Sale of merchandise on account Cash Inventory Accounts Receivable
    3. 4. Comparing Merchandising Activities with Manufacturing Activities Merchandising Company Purchase inventory in ready-to-sell condition. Manufacturing Company Manufacture inventory and have a longer and more complex operating cycle.
    4. 5. Retailers and Wholesalers Retailers sell merchandise directly to the public. Wholesalers buy merchandise from several different manufacturers and then sell this merchandise to several retailers.
    5. 6. Two Approaches Used in Accounting for Merchandise Inventories Perpetual Inventory System Periodic Inventory System
    6. 7. Perpetual Inventory Systems The inventory account is continuously updated to reflect items on hand. Let’s look at some entries!
    7. 8. Perpetual Inventory Systems <ul><li>On September 5, Worley Co. purchased 100 laser lights for resale for $30 per unit from Electronic City on account. </li></ul>
    8. 9. Perpetual Inventory Systems <ul><li>On September 10, Worley Co. sold 10 laser lights for $50 per unit on account to ABC Radios. </li></ul>10  $30 = $300
    9. 10. Perpetual Inventory Systems <ul><li>On September 10, Worley Co. sold 10 laser lights for $50 per unit on account to ABC Radios. </li></ul>Cost Retail
    10. 11. Perpetual Inventory Systems <ul><li>On September 15, Worley Co. paid Electronic City $3,000 for the September 5 purchase. </li></ul>
    11. 12. Perpetual Inventory Systems <ul><li>On September 22, Worley Co. received $500 from ABC Radios as payment in full for their purchase on September 10. </li></ul>
    12. 13. Taking a Physical Inventory In order to ensure the accuracy of their perpetual records, most businesses take a complete physical count of the merchandise on hand at least once a year.
    13. 14. Taking a Physical Inventory Reasonable amounts of inventory shrinkage are viewed as a normal cost of doing business. Examples include breakage, spoilage and theft. On December 31, Worley Co. counts its inventory. An inventory shortage of $2,000 is discovered.
    14. 15. Closing Entries in a Perpetual Inventory System <ul><li>Close Revenue accounts (including Sales) to Income Summary. </li></ul><ul><li>Close Expense accounts (including Cost of Goods Sold) to Income Summary. </li></ul><ul><li>Close Income Summary account to Retained Earnings. </li></ul><ul><li>Close Dividends to Retained Earnings. </li></ul>The closing entries are the same!
    15. 16. Next is the periodic inventory system!
    16. 17. Periodic Inventory Systems No effort is made to keep up-to-date records of either inventory or cost of goods sold. Let’s look at some entries!
    17. 18. Periodic Inventory Systems <ul><li>On September 5, Worley Co. purchased 100 laser lights for resale for $30 per unit from Electronic City on account. </li></ul>Notice that no entry is made to Inventory.
    18. 19. Periodic Inventory Systems <ul><li>On September 10, Worley Co. sold 10 laser lights for $50 per unit on account to ABC Radios. </li></ul>Retail
    19. 20. Periodic Inventory Systems <ul><li>On September 15, Worley Co. paid Electronic City $3,000 for the September 5 purchase. </li></ul>
    20. 21. Periodic Inventory Systems <ul><li>On September 22, Worley Co. received $500 from ABC Radios as payment in full for their purchase on September 10. </li></ul>
    21. 22. Computing Cost of Goods Sold The accounting records of Party Supply show the following: Inventory, Jan. 1, 2005 $ 14,000 Purchases (during 2005) 130,000 At December 31, 2005, Party Supply counted the merchandise on hand at $12,000. Calculate Party Supply’s cost of goods sold for 2005.
    22. 23. Computing Cost of Goods Sold Cost of Goods Sold can be calculated as follows:
    23. 24. Creating a Cost of Goods Sold Account Now, Party Supply must create the Cost of Goods Sold account.
    24. 25. Creating a Cost of Goods Sold Account Now, Party Supply must record the ending inventory amount.
    25. 26. Completing the Closing Process <ul><li>Close Revenue accounts (including Sales) to Income Summary. </li></ul><ul><li>Close Expense accounts (including Cost of Goods Sold) to Income Summary. </li></ul><ul><li>Close Income Summary account to Retained Earnings. </li></ul><ul><li>Close Dividends to Retained Earnings. </li></ul>The closing entries are the same!
    26. 27. Selecting an Inventory System
    27. 28. Thank you

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