Accounting for Merchandising Operation

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Chapter # 05

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Accounting for Merchandising Operation

  1. 1. GROUP BA Presentationon Accounting MD. NIAZ ISLAM for ID: 091800004Merchandising S. M. ZUBAER HOSSAIN Operation ID: 091800066
  2. 2. Objectives:• T ident t differ bet een ser ice ent pr a mer ndising o ify he ences w v er ise nd cha company• T expl in t r dingofpur ses underaper ua inv or syst o a he ecor cha pet l ent y em• T expl in t r dingofpur ses underaper inv or syst o a he ecor cha iodic ent y em• T expl in t st in t a o a he eps he ccount cycl foramer ndisingcompa ing e cha ny
  3. 3. Merchandising Structurepromoting and sustaining certain categories called Merchandisingpurchasing and selling directly called retailingselling to retailers called wholesaling
  4. 4. Merchandising Operation
  5. 5. Operating CyclesThe operating cycle of a merchandising company ordinarily is longer than that of a service company. We see_
  6. 6. Flow of CostsThe cost flow system of merchandising company follows : Perpetual System Company keeps detailed records of the cost of each inventory purchase and sale. Records continuously perpetually shows the inventory that should be on hand for every item.
  7. 7. Periodic SystemCompany does not keep detailed records of the inventory.
  8. 8. To determine the cost of goods sold:First, the cost of goods on hand at the beginning of the period.Add to that the cost of goods purchased.A third, less cost of goods on hand at the end of the period.
  9. 9. Recording System of purchasing under a perpetual inventory system Companies purchase inventory using cash or credit Invoice include the terms:1. Seller Information2. Invoice date3. Purchaser Information4. Salesperson Information5. Credit terms6.Freight terms7. Goods sold: Catalog number, description, quantity, price per unit8. Total invoice amount
  10. 10. Purchase Returns and AllowancesWhen goods are damaged or defective The purchaser may return the goods to the seller for credit through refundable cash. Freight Costs It involves FOB shipping point or FOB destination Purchase Discounts Purchasing in on account may permit the buyer to claim a cash discount for prompt payment.
  11. 11. Final Purchasing Transactions
  12. 12. Sales revenues under a perpetual inventory system Selling revenues when the goods transfer from the seller to the buyer. Sales may be made on credit or for cash. Business document should support every sales transaction.
  13. 13. Sales Returns and Allowances Client returns goods because they are damaged or defective. Merchandising Inventory and Cost of Goods sold should be for the estimated value of the returned goods, rather than their cost. It is a debit account.
  14. 14. Sales DiscountsThe seller may offer the customer a cash discountcalled by the seller a sales discount.The seller increases (debits) the Sales Discountsaccount for discounts that are taken.
  15. 15. Steps in the accounting cycle for a merchandising company Adjusting Entries An additional adjustment to make the records agree. The perpetual inventory records may be incorrect due to recording errors. Thus, the company needs to adjust the perpetual records to make the recorded inventory amount agree.
  16. 16. Closing Entries When a merchandising company, like a service company, closes to Income Summary all accounts that affect net income. The company, credits all temporary accounts with debit balances, and debits all temporary accounts with credit balances.
  17. 17. Multiple step Income statement Shows the steps in determining net income or net loss Help to determine net profit Distinguish between operating and non-operating activities Highlights intermediate components of income and sub grouping of expenses
  18. 18. Terms to be used in multiple step Income statement Gross Profit: Gross profit = Net sales – Cost of goods sold. Gross Profit rate: Gross Profit rate =Operating Expense and Net income: Net income = Gross Profit – Operating Expense
  19. 19. Non operating ActivitiesRevenue and expenses from auxiliary operations.Gains and losses that are unrelated to the company operation . Single step income statement Only one step.  All data are classified under two categories: (i) revenues (ii) expenses. The revenue category includes operating revenue, other revenue and gains. The expenses include costs of goods sold, operating expense, other expense and losses.
  20. 20. Some Important formulas to be used in calculation of financial statement:Net sales = Sales – Sales discount.Cost of goods purchased = Purchases – Purchase return – Purchasediscount + Freight-in.Cost of goods sold = Beginning inventory + Cost of goods purchase –Ending inventory.Gross profit = Net sales – Cost of goods sold.Net income = Gross profit – Operating expense.
  21. 21. Recording Transaction under a Periodic Inventory system(i) On April 05, purchased on account merchandise from Allman Company for $20,000 term2/10, net/30, FOB shipping point. (Merchandise Purchase)
  22. 22. (ii) On April 08, returned damaged merchandise to AllmanCompany and was granted a $4,000 allowance for returnedmerchandise. (Purchase returns and allowances)(iii) On April 10, paid freight costs of $900 on merchandisepurchased from Allman. (Freight costs)
  23. 23. (iv) On April 14, merchandiser pays the balance due (i, ii)account to Allman Company, takes the 3% cash discount forpayment within 10 days. (Purchase discount) Recording sales of merchandise (i) On November 03, the sale of $4,800 to Allman Company is recorded by seller. (Merchandise sales)
  24. 24. (ii) On November 06, a return of goods for $500 sales fromAllman Company (Sales returns & allowances)(iii) On November 09, merchandiser receives a payment of $4,500 on account from Allman Company. Sellers honor the 3%cash discount. (Sales discount)
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