Introduction to a Merchandising Company

1. The Merchandising
Company

2. What we have learned so far.
 We have completed the accounting cycle for a service firm.
 These businesses operate by selling services to customers.
Ex. Lawn Care, Hotels, Painters, Plumbers, Etc.
 A merchandising company operates by selling products to
its customers. Ex. Sports Store, Clothing store, Book Store.
Etc.

3. Merchandising Companies
 Merchandising Companies include both retailers and
wholesalers .
 Retailer companies usually buy merchandise from
wholesalers or manufactures.
 A manufacturing company converts raw materials into
finished goods and sells these goods to wholesalers
and retailers.

5. Merchandising Company
 The accounting procedures are generally all the same
with the exception of inventory.
 Service companies did not have inventory as they were
preforming services for their customers to general
revenue. However, merchandising companies
purchase goods that they will retail to their customers.
The goods that a business has on hand is called
inventory.
 The total dollar value of goods on hand can be found in
the merchandising inventory account.

6. Cost of Goods Sold
 On of the major expenses for a merchandising
company is the Cost of Goods Sold (CoGS). The CoGs
is the cost of the goods a company buys for resale.
Due to it being such a large part of the income
statement it has a separate schedule. A schedule is a
supporting statement that provides further details on an
item in a main statement.

7. Preparing a Schedule of Cost
of Goods.
The following equations will allow you to find the Cost of Goods Sold and then
prepare a schedule of CoGS
1.
2.

8. Schedule of CoGS
Henderson Sports Store
Schedule of Cost of Good Sold
For the month ended Oct 31 20-
Merchandise Inventory, Oct 1
Add: Purchases
Total Cost of Merchandise
Less: Merchandise Inventory, Oct 31
Cost of Goods Sold

9. Example
 Henderson Sports Store has a merchandising inventory
of $18,000 on Oct 1st. During the period $36,000 of
purchases were made. On Oct 31st the merchandising
inventory account had a balance of $25,000. What was
the CoGS for the period?

10. Schedule of CoGS
Henderson Sports Store
Schedule of Cost of Good Sold
For the month ended Oct 31 20-
Merchandise Inventory, Oct 1 $18,000
Add: Purchases $36,000
Total Cost of Merchandise $54,000
Less: Merchandise Inventory, Oct 31 $25,000
Cost of Goods Sold $29,000

11. Finding Net Income For a
Merchandising Company
 For a service company we learned that we get net
income when a company’s expenses are subtracted
from its revenue and there is a positive amount
remaining.

12. Finding Net Income For a
Merchandising Company
 A merchandising company must buy and pay for goods
and pay the expenses necessary to operate a
business. This makes determining net income slightly
more complex. We find net income by subtracting both
the cost of goods sold and expenses from revenue.
1.
2.

13. Example
 A merchandising company has revenue of $60,000 with
Cost of Goods Sold at $28,000 and expenses $12,000.
Determine Net Income for the accounting Period.
1. Determine the Gross Profit
Gross Profit (Revenue) (CoGS)
2. Calculate the Net Income
Net Income (Gross Profit) (Expenses)

14. Example
 On October 31st Henderson Sports Store was required to prepare
a schedule of Cost of Goods Sold to accompany the income
statement. The merchandise inventory on October 1st was
$15,000. During the month $25,000 of purchases were made. On
October 31st the merchandise inventory was $12,000. What was
the Cost of Goods Sold?

15. Example
Henderson Sports Store
Schedule of Cost of Good Sold
For the month ended Oct 31 20-
Merchandise Inventory, Oct 1
Add: Purchases
Total Cost of Merchandise
Less: Merchandise Inventory, Oct 31
Cost of Goods Sold

16. Schedule of CoGS
Henderson Sports Store
Schedule of Cost of Good Sold
For the month ended Oct 31 20-
Merchandise Inventory, Oct 1 $15,000
Add: Purchases $25,000
Total Cost of Merchandise
Less: Merchandise Inventory, Oct 31
Cost of Goods Sold

17. Schedule of CoGS
Henderson Sports Store
Schedule of Cost of Good Sold
For the month ended Oct 31 20-
Merchandise Inventory, Oct 1 $15,000
Add: Purchases $25,000
Total Cost of Merchandise $40,000
Less: Merchandise Inventory, Oct 31 $12,000
Cost of Goods Sold

18. Example
Henderson Sports Store
Schedule of Cost of Good Sold
For the month ended Oct 31 20-
Merchandise Inventory, Oct 1 $15,000
Add: Purchases $25,000
Total Cost of Merchandise $40,000
Less: Merchandise Inventory, Oct 31 $12,000
Cost of Goods Sold $28,000

19. Income Statement for a
Merchandise Company.
 Now that we have calculated our CoGS and have prepared a
schedule we can make an Income Statement.
 We know the following for Henderson Sports Store for October
 Revenue = $60,000
 CoGS = $28,000
 Expenses = $12,000 Expenses Broken Down
Advertising -$2,000
Delivery - $3,000
Rent - $3,500
Salaries - $1,500
Utilities - $1,000

20. Henderson Sports Store
Income Statement
For the month ended October 31 20-
Revenues
Sales $60,000
Cost of Goods Sold
Cost of Goods Sold (per schedule) 28,000
Gross Profit $32,000
Operating Expenses
Advertising $2,000
Delivery $3,000
Rent $3,500
Salaries $1,500
Utilities $1,000
Total Expenses $11,000
Net Income $20,000

21. Other Items that will affect
CoGs
 There are other items that occur in a merchandise
company that will affect the CoGS during an accounting
period.
 These include:
 Purchase returns and allowances
 Purchase discounts
 Transportation on purchases.
We will look at these next lesson.

22. Activity
 Complete the Hand Out where you will be given a set of
financial information for a merchandising company and we
want to find:
 1. CoGS
 2. Gross Profit
 3. Net Income
Then we want to prepare:
1. Schedule of CoGs
2. Income Statement