C5 - 1 Learning Objectives Power Notes 1. Nature of Merchandising Business 2a. Accounting for Purchases 2b. Accounting for Sales 2c. Transportation Costs 2d. Merchandise Transactions 3. Merchandising Chart of Accounts 4. Merchandising Income Statement 5. Merchandising Accounting Cycle 6. Financial Analysis and Interpretation Chapter F5 Accounting for Merchandising Businesses Accounting for Merchandising Businesses C5
37
Embed
C5 - 1 Learning Objectives Power Notes 1. Nature of Merchandising Business 2a. Accounting for Purchases 2b. Accounting for Sales 2c. Transportation Costs.
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
C5 - 1
Learning Objectives
Power Notes
1. Nature of Merchandising Business2a. Accounting for Purchases2b. Accounting for Sales2c. Transportation Costs2d. Merchandise Transactions3. Merchandising Chart of Accounts4. Merchandising Income Statement5. Merchandising Accounting Cycle6. Financial Analysis and Interpretation
Chapter F5
Accounting for Merchandising Businesses Accounting for Merchandising Businesses
C5
C5 - 2
• Nature of Merchandising Businesses• Inventory Costs and Relationships• Perpetual Inventory Systems• Merchandising Transactions• Merchandising Chart of Accounts• Merchandising Financial Statements• Ratio of Net Sales to Assets
Slide # Power Note Topics
368
13252734
Power NotesChapter F5
Accounting for Merchandising Businesses Accounting for Merchandising Businesses
Note: To select a topic, type the slide # and press Enter.
C5 - 3
Merchandising and InventoryMerchandising and Inventory
Merchandising involves selling inventory
Inventory is usually an important asset
Inventory must be accounted for periodically or perpetually
Traditional periodic method is often being replaced by perpetual inventory accounting
C5 - 4
Income Statement ComparisonIncome Statement Comparison
Fees earned $150,000
Operating expenses 120,000
Net income $ 30,000
Service Business
Sales revenue $600,000
Cost of mdse. sold 450,000
Gross profit $150,000
Operating expenses 120,000
Net income $ 30,000
Merchandising Business
20% of revenues
5% of revenues
C5 - 5
Income Statement ComparisonIncome Statement Comparison
Fees earned $150,000
Operating expenses 120,000
Net income $ 30,000
Service Business
Sales revenue $600,000
Cost of mdse. sold 450,000
Gross profit $150,000
Operating expenses 120,000
Net income $ 30,000
Merchandising Business
20% of revenues
5% of revenues
75% of revenues
C5 - 6
LIABILITIES
OWNER’SEQUITY
REVENUES
ASSETS
COSTS &EXPENSES
Inventory Costs and RelationshipsInventory Costs and Relationships
MerchandiseMerchandiseInventoryInventory
Cost ofCost ofMdse. SoldMdse. Sold
If merchandise inventory is . . . . . . .
Cost of merchandise sold is . . . . . .
Gross profit and net income are . . .
Ending owner’s equity is . . . . . . . . .
If merchandise inventory is . . . . . . .
Cost of merchandise sold is . . . . . .
Gross profit and net income are . . .
Ending owner’s equity is . . . . . . . . .
overstated
understated
overstated
overstated
Net Income
C5 - 7
LIABILITIES
OWNER’SEQUITY
REVENUES
ASSETS
COSTS &EXPENSES
Inventory Costs and RelationshipsInventory Costs and Relationships
MerchandiseMerchandiseInventoryInventory
Cost ofCost ofMdse. SoldMdse. Sold
If merchandise inventory is . . . . . . .
Cost of merchandise sold is . . . . . .
Gross profit and net income are . . .
Ending owner’s equity is . . . . . . . . .
If merchandise inventory is . . . . . . .
Cost of merchandise sold is . . . . . .
Gross profit and net income are . . .
Ending owner’s equity is . . . . . . . . .
understated
overstated
understated
understated
Net Income
C5 - 8
Continuous determination of inventory value
Continuous determination of gross profit
Affordable with computers, scanners, and bar codes on most products
Example: Merchandise was purchased for $1,500 with credit terms of 2/10, n/30. Payment within 10 days is calculated as: Invoice $1,500 Less 2% discount 30 Net cost paid $1,470
C5 - 23
Selling and Buying Merchandise InventorySelling and Buying Merchandise Inventory
Description Debit Credit
Accts. Receivable 1,500Sales 1,500
Cost of Mdse. Sold 900Mdse. Inventory 900
Mdse. Inventory 1,470Accts. Payable 1,470
SellerSeller BuyerBuyerDescription Debit Credit
Jan 12. Merchandise was sold with credit terms of 2/10, n/30.
Jan 22. Payment was made within the discount period.
Recorded at net costRecorded at net cost$1,500 - $30 (discount)$1,500 - $30 (discount)
C5 - 24
Selling and Buying Merchandise InventorySelling and Buying Merchandise Inventory
Description Debit Credit
Accts. Receivable 1,500Sales 1,500
Cost of Mdse. Sold 900Mdse. Inventory 900
Cash 1,470Sales Discounts 30
Accts. Receivable 1,500
Mdse. Inventory 1,470Accts. Payable 1,470
Accts. Payable 1,470Cash 1,470
SellerSeller BuyerBuyerDescription Debit Credit
Jan 12. Merchandise was sold with credit terms of 2/10, n/30.
Jan 22. Payment was made within the discount period.
Recorded at net costRecorded at net cost$1,500 - $30 (discount)$1,500 - $30 (discount)
C5 - 25
Selling and Buying Merchandise InventorySelling and Buying Merchandise Inventory
Description Debit Credit
Accts. Receivable 1,500Sales 1,500
Cost of Mdse. Sold 900Mdse. Inventory 900
Cash 1,470Sales Discounts 30
Accts. Receivable 1,500
Mdse. Inventory 1,500Accts. Payable 1,500
Accts. Payable 1,500Mdse. Inventory 30Cash 1,470
SellerSeller BuyerBuyerDescription Debit Credit
Jan 12. Merchandise was sold with credit terms of 2/10, n/30.
Jan 22. Payment was made within the discount period.
Recorded at full costRecorded at full cost
C5 - 26
Accounting for Merchandise TransactionsAccounting for Merchandise Transactions
Description Debit Credit
Accts. Receivable 5,000Sales 5,000
Cost of Mdse. Sold 3,500Mdse. Inventory 3,500
Mdse. Inventory 5,000Accts. Payable 5,000
Scully Company (Seller)Scully Company (Seller) Burton Co. (Buyer)Burton Co. (Buyer)
Description Debit Credit
July 5. Scully Company sold merchandise on account to Burton Co., $5,000, terms FOB destination, n/30. The cost of the merchandise sold was $3,500.
C5 - 27
Accounting for Merchandise TransactionsAccounting for Merchandise Transactions
Description Debit Credit
Transportation Out 250Cash 250
Mdse. Inventory 5,000Accts. Payable 5,000
No entry.
Scully Company (Seller)Scully Company (Seller) Burton Co. (Buyer)Burton Co. (Buyer)
Description Debit Credit
July 7. Scully Company paid transportation costs of $250, for delivery of merchandise sold to Burton Co.
Accts. Receivable 5,000Sales 5,000
Cost of Mdse. Sold 3,500Mdse. Inventory 3,500
C5 - 28
Accts. Receivable 5,000Sales 5,000
Cost of Mdse. Sold 3,500Mdse. Inventory 3,500
Transportation Out 250Cash 250
Accounting for Merchandise TransactionsAccounting for Merchandise Transactions
Description Debit Credit
Sales Ret. & Allow. 1,000Accts Receivable 1,000
Mdse. Inventory 700Cost of Mdse. Sold 700
Mdse. Inventory 5,000Accts. Payable 5,000
No entry.
Accts. Payable 1,000Mdse. Inventory 1,000
Scully Company (Seller)Scully Company (Seller) Burton Co. (Buyer)Burton Co. (Buyer)
Description Debit Credit
July 13. Scully Company issued Burton Co. a credit memo for merchandise returned, $1,000. The merchandise cost was $700.
C5 - 29
Accounting for Merchandise TransactionsAccounting for Merchandise Transactions
Description Debit Credit
Cash 4,000Accts. Receivable 4,000
Accts. Payable 4,000Cash 4,000
Scully Company (Seller)Scully Company (Seller) Burton Co. (Buyer)Burton Co. (Buyer)
Description Debit Credit
July 15. Scully Company received payment from Burton Co. for purchase of July 1.
C5 - 30
Cash 4,000Accts. Receivable 4,000
Accounting for Merchandise TransactionsAccounting for Merchandise Transactions
Description Debit Credit
Accts. Receivable 12,500Sales 12,000Cash 500
Cost of Mdse. Sold 7,200Mdse. Inventory 7,200
Scully Company (Seller)Scully Company (Seller) Burton Co. (Buyer)Burton Co. (Buyer)
Description Debit Credit
July 18. Scully Company sold merchandise on account to Burton Co., $12,000, terms FOB shipping point, 2/10, n/eom. Scully Company prepaid transportation costs of $500. Cost of merchandise sold was $7,200.
Other income:Interest revenue $ 3,800Rent revenue 600
Total other income $ 4,400Other expense:
Interest expense 2,440 1,960
Net income $75,400
C5 - 34
Profitability AnalysisProfitability Analysis
Profitability is the ability of an entity to earn profits.
This ability to earn profits depends on the effectiveness and efficiency of operations as well as resources available.
Profitability analysis focuses primarily on the relationship between operating results reported in the income statement and resources reported in the balance sheet.
C5 - 35
Profitability Measures — Effective Use of AssetsProfitability Measures — Effective Use of Assets
Ratio of Net Sales to AssetsRatio of Net Sales to AssetsRatio of Net Sales to AssetsRatio of Net Sales to Assets