Professional Documents
Culture Documents
Chapter
Identify the differences between service and merchandising companies. Explain the recording of purchases under a perpetual inventory system. Explain the recording of sales revenues under a perpetual inventory system. Explain the steps in the accounting cycle for a merchandising company. Prepare an income statement for a merchandiser. Explain the computation and importance of gross profit.
Merchandising Operations
Recording Purchases of Merchandise Freight costs Purchase returns and allowances Purchase discounts Summary of purchasing transactions
Completing the Accounting Cycle Adjusting entries Closing entries Summary of merchandising entries
Slide 5-4
Wholesaler
Retailer
Consumer
Gross Profit
Less
Cost of goods sold is the total cost of merchandise sold during the period.
Operating Expenses
Slide 5-6
Slide 5-7
Slide 5-8
Slide 5-11
Made using cash or credit (on account). Normally recorded when goods are received. Purchase invoice should support each credit purchase.
Slide 5-12
journal entry Sauk Stereo would make to record its purchase from PW Audio Supply. May 4 Merchandise inventory Accounts payable 3,800 3,800
Slide 5-13
Recording Recording Purchases Purchases of of Merchandise Merchandise Freight Costs Terms of Sale
Illustration 5-6
Seller places goods Free On Board the carrier, and buyer pays freight costs.
Seller places goods Free On Board to the buyers place of business, and seller pays freight costs.
Slide 5-14
SO 2
Assume the freight terms on the invoice in Illustration 5-5 had required PW Audio Supply to pay the freight charges, the entry by PW Audio Supply would have been: May 4 Freight-out (or Delivery Expense) Cash
Slide 5-15
150 150
Recording Recording Purchases Purchases of of Merchandise Merchandise Purchase Returns and Allowances
Purchaser may be dissatisfied because goods are damaged or defective, of inferior quality, or do not meet specifications. Purchase Return
Return goods for credit if the sale was made on credit, or for a cash refund if the purchase was for cash.
Slide 5-16
Purchase Allowance
May choose to keep the merchandise if the seller will grant an allowance (deduction) from the purchase price.
Question
In a perpetual inventory system, a return of defective merchandise by a purchaser is recorded by crediting: a. Purchases b. Purchase Returns c. Purchase Allowance d. Merchandise Inventory
Answer on notes page Slide 5-17
Slide 5-18
1/10 EOM
1% discount if paid within first 10 days of next month.
n/10 EOM
Net amount due within the first 10 days of the next month.
Slide 5-20
Slide 5-21
Slide 5-22
Slide 5-23
Merchandise Inventory
Debit Credit
300
3,800
150
3,580
70
Slide 5-24
Made for cash or credit (on account). Normally recorded when earned, usually when goods transfer from seller to buyer. Sales invoice should support each credit sale.
SO 3 Explain the recording of sales revenues under a perpetual inventory system.
Slide 5-25
XXX XXX
Selling Price
#2
XXX XXX
Cost
Slide 5-26
Slide 5-27
Recording Recording Sales Sales of of Merchandise Merchandise Sales Returns and Allowances
Flipside of purchase returns and allowances. Contra-revenue account (debit). Sales not reduced (debited) because: