Reporting & Analyzing Merchandising Operations
Chapter 4
Merchandising Activities Merchandise
Consists of products that a company acquires to resell to customers
Retailer Is an intermediary
that buys products from manufacturers and wholesalers
Income Statement Net sales = (Sales – sales return) Less Cost of goods sold Gross profit Less expenses Net income
Inventory Systems Cost of goods sold
Is the cost of merchandise sold to customers during a period.
Largest single expense on a merchandiser’s income statement
Inventory Refers to products a
company owns and expects to sell in its normal operations
Assets
Inventory Systems Perpetual system
Continually updates accounting records for merchandising transactions
Periodic Inventory system Updates the
accounting records for merchandise transactions only at the end of a period.
Accounting for Merchandising Purchases Merchandise inventory –
Cost of merchandise purchased for resale. Purchase cost, shipping fees, taxes, etc.
Purchased $1,200 of merchandise on credit
Merchandise inventory 1,200 Accounts payable 1,200
Trade Discount When a manufacturer
or wholesaler prepares a catalog of items it has for sale, it usually gives each item a list price.
Trade discount An item’s intended
selling price equals list price minus a given percent.
Purchase discounts Cash discount on
the list price
Terms Credit terms
For a purchase include the amounts and timing of payments from a buyer to a seller
EOM End of month
Purchase Discount Credit terms: 2/10, n/30
2% discount within 10 days Full amount in 30 days
Purchased merchandise on credit $3,000
Merchandise inventory 3,000
Accounts payable 3,000
Purchase Discount Paid the prior purchase within the discount
period. Gross invoice: $3,000 2% discount 60 Net to be paid 2,940
Purchase discount Accounts payable 3,000 Merchandise inventory 60 Cash 2940
Reduction in merchandise inventory to reflect the true cost.
Example 2: Purchased merchandise on account $5,000,
terms 1/10, n/60. Record the payment within the discount
period
Example 2 Merchandise inventory 5,000 Accounts payable 5,000
Invoice 5,000 Discount 50 Net of invoice 4,950
Example 2 Accounts payable 5,000 Merchandise inventory 50 Cash 4950
Purchases Returns & Allowances Refers to
merchandise a buyer acquires but then returns to the seller.
Allowance is a reduction in price for defective merchandise
Purchase returns Global returns merchandise worth $500
and purchased on account. Accounts payable 500 Merchandise inventory 500
Transportation Costs FOB
Which determines who pays transportation costs
Shipping point Means the buyer
accepts ownership when the goods depart the seller’s place of business.
Transportation Costs Destination
Means ownership of goods transfer to the buyer when the goods arrive at the buyer’s place of business.
Transportation Cost Mackey purchases merchandise FOB
shipping point. Transportation costs of $75 paid cash
Merchandise inventory 75 Cash 75
Sales of Merchandise Each sales transaction
for a seller of merchandise involves two parts. Revenue Cost of goods sold
Sales of Merchandise Cost of goods sold
Records the cost of the goods sold.
Expense account Reduces the balance
in the inventory account
Sales Revenue account
Entry for Sales Sold merchandise on credit for $2,400.
Merchandise had a cost of $1,600 Accounts receivable 2,400 Sales 2,400
Cost of goods sold 1,600 Merchandise inventory 1,600
Example 3 Mary sold merchandise on account for
$5,000 with a cost of $2,000. Record the entries for the sale.
Example 3 Accts receivable 5,000 Sales 5,000
Cost of goods sold 2,000 Merchandise inventory 2,000
Sales Discount Reduction in the price
of the good for early payment
Expense account
Sales Discount Suppose that merchandise is sold for
$5,000 with terms 2/10, n30. Cost of $2,500. Record the sale
Accts receivable 5,000 Sales 5,000 Cost of goods sold 2,500 Merchandise inventory 2,500
Sales Discount Record the payment within the discount
period Sales 5,000 Discount 2% 100 Net price 4,900
Sales Discount Cash 4,900 Sales discount 100 Accounts receivable 5,000
Example 4 Suppose that
merchandise sold on account for $6,000 terms 1/15, n/30. Record the payment within the discount period.
Example 4 Sales 6,000 Discount 1% 60 Net 5,940
Cash 5,940 Sales discount 60 Accts receivable 6,000
Sales Returns & Allowances Returns: refer to merchandise that customers
return to the seller after sale Allowances – reductions in price of the
merchandise sold to customers
Sales Returns & Allowances Contra revenue account Increases with a debit Suppose that merchandise sold for $3,000 with
cost of $1,600 is returned. Sales Returns 3,000 Accounts receivable 3,000 Merchandise inventory 1,600 Cost of goods sold 1.600
Homework Purchases
EX 4-1, 4-5
Sales Ex 4-2, 4-4, 4-6, 4-7
Buyer/Seller Ex 4-2, 4-6
Revenues Ex 4-9