introductory accounting
DESCRIPTION
TRANSCRIPT
Spring
Introductory Accounting
Merchandising Operations
Spring
Three Basic Types of Companies
Service Organization
Merchandising Organization
Manufacturing Organization
Spring
Comparison of a Service Business and a Merchandising Business
Service– Revenues
– Less Expenses
– Net Income
Merchandising– Net Sales– Less Cost of Goods Sold– Gross Profit– Less Operating Expenses– Net Operating Income– Non-Operating Revenues
and Expenses– Net Income
Spring
New Accounts Associated
With a Merchandising Business
Spring
Cost of Goods Sold= Cost of Inventory Sold Perpetual Method
– Detailed records are kept of each purchase and sale of inventory
– Generally computerized
We will be studying this method in Chapter Five
Periodic Method– No detailed records of
cost of sales is kept. To know inventory one has to count it.
– Used by smaller companies and companies selling lots of low dollar items
We will study this method in Chapter Six
Spring
Advantages of each Inventory System Advantages of
Perpetual– Know how much you
have on hand at all times
– No need to count inventory on a weekly or monthly basis
– No need to estimate inventory
Advantages of Periodic– Simple– Less record-keeping
Spring
Purchasing Inventory using Perpetual Method
Cost of merchandise taken directly to the Inventory Account
Example: Buy $1,000 of merchandise for cash– Debit Inventory for $1,000– Credit Cash for $1,000
If purchased the merchandise on account– Debit Inventory for $1,000– Credit Accounts Payable for
$1,000
Spring
Additional Considerations of Purchasing Merchandise Purchase Returns and Allowances Assume returned $100 of the
merchandise purchased on account
– Debit Accounts Payable 100– Credit Inventory
100
Spring
Additional Considerations of Purchasing Inventory--Maintaining the Records
Item: Widgets
Date Purchases Sales and Returns Balance
Pur. Date 1,000 1,000
Ret. Date 100 900
One must update one of these record for each item or type of inventory one has.
Spring
Additional Considerations of Purchasing Inventory- Adjustments to the Purchase Price Trade or Quantity Discounts
– Given to classes of customers– Given to customers who purchase large quantities– Terms include a 20% quantity discount– These are deducted directly from sales without a
separate account MFX purchased $20,000 of merchandise on account
from Eugene subject to a 20% quantity discount. Entry
– Debit to Inventory for $16,000– Credit to Accounts Payable for $16,000
What would the entry be if discount is 20%-10%? (a string of discounts)
Spring
Additional Considerations of Purchasing Inventory--Adjustments to the Purchase Price Cash or Purchased Discounts
– Given to customers who buy on credit and pay their accounts promptly
– Recorded in the accounts when paid for – Normal terminology is 2/10 n/30
Example– Purchased $1,000 of merchandise on 1/1/1, terms
2/10 n/30– Entry to record purchase
• Debit Inventory for $1,000• Credit Accounts Payable for $1,000
Spring
Additional Considerations of Purchasing Inventory--Adjustment to the Purchase Price
Example Continued– Entry if pay within 10 days
• Debit Accounts Payable for $1,000• Credit Cash for $980• Credit Inventory for $20
– What would your entry be if you paid after the 10th day?
• Debit Accounts Payable for $1,000• Credit Cash for $1,000
Spring
Putting in all together
Buy $5,000 of merchandise subject to a 20% quantity discount---terms 2/10,n/30– Debit Inventory 4,000– Credit Accounts Payable 4,000
Return Merchandise with a list price of $500 purchased above– Debit Accounts Payable 400– Credit Inventory 400
Spring
Putting it all together Paid for the merchandise less return within 10
days– Debit Accounts Payable 3,600– Credit Cash 3,528– Credit Inventory 72
Paid for the merchandise on the 30th day– Debit Accounts Payable 3,600– Credit Cash 3,600
Spring
Does it pay to worry about a 2% discount?
What if you don’t have the cash and have to borrow money at 12% interest?
Spring
Handling Freight Costs FOB rules determines who pays the
shipping costs and when title or ownership transfers
This can be extremely complicated in the real world as some suppliers prepay the freight.
In our simple life--– Shipping point--buyer pays– Destination--seller pays
Spring
Handling Freight Costs
Basic Entries is you are paying – For Merchandise coming in
• Debit Inventory• Credit Cash
– For Merchandise Going out• Debit Freight out or Delivery Expense• Credit Cash
Spring
Sales of merchandise under the Perpetual Method Sale of merchandise for
cash with a selling price of $2,000 and a cost of $800– Debit Cash for $2,000– Credit Sales of $2,000
– Debit Cost of Goods Sold for $800
– Credit Inventory for $800
Spring
Sales of merchandise under the Perpetual Method Sold $2,000 of merchandise on credit.
Cost of merchandise was $800. Collected the account receivable.– Debit Accounts Receivable for $2,000– Credit Sales for $2,000
– Debit Cost of Goods sold for $800– Credit Inventory for $800
– Debit Cash for $2,000– Credit Accounts Receivable $2,000
Spring
Sales Returns and Allowances
Assume sold $1,000 of merchandise, cost $550 on credit. Returned two days later, clerk granted them credit
For Sale– Debit Accounts Receivable 1000– Credit Sales 1,000– Debit Cost of Goods Sold 550– Credit Inventory 550
Spring
Sales Returns Continued For Return on Credit
– Debit Sales Returns 1000
– Credit Accounts Receivable 1000
– Debit Inventory 550
– Credit Cost of Goods Sold 550 For Return for Cash
– Debit Sales Returns 1000
– Credit Cash 1,000
– Debit Inventory 550
– Credit Cost of Goods Sold 550
Spring
Sales Discounts--Trade or Quantity and Sales or Cash Sold $5,000 of merchandise costing $2550
subject to a 10% quantity discount with selling terms of 1/10,n/30 on 9/1– Debit Accounts Receivable4,500– Credit Sales 4,500– Debit Cost of Goods Sold 2,550– Credit Inventory 2,550
Received Payment on 9/10– Debit Cash 4455– Debit Sales Discounts 45– Credit Accounts Receivable 4,500
What would entry be if received on 9/30?
Spring
Answers to Class Exercise
Debit Inventory 25,000
Credit Accounts Payable 25,000
Debit Inventory 16,200
Credit Accounts Payable 16,200
Debit Inventory 300
Credit Cash 300
Spring
Debit Accounts Payable 2000
Credit Inventory 2,000
Debit Accounts Receivable 5,000
Credit Sales 5,000
and
Debit Cost of goods Sold 3,000
Credit Inventory 3,000
Spring
Debit Accounts Receivable 6,000
Credit Sales 6,000
and
Debit Cost of Good Sold 4,000
Credit Inventory 4,000
Debit Freight Out 80
Credit Cash 80
Spring
Debit Accounts Payable 23,000
Credit Cash 22,310
Credit Inventory 690
Debit Sales Returns 2,000
Credit Accounts Receivable 2,000
and
Debit Inventory 1,300
Credit Cost of Goods Sold 1,300
Spring
Debit Inventory 1,000
Credit Cash 1,000
Debit Cash 4,950
Debit Sales Discounts 50
Credit Accounts Receivable 5,000
Debit Accounts Payable 16,200
Credit Cash 16,200
Debit Cash 4,000
Credit Accounts Receivable 4,000
Spring
See how you do on an Income Statement Sales 11,000 L. Sales R (2,000) L. Sales Dis ( 50) Net Sales 8,950 Cost of GS 5,700 Gross Profit 3,250
Spring
The Worksheet for Dalbee is on Excel.
Using Network Applications get excel and you can print the solution.
Spring
Closing entries for Dalbee Debit Sales 97,400 Credit Income Summary 97,400
Debit Income Summary 107,679 Credit Sales Returns 400 Credit Cost of Goods Sold 59,440 Credit Salaries Expense 35,000 Credit Utilities Expense 8,543 Credit Miscellaneous Expense 2,496 Credit Insurance Expense 800 Credit Depreciation Expense 1,000
Spring
Closing Entries for Dalbee
Debit Retained Earnings 10,279 Credit Income Summary 10,279 Notice how this is a net loss.
There were no dividends!!