Accounting for Merchandising Businesses
-
Upload
forrest-riddle -
Category
Documents
-
view
56 -
download
0
description
Transcript of Accounting for Merchandising Businesses
![Page 1: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/1.jpg)
Prepared by: C. Douglas Cloud Professor Emeritus of AccountingPepperdine University
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Accounting for Merchandising Businesses
Chapter 6Chapter 6
![Page 2: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/2.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Learning Objectives
Distinguish between the activities and financial statements of service and merchandising businesses.
Describe and illustrate the financial statements of a merchandising business.
Describe and illustrate the accounting for merchandise transactions including: sale of merchandise; purchase of merchandise; freight; sales taxes and trade discounts; dual nature of merchandising transactions.
Describe the adjusting and closing process for a merchandising business.
![Page 3: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/3.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Learning Objectives
5. Describe and illustrate the use of the ratio of net sales to assets in evaluating a company’s operating performance.
![Page 4: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/4.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Learning Objective 1
Distinguish between the activities and financial statements of service and merchandising businesses.
![Page 5: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/5.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Service Business
Fees earned
$XXXOperating expenses
–XXXNet income
$XXX
Nature of Merchandising Businesses
LO 1LO 1
![Page 6: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/6.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Merchandising Business
Sales $XXXCost of Merchandise Sold –XXXGross Profit $XXXOperating Expenses –XXXNet Income $XXX
Nature of Merchandising Businesses
LO 1LO 1
![Page 7: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/7.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 1LO 1
Nature of Merchandising Businesses
When merchandise is sold, the revenue is reported as sales, and its cost is recognized as an expense called cost of merchandise sold.
GrossProfit
![Page 8: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/8.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 1LO 1Nature of Merchandising Businesses The cost of merchandise sold is
subtracted from sales to arrive at gross profit. It is the profit before deducting operating expenses.
GrossProfit
![Page 9: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/9.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 1LO 1
Nature of Merchandising Businesses
Merchandise on hand (not sold) at the end of an accounting period is called merchandise inventory.
![Page 10: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/10.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
EE 6-1EE 6-1
![Page 11: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/11.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 1LO 1Nature of Merchandising Businesses
![Page 12: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/12.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Learning Objective 2
Distinguish between the activities and financial statements of service and merchandising businesses.
Describe and illustrate the financial statements of a merchandising business.
![Page 13: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/13.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 2LO 2
Multiple-Step Income Statement
The multiple-step income statement contains several sections, subsections, and subtotals.
![Page 14: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/14.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 2LO 2
Revenue from Sales
![Page 15: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/15.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 2LO 2
Revenue from Sales
Sales is the total amount charged customers for merchandise sold, including cash sales and sales on account.
![Page 16: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/16.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 2LO 2
Revenue from Sales
Sales returns and allowances are granted by the seller to customers for damaged or defective merchandise.
![Page 17: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/17.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 2LO 2
Revenue from Sales
Sales discounts are granted by the seller to customers for early payment of amounts owed.
![Page 18: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/18.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 2LO 2
Revenue from Sales
Net sales is determined by subtracting sales returns and allowances and sales discounts from sales.
![Page 19: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/19.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 2LO 2
Cost of Merchandise Sold
The cost of merchandise sold is the cost of the merchandise sold to customers. Merchandise costs consist of all the costs of acquiring the merchandise and readying it for sale, such as purchase and freight costs.
![Page 20: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/20.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 2LO 2
Multiple-Step Income Statement
![Page 21: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/21.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 2LO 2
Cost of Merchandise Sold
The buyer may return merchandise to the seller (purchase return), or the buyer may receive a reduction in the initial price at which the merchandise was purchased (purchase allowance).
![Page 22: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/22.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 2LO 2
Cost of Merchandise Sold
You have seen that sellers may offer customers sales discounts for early payment of their bills. From the buyer’s perspective, such discounts are referred to as purchase discounts.
![Page 23: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/23.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 2LO 2
Cost of Merchandise Sold
If merchandise inventory at the end of the period is determined by taking a physical count of inventory on hand, a periodic inventory system is being used.
![Page 24: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/24.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 2LO 2
Cost of Merchandise Sold
Under the perpetual inventory system, the amounts of inventory purchased, available for sale, and sold are continuously (perpetually) updated in the inventory records.
![Page 25: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/25.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 2LO 2
Gross Profit
Gross profit is computed by subtracting the cost of merchandise sold from net sales.
GrossProfit
![Page 26: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/26.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 2LO 2
Multiple-Step Income Statement
![Page 27: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/27.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 2LO 2
Income from Operations
Selling expenses are incurred directly in the selling of merchandise.
Sales salaries Store supplies
used Depreciation of
store equipment Delivery
expense Advertising
expense
![Page 28: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/28.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Income from Operations
Administrative expenses, sometimes called general expenses, are incurred in the administration or general operations of the business.
Office salaries Depreciation of
office equipment
Office supplies used
LO 2LO 2
![Page 29: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/29.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 2LO 2
Multiple-Step Income Statement
![Page 30: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/30.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Income from operations, sometimes called operating income, is determined by subtracting operating expenses from gross profit.
LO 2LO 2
Multiple-Step Income Statement
![Page 31: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/31.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 2LO 2
Multiple-Step Income Statement
![Page 32: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/32.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 2LO 2
Other Income and Expense
Other income is revenue from sources other than the primary operating activity of a business.
Other expense is an expense that cannot be traced directly to the normal operations of the business.
![Page 33: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/33.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 2LO 2
Multiple-Step Income Statement
![Page 34: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/34.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 2LO 2
Single-Step Income Statement
An alternative form of income statement is the single-step income statement. As shown in the next slide, the income statement for NetSolutions deducts the total of all expenses in one step from the total of all revenues.
![Page 35: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/35.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 2LO 2
Single-Step Income Statement
![Page 36: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/36.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 2LO 2
Statement of Owner’s Equity
![Page 37: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/37.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Balance Sheet
The form of balance sheet with the assets on the left-hand side and the liabilities and owner’s equity on the right-hand side is called the account form.
LO 2LO 2
![Page 38: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/38.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Balance Sheet
When the balance sheet is presented in a downward sequence in three sections, it has been prepared using the report form. This is the form used in the next two slides.
LO 2LO 2
![Page 39: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/39.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 2LO 2
Balance Sheet
(continued)
![Page 40: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/40.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 2LO 2
Balance Sheet
![Page 41: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/41.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Learning Objective 3
Distinguish between the activities and financial statements of service and merchandising businesses.
Describe and illustrate the financial statements of a merchandising business.
Describe and illustrate the accounting for merchandising transactions including: sale of merchandise; purchase of merchandise; freight; sales taxes and trade discounts; dual nature of merchandising transactions.
![Page 42: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/42.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Chart of Accounts
LO 3LO 3
![Page 43: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/43.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
On January 3, NetSolutions sold $1,800 of merchandise for cash.
Cash Sales
LO 3LO 3
![Page 44: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/44.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Using the perpetual inventory system, the cost of merchandise sold and the decrease in merchandise inventory are also recorded. The cost of merchandise sold on January 3 is $1,200.
LO 3LO 3
Cash Sales
![Page 45: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/45.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Sales made to customers using credit cards are recorded as cash sales. Assume that NetSolutions paid credit card processing fees of $48 on January 31.
Cash Sales
LO 3LO 3
![Page 46: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/46.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
On January 12, NetSolutions sold merchandise on account for $510. The cost of merchandise sold was $280.
Sales on Account
LO 3LO 3
![Page 47: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/47.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
The terms for when payments for merchandise are to be made are called credit terms. If payment is required on delivery, the terms are cash or net cash. Otherwise, the buyer is allowed an amount of time, known as the credit period, in which to pay.
Sales Discounts
LO 3LO 3
![Page 48: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/48.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Invoice
LO 3LO 3
![Page 49: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/49.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Credit Terms
To encourage the buyer to pay before the end of the credit period, the seller may offer a discount. Credit terms of 2/10, n/30 are summarized in the next slide (Exhibit 7).
LO 3LO 3
![Page 50: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/50.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 3LO 3
![Page 51: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/51.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
On January 17, NetSolutions receives the amount due within ten days, so the buyer deducted $30 ($1,500 x 2%) from the invoice amount.
Receipts on Account
LO 3LO 3
![Page 52: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/52.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Credit Memo
LO 3LO 3
A credit memorandum, often called a credit memo, authorizes a credit to (decreases) the buyer’s account receivable. An example of a credit memo issued by NetSolutions is shown in Exhibit 8 (next slide).
![Page 53: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/53.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Credit Memo
LO 3LO 3
![Page 54: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/54.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
On January 13, issued Credit Memo No. 32 to Krier Company for merchandise returned to NetSolutions. Selling price, $225; cost to NetSolutions, $140.
Credit Memo
LO 3LO 3
![Page 55: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/55.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
EE 6-2EE 6-2
![Page 56: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/56.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
*
Purchase Transactions
LO 3LO 3
On January 3, NetSolutions purchased merchandise for cash.
NOTE: We will assume a perpetual NOTE: We will assume a perpetual inventory system is used.inventory system is used.
![Page 57: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/57.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
*
Purchase Transactions
LO 3LO 3
On January 4, NetSolutions purchased merchandise on account from Thomas Corporation.
![Page 58: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/58.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Purchases Discounts
A buyer may receive a discount from the seller (sales discount) for early payment of the amount owed. From the buyer’s perspective, such discounts are called purchases discounts.
LO 3LO 3
![Page 59: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/59.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Alpha Technologies issues an invoice for $3,000 to NetSolutions dated March 12, with terms 2/10, n/30. NetSolutions is trying to determine if it should pay the invoice within the discount period.
LO 3LO 3
Purchase TransactionsLO 3LO 3
![Page 60: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/60.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
If NetSolutions can borrow cash at an annual interest rate of 6%, should the firm borrow cash to pay the invoice within the discount period?
Discount of 2% on $3,000 $60.00Interest for 20 days at the rate
of 6% on $2,940 – 9.80Savings from borrowing $50.20
YES
LO 3LO 3
Purchase Transactions
![Page 61: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/61.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Purchase Transactions
LO 3LO 3
Alpha Technologies issued an invoice for $3,000 to NetSolutions dated March 12, with terms 2/10, n/30. Based on the calculation in the previous slide, NetSolutions pays the amount due, less the discount, on March 22.
![Page 62: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/62.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Assume that, instead of paying the invoice within the discount period, NetSolutions pays the invoice on April 11.
Discount Not Taken
LO 3LO 3
![Page 63: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/63.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 3LO 3
Purchases Returns and Allowances
A purchases return involves actually returning merchandise that is damaged or does not meet the specifications of the order. From a buyer’s perspective, such returns are called purchases returns and allowances.
![Page 64: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/64.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 3LO 3
Debit Memo
A debit memorandum, often called a debit memo, informs the seller of the amount the buyer proposes to debit to the account payable due the seller.
![Page 65: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/65.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 3LO 3
Debit Memo
NetSolutions receives a delivery from Maxim Systems and determines that $900 of the items are not the merchandise ordered. Debit memorandum #18 is issued to Maxim Systems.
![Page 66: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/66.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 3LO 3
Debit Memo
![Page 67: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/67.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 3LO 3
NetSolutions records the return of the merchandise indicated in the debit memo in Exhibit 9 as follows:
Debit Memo
![Page 68: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/68.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
On May 2, NetSolutions purchased $5,000 of merchandise on account from Delta Data Link, terms 2/10, n/30.
Merchandise Purchased
LO 3LO 3
![Page 69: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/69.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
On May 4 , NetSolutions returned $3,000 of the merchandise purchased from Delta Data Link.
LO 3LO 3
Merchandise Returned
![Page 70: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/70.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
On May 12, NetSolutions paid for the purchase of May 2 less the return and discount.
Invoice Paid
LO 3LO 3
![Page 71: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/71.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
EE 6-3EE 6-3
![Page 72: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/72.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Freight
If ownership of the merchandise passes to the buyer when the seller delivers the merchandise to the freight carrier, the terms are said to be FOB (free on board) shipping point.
LO 3LO 3
![Page 73: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/73.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
On June 10, NetSolutions buys merchandise from Magna Data on account, $900, terms FOB shipping point and pays the shipping cost of $50.
LO 3LO 3
Freight
![Page 74: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/74.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 3LO 3
Freight
If ownership of the merchandise passes to the buyer when the buyer receives the merchandise, the terms are said to be FOB (free on board) destination.
![Page 75: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/75.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
On June 15, NetSolutions sells merchandise to Kranz Company on account, $700, terms FOB destination. The cost of the merchandise sold is $480.
Sale Plus Freight Cost
LO 3LO 3
![Page 76: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/76.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
On June 15, NetSolutions pays freight of $40 on the sale of June 15.
Sale Plus Freight CostLO 3LO 3
![Page 77: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/77.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
On June 20, NetSolutions sells merchandise to Planter Company on account, $800, terms FOB shipping point. NetSolutions paid freight of $45, which was added to the invoice. The cost of the merchandise sold is $360.
LO 3LO 3
Seller Prepays Freight
![Page 78: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/78.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 3LO 3
Seller Prepays Freight
![Page 79: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/79.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Freight Terms
LO 3LO 3
![Page 80: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/80.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Freight TermsLO 3LO 3
![Page 81: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/81.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
EE 6-4EE 6-4
![Page 82: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/82.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Summary: Recording Merchandise Inventory
LO 3LO 3
![Page 83: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/83.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
On August 12, merchandise is sold on account to Lemon Company, $100. The state has a 6% sales tax.
Sales Taxes
LO 3LO 3
![Page 84: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/84.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
On a regular basis, the seller pays to the taxing authority (state) the amount of the sales taxes collected.
Sales Taxes
LO 3LO 3
![Page 85: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/85.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Trade Discounts
When wholesalers offer special discounts to certain classes of buyers who order large quantities, these discounts are called trade discounts.
LO 3LO 3
![Page 86: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/86.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Each merchandising transaction affects a buyer and a seller. In the following illustrations, we show how the same transactions would be recorded by both the seller and the buyer.
Dual Nature of Merchandise Transactions
LO 3LO 3
![Page 87: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/87.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Dual Nature of Merchandise Transactions
LO 3LO 3
July 1. Scully Company sold merchandise on account to Burton Co., $7,500, terms FOB shipping point, n/45. The cost of the merchandise sold was $4,500.
![Page 88: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/88.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Scully Company (Seller)
Accounts Receivable—Burton Co. 7,500Sales 7,500
Cost of Merchandise Sold 4,500Merchandise Inventory 4,500
Burton Company (Buyer)
Merchandise Inventory 7,500Accounts Payable—Scully Co. 7,500
LO 3LO 3Dual Nature of Merchandise Transactions
![Page 89: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/89.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
July 2. Burton Company paid transportation charges of $150 on the July 1 purchase from Scully Company.
LO 3LO 3Dual Nature of Merchandise Transactions
![Page 90: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/90.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
No entry.
Burton Company (Buyer)Merchandise Inventory 150
Cash 150
LO 3LO 3
Scully Company (Seller)
Dual Nature of Merchandise Transactions
![Page 91: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/91.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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.
LO 3LO 3Dual Nature of Merchandise Transactions
![Page 92: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/92.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Accounts Receivable—Burton Co. 5,000Sales 5,000
Cost of Merchandise Sold 3,500Merchandise Inventory 3,500
Scully Company (Seller)
Burton Company (Buyer)
Merchandise Inventory. 5,000Accounts Payable—Scully Co. 5,000
LO 3LO 3Dual Nature of Merchandise Transactions
![Page 93: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/93.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
July 7. Scully Company paid transportation costs of $250 for delivery of merchandise sold to Burton Company on July 5.
LO 3LO 3Dual Nature of Merchandise Transactions
![Page 94: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/94.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Scully Company (Seller)
Delivery Expense 250Cash 250
Burton Company (Buyer)
No entry.
LO 3LO 3Dual Nature of Merchandise Transactions
![Page 95: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/95.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
July 13. Scully Company issued Burton Company a credit memorandum for merchandise returned, $1,000. The cost of the merchandise returned was $700.
LO 3LO 3Dual Nature of Merchandise Transactions
![Page 96: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/96.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Scully Company (Seller)
Sales Returns and Allowances 1,000Accounts Receivable—Burton Co. 1,000
Merchandise Inventory 700Cost of Merchandise Sold 700
Burton Company (Buyer)
Accounts Payable—Scully Co. 1,000Merchandise Inventory 1,000
LO 3LO 3Dual Nature of Merchandise Transactions
![Page 97: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/97.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
July 15. Scully Company received payment from Burton Company for purchase of July 5.
LO 3LO 3Dual Nature of Merchandise Transactions
![Page 98: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/98.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Scully Company (Seller)
Cash 4,000Accounts Receivable—Burton Co. 4,000
Burton Company (Buyer)
Accounts Payable—Scully Co. 4,000Cash 4,000
LO 3LO 3Dual Nature of Merchandise Transactions
![Page 99: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/99.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
July 18. Scully Company sold merchandise on account to Burton Company, $12,000, terms FOB shipping point, 2/10, n/eom. Scully prepaid transportation costs of $500, which were added to the invoice. The cost of the merchandise sold was $7,200.
LO 3LO 3Dual Nature of Merchandise Transactions
![Page 100: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/100.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Scully Company (Seller)
Accounts Receivable—Burton Co. 12,000Sales 12,000
Accounts Receivable—Burton Co. 500Cash 500
Cost of Merchandise Sold 7,200Merchandise Inventory 7,200
Burton Company (Buyer)Merchandise Inventory 12,500
Accounts Payable—Scully Co. 12,500
LO 3LO 3Dual Nature of Merchandise Transactions
![Page 101: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/101.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
July 28. Scully Company received payment from Burton Company for purchase of July 18, less discount (2% × $12,000).
LO 3LO 3Dual Nature of Merchandise Transactions
![Page 102: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/102.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Scully Company (Seller)
Cash 12,260Sales Discounts 240
Accounts Receivable—Burton Co. 12,500
Burton Company (Buyer)
Accounts Payable—Scully Co. 12,500Merchandise Inventory 240Cash 12,260
LO 3LO 3Dual Nature of Merchandise Transactions
![Page 103: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/103.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
EE 6-5
![Page 104: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/104.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Learning Objective 4
Distinguish between the activities and financial statements of service and merchandising businesses.
Describe and illustrate the financial statements of a merchandising business.
Describe and illustrate the accounting for merchandising transactions including: sale of merchandise, purchase of merchandise; freight, sales taxes, and trade discounts; dual nature of merchandising transactions.
Describe the adjusting and closing process for a merchandising business.
![Page 105: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/105.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 4LO 4Adjusting Entry for Inventory ShrinkageMerchandising businesses may
experience some loss of inventory due to shoplifting, employee theft, or errors in recording or counting inventory.
![Page 106: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/106.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 4LO 4Adjusting Entry for Inventory Shrinkage If the balance of the Merchandise
Inventory account is larger than the total amount of the merchandise count, the difference is often called inventory shrinkage or inventory shortage.
![Page 107: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/107.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
NetSolutions’ inventory records indicate the following on December 31, 2013:
Dec. 31, 2013Account balance of Merchandise Inventory $63,950Physical merchandise inventory on hand 62,150Inventory shrinkage $ 1,800
LO 4LO 4
Inventory Shrinkage
![Page 108: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/108.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
At the end of the accounting period, inventory shrinkage is recorded by the following adjusting entry:
LO 4LO 4
Inventory Shrinkage
![Page 109: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/109.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
EE 6-6
![Page 110: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/110.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Debit each temporary account with a credit balance, such as Sales, for its balance and credit Income Summary.
LO 4LO 4
Step 1: Closing Entries
![Page 111: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/111.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Credit each temporary account with a debit balance, such as an expense, for its balance and debit Income Summary.
Step 2: Closing Entries
LO 4LO 4
![Page 112: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/112.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Debit Income Summary for the amount of its balance (net income) and credit the owner’s capital account.
Step 3: Closing Entries
LO 4LO 4
![Page 113: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/113.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Debit the owner’s capital account for the balance of the drawing account and credit the drawing account.
Step 4: Closing Entries
LO 4LO 4
![Page 114: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/114.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
NetSolutions’ Income Summary account after the closing entries have been posted is as follows:
Closing Entries
LO 4LO 4
![Page 115: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/115.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Learning Objective 5
5. Describe and illustrate the use of the ratio of net sales to assets in evaluating a company’s operating performance.
![Page 116: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/116.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Ratio of Net Sales to Assets
The ratio of net sales to assets measures how effectively a business is using its assets to generate sales.
Ratio of Net Sales to
Assets
Net Sales
Average Total Assets=
LO 5LO 5
![Page 117: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/117.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 4LO 4
Ratio of Net Sales to Assets
The following data (in millions) were taken from the annual reports of Dollar Tree, Inc.:
![Page 118: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/118.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
LO 4LO 4
Ratio of Net Sales to Assets
The ratio of net sales to assets for each year are as follows:
![Page 119: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/119.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
EE 6-7EE 6-7
![Page 120: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/120.jpg)
Prepared by: C. Douglas Cloud Professor Emeritus of AccountingPepperdine University
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Appendix
The Periodic Inventory System
The Periodic Inventory System
![Page 121: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/121.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Periodic Inventory System
AppendixAppendix
![Page 122: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/122.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
App 1App 1
![Page 123: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/123.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Recording Merchandise TransactionsPurchases. Purchases of inventory
are recorded in a purchases account rather than in the merchandise inventory account.
AppendixAppendix
![Page 124: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/124.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Recording Merchandise Transactions Purchases Discounts. Purchases
discounts are normally recorded in a separate purchases discounts account. The balance of the purchases discounts account is reported as a deduction from Purchases for the period.
AppendixAppendix
![Page 125: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/125.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Recording Merchandise Transactions Purchases Returns and Allowances.
Purchases returns and allowances are recorded in a similar manner as purchase discounts.
AppendixAppendix
![Page 126: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/126.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Recording Merchandise Transactions Freight In. When merchandise is
purchased FOB shipping point, the buyer pays for the freight. Under the periodic inventory system, freight paid when purchasing merchandise FOB shipping point is debited to Freight In.
AppendixAppendix
![Page 127: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/127.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
(continued)
AppendixAppendix
![Page 128: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/128.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
AppendixAppendix
(concluded)
![Page 129: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/129.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Closing Entries
(continued)
AppendixAppendix
![Page 130: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/130.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Closing Entries
(continued)
AppendixAppendix
![Page 131: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/131.jpg)
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Closing Entries
(concluded)
AppendixAppendix
![Page 132: Accounting for Merchandising Businesses](https://reader038.fdocuments.in/reader038/viewer/2022102619/56812c50550346895d90d9f4/html5/thumbnails/132.jpg)
Prepared by: C. Douglas Cloud Professor Emeritus of AccountingPepperdine University
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Accounting for Merchandising Businesses
The EndThe End