STUDY OBJECTIVES After studying this chapter, you should understand: CHAPTER 6 ACCOUNTING FOR...
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Transcript of STUDY OBJECTIVES After studying this chapter, you should understand: CHAPTER 6 ACCOUNTING FOR...
STUDY OBJECTIVES
After studying this chapter, you should understand:
CHAPTER 6
ACCOUNTING FOR MERCHANDISING OPERATIONS
CHAPTER 6
ACCOUNTING FOR MERCHANDISING OPERATIONS
The differences between a service company and a merchandiser
Single & multiple step
income statements
Purchase entries—perpetual inventory How to compute gross profit
Revenue entries--perpetual inventory COGS -- periodic inventory
Completing the accounting cycle
STUDY OBJECTIVE 1
MERCHANDISER VS. SERVICE COMPANY
STUDY OBJECTIVE 1
MERCHANDISER VS. SERVICE COMPANY
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A service companyprovides a serviceto earn a profit.
No COGS
A merchandiserbuys and sells goods
to earn a profit.
Wholesalers/Retailers
COGS
Sales Revenue
Cost ofGoods Sold
Gross Profit
Operating Expenses
Net Income(Loss)
Less
Equals
Less
Equals
INCOME MEASUREMENT
MERCHANDISER
INCOME MEASUREMENT
MERCHANDISER
Accounts Receivable
Cash
Cash
Service Company
Merchandising Company
Accounts Receivable
Merchandise Inventory
Receive Cash
Perform Services
Receive Cash
Buy Inventory
Sell Inventory
OPERATING CYCLE COMPARISONOPERATING CYCLE COMPARISON
INVENTORY SYSTEMSINVENTORY SYSTEMS
PERPETUAL INVENTORY
Inventory purchased
Record purchase
Item sold
Record revenue & COGS
End of period
No entry
Inventory purchased
Record purchase
Item sold
Record revenue only
End of period
Computeand record
COGS
PERIODIC INVENTORY
SOLD
SOLD
STUDY OBJECTIVE 2
PURCHASE ENTRIES – PERPETUAL INVENTORY
STUDY OBJECTIVE 2
PURCHASE ENTRIES – PERPETUAL INVENTORY
MERCHANDISE INVENTORY CASH
COST COST
MERCHANDISE INVENTORYA/P
COST COST
Cashpurchase
Creditpurchase
The purchase is normally recorded when the goods are received
Credit purchases are normally supported by a purchase invoice
3800 3800
STUDY OBJECTIVE 2
PURCHASE ENTRIES – PERPETUAL INVENTORY
STUDY OBJECTIVE 2
PURCHASE ENTRIES – PERPETUAL INVENTORY
3800 3 800
Cashpurchase
Creditpurchase
FOB SHIPPING POINT FOB DESTINATION
Title transfers to buyer at sellers shipping dock
Buyer pays freight costs
Title transfers to buyer at buyers receiving dock
Seller pays freight costs
SHIPPING TERMS – FREE ON BOARDSHIPPING TERMS – FREE ON BOARD
Freight costs are part of the cost of inventory purchased.Freight costs are part of the cost of inventory purchased.
GENERAL JOURNALDate Account Titles and Explanation Dr. Cr.
May 6 Merchandise Inventory Cash
(To record payment of freight, terms FOB shipping point)
150150
ACCOUNTING FOR FREIGHT COSTS
PAID BY BUYER
ACCOUNTING FOR FREIGHT COSTS
PAID BY BUYER
Freight costs incurred by the seller are selling expenses called Freight-out.
Freight costs incurred by the seller are selling expenses called Freight-out.
GENERAL JOURNALDate Account Titles and Explanation Dr. Cr.
May 4 Freight-out (Delivery Expense) Cash
(To record payment of freight on goods sold FOB destination)
150150
ACCOUNTING FOR FREIGHT COSTS
PAID BY SELLER
ACCOUNTING FOR FREIGHT COSTS
PAID BY SELLER
For purchases returns and allowances, Accounts Payable is debited and Merchandise Inventory is credited.
GENERAL JOURNALDate Account Titles and Explanation Dr. Cr.
May 8 Accounts Payable Merchandise Inventory (To record return of inoperable goods received from Highpoint Electronic, DM No. 126)
300300
PURCHASE RETURNS AND ALLOWANCESPURCHASE RETURNS AND ALLOWANCES
Seller Buyer
If payment is made within the discount period, Merchandise inventory is credited for the discount taken.
If payment is made within the discount period, Merchandise inventory is credited for the discount taken.
GENERAL JOURNALDate Account Titles and Explanation Dr. Cr.
May 14 Accounts Payable Cash Merchandise Inventory (To record payment within discount period)
3,5003,430 70
Credit terms may permit the buyer to claim a cash discount
for the prompt payment of a balance due.
PURCHASE DISCOUNTS
PAYMENT WITHIN DISCOUNT PERIOD
PURCHASE DISCOUNTS
PAYMENT WITHIN DISCOUNT PERIOD
If payment is made after the discount period, Accounts Payable is debited and Cash is credited for the full amount.
If payment is made after the discount period, Accounts Payable is debited and Cash is credited for the full amount.
GENERAL JOURNALDate Account Titles and Explanation Debit Credit
June 3 Accounts Payable Cash (To record payment with no discount taken)
3,5003,500
PURCHASE DISCOUNTS
PAYMENT AFTER DISCOUNT PERIOD
PURCHASE DISCOUNTS
PAYMENT AFTER DISCOUNT PERIOD
STUDY OBJECTIVE 3
REVENUE ENTRIES – PERPETUAL INVENTORY
STUDY OBJECTIVE 3
REVENUE ENTRIES – PERPETUAL INVENTORY
Revenues are reported when earned in accordance with the revenue recognition principle.
All sales should be supported by a
cash register tape (cash sales)
or sales invoice (credit sales).
In a merchandising company,
revenues are earned
when the goods are
transferred from seller to buyer.
For cash sales, simply replace the debit to accounts receivable with a debit to cash.
GENERAL JOURNALDate Account Titles and Explanation Dr. Cr.
May 4 Accounts Receivable Sales (To record credit sales to Chelsea Video per invoice #731)
4 Cost of Goods Sold Merchandise Inventory (To record cost of merchandise sold on invoice #731 to Chelsea Video)
3,8003,800
2,4002,400
REVENUE ENTRIES – PERPETUAL INVENTORYREVENUE ENTRIES – PERPETUAL INVENTORY
SALES RETURNS & ALLOWANCESSALES RETURNS & ALLOWANCES
SALES RETURNCustomer returns goods to the
seller for credit or a refund.
SALES ALLOWANCE
Seller allows a reduction in selling price.
Goods are not returned.
Seller prepares a CREDIT MEMORANDUM.
Sales Returns and Allowances is a CONTRA-REVENUE account.It’s normal balance is a DEBIT.
GENERAL JOURNAL
Date Account Titles and Explanation Dr. Cr. May 8 Sales Returns and Allowances Accounts Receivable (To record credit granted to Beyer Video, for returned goods) 8 Merchandise Inventory Cost of Goods Sold (To record cost of goods returned)
300300
140140
RECORDING
SALES RETURNS & ALLOWANCES
RECORDING
SALES RETURNS & ALLOWANCES
2/10, n/30 A 2% discount may be taken if payment is made within 10 days of the invoice date.
1/10 EOM A 1% discount is available if payment is made by the 10th of the next month.
SALES DISCOUNTSSALES DISCOUNTS
Seller offers customer a cash discount
for prompt payment of balance due.
Credit terms indicate the discount percent, Discount period, and final due date.
Sales discounts is a CONTRA-REVENUE ACCOUNT. It’s normal balance is a DEBIT.
GENERAL JOURNALDate Account Titles and Explanation Dr. Cr.
May 14 CashSales Discounts Accounts Receivable (To record collection within 2/10,
n/30 discount period from Beyer Video)
3,430 70
3,500
RECORDING
SALES DISCOUNTS
RECORDING
SALES DISCOUNTS
After all adjustments have been posted, closing entries are prepared from the
Income Statement section of the worksheet.
GENERAL JOURNAL
Date Account Titles and Explanation Debit Credit (1) Dec. 31 Sales Income Summary (To close income statement
accounts with credit balances).
480,000480,000
COMPLETING THE ACCOUNTING CYCLE
Study Objective 4
COMPLETING THE ACCOUNTING CYCLE
Study Objective 4
All accounts that affect the determination of net income are closed to Income Summary.
Cost of Goods Sold is closed to Income Summary.
GENERAL JOURNAL
Date Account Titles and Explanation Debit Credit (2) Dec. 31 Income Summary Sales Returns and Allowances Sales Discounts Cost of goods sold Store Salaries Expense Rent Expense Freight -out Advertising Expense Utilities Expense Depreciation Expense Insurance Expense (To close income statement
accounts with debit balances)
450,00012,000 8,000
316,00045,00019,000 7,00016,00017,000 8,000 2,000
CLOSING ENTRIESCLOSING ENTRIES
After the closing entries are posted, all temporary accounts have zero balances.
GENERAL JOURNAL
Date Account Titles and Explanation Debit Credit 2002 (3) Dec. 31 Income Summary Retained Earnings (To close net income to retained
earnings )
(4) 31 Retained Earnings Dividends (To close dividends to retained
earnings )
30,00030,000
15,00015,000
CLOSING ENTRIESCLOSING ENTRIES
STUDY OBJECTIVE 5
MULTIPLE - STEP INCOME STATEMENT
STUDY OBJECTIVE 5
MULTIPLE - STEP INCOME STATEMENT
Sales revenues Sales $480,000
Less: Sales returns & allowances $12,000
Sales Discounts 8,000 20,000
Net Sales $460,000
Illustration 5-6Computation of Net Sales
STUDY OBJECTIVES 5 & 6
MULTIPLE - STEP INCOME STATEMENT
STUDY OBJECTIVES 5 & 6
MULTIPLE - STEP INCOME STATEMENT
Net Sales $460,000
Less: Cost of Goods Sold 316,000
Gross Profit $144,000
Operating Expenses 114,000
Net Income $30,000
The multiple step income statement arrives at net income in stages.
Sellers ElectronixIncome Statement
The multiple step income statement also distinguished between operating and non-operating activities.
MULTIPLE - STEP INCOME STATEMENT
NON-OPERATING ACTIVITIES
MULTIPLE - STEP INCOME STATEMENT
NON-OPERATING ACTIVITIES
OTHER REVENUES
& GAINS
OTHER LOSSES
& EXPENSESInterest revenue Interest expense
Dividend revenue Casualty losses
Rent revenue Loss from employee strikes
Gains on sale of assets Loss on sale of assets
NON-OPERATING ACTIVITIES
Sellers Electronix Income Statement For the Year Ended December 31, 2006
Revenues Net sales $ 460,000 Interest revenue 3,000 Gain on sale of equipment 600 Total revenues 463,600 Expenses Cost of goods sold $ 316,000 Selling expenses 76,000 Administrative expenses 38,000 Interest expense 1,800 Casualty loss from vandalism 200 Total expenses 432,000 Net income $ 31,600
All data are classified under two categories: 1 Revenues
2 Expenses
Only one step is required in determining net income or net loss.
All data are classified under two categories: 1 Revenues
2 Expenses
Only one step is required in determining net income or net loss.
SINGLE-STEP
INCOME STATEMENT
SINGLE-STEP
INCOME STATEMENT
STUDY OBJECTIVES 7
COST OF GOODS SOLD—PERIODIC INVENTORY
STUDY OBJECTIVES 7
COST OF GOODS SOLD—PERIODIC INVENTORY
Cost of Goods Sold:
Inventory, January 1 $36,000
Purchases $325,000
Less: Purchase returns & allowances
$10,400
Purchase discounts 6,800 17,200
Net purchases 307,800
Add: Freight-in 12,200
Cost of Goods Purchased 320,000
Cost of Goods Available for Sale 356,000
Inventory, December 31 (physical count required)
40,000
Cost of Goods Sold 316,000
Sellers ElectronixCost of Goods Sold
For the year ended December 31, 2006