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Accounting For Merchandising

Accounting For Merchandising. By Rachelle Agatha, CPA, MBA. Slides by Rachelle Agatha, CPA, with excerpts from Warren, Reeve, Duchac. 0. After studying this chapter, you should be able to:.

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Accounting For Merchandising

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  1. Accounting For Merchandising

    By Rachelle Agatha, CPA, MBA Slides by Rachelle Agatha, CPA, with excerpts from Warren, Reeve, Duchac
  2. 0 After studying this chapter, you should be able to: Distinguish between the activities and financial statements of service and merchandising businesses. Describe and illustrate the financial statements of a merchandising business.
  3. 0 After studying this chapter, you should be able to: Describe and illustrate the accounting for merchandise transactions including: sale of merchandise purchase of merchandise transportation costs, sales taxes, trade discounts dual nature of merchandising transactions. Describe the adjusting and closing process for a merchandising business.
  4. 0 5-2 Objective 1 Distinguish between the activities and financial statements of service and merchandising businesses.
  5. 0 6-1 Service Business Fees earned $XXX Operating expenses –XXX Net income $XXX
  6. 0 Merchandising Business 6-1 Sales $XXX Cost of Merchandise Sold –XXX Gross Profit $XXX Operating Expenses –XXX Net Income $XXX
  7. 0 6-1 When merchandise is sold, the revenue is reported as sales, and its cost is recognized as an expense called cost of merchandise sold orCost of Goods Sold.
  8. 0 6-1 The cost of merchandise sold is subtracted from sales to arrive at gross profit. This amount is called gross profitbecause it is the profit beforededucting the operating expenses.
  9. 0 6-1 Merchandise on hand (not sold) at the end of an accounting period is called merchandise inventory.
  10. 0 6-2 Objective 2 Describe and illustrate the financial statements of a merchandising business.
  11. 0 Multiple-Step Income Statement 6-2 The multiple-step income statementcontainsseveral sections, subsections, and subtotals.
  12. 0 6-2 The Salesaccount provides the total amount charged to customers for merchandise sold, including cash sales and sales on account.
  13. 0 6-2 Sales returns and allowances are granted by the seller to customers for damaged or defective merchandise.
  14. 0 6-2 Sales discounts are granted by the seller to customers for early payment of amounts owed.
  15. 0 6-2 Net sales is determined by subtracting sales returns and allowances and sales discounts from sales.
  16. 0 6-2 Cost of merchandise sold was discussed earlier. It is the cost of the merchandise sold to customers.
  17. 0 6-2 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.
  18. 0 6-2 The buyer may return merchandise to the seller (apurchase return), or the buyer may receive a reduction in the initial price at which the merchandise was purchased (apurchase allowance).
  19. GROSS PROFIT
  20. 0 6-3 Objective 3 Understand the accounting for merchandise transactions including: sale, purchase, transportation costs, sales taxes, and trade discounts.
  21. Sale Transaction
  22. 0 6-3 Sales Discounts The terms for when payments for merchandise are to be made, agreed on by the buyer and the seller, are called credit terms. If buyer is allowed an amount of time to pay, it is known as the credit period.
  23. Payment Transaction
  24. Purchase Inventory (Perpetual System)
  25. Return & Payment on Account
  26. Payment with Discount
  27. FOB (Free On Board) Shipping Point The buyer bears the transportation cost Add cost to inventory
  28. FOB (Free On Board) Shipping Point
  29. FOB (Free On Board)Destination The seller bears the transportation cost Cost is delivery expense
  30. FOB (Free On Board)Destination
  31. Buyer vs. Seller
  32. Record Shrinkage Perform physical inventory and difference is shrinkage
  33. Periodic vs. Perpetual System Periodic system: Revenues are recorded when sales occur No inventory is recorded or cost of sales Physical inventory taken and inventory is adjusted
  34. Summary Merchandising business Operating Cycle Sales Transactions Purchase Transactions Financial Statements .
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