Chapter 5 Notes 2/17/16
Chapter 5 Notes 2/17/16 ACCT 2101
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This 1 page Class Notes was uploaded by ljackson60 Notetaker on Sunday February 14, 2016. The Class Notes belongs to ACCT 2101 at Georgia State University taught by Kris J. Clark in Spring 2016. Since its upload, it has received 49 views. For similar materials see Principles of Accounting 1 in Accounting at Georgia State University.
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Date Created: 02/14/16
Louis Jackson Principles of Accounting 1 Chapter 5: Merchandising Operations and The MultipleStep Income Statement Merchandising Operations 1. Income Statement 1A.) A merchandising company (retailer) is a “middle man” company because they simply buy goods from wholesalers and sell it to consumers which is considered a sale ( the primary source of revenu ). 1B.) It is important to know that a credit sale is when the retailer carries the credit risk of a purchase not paid for in cash. For example a Macy’s credit card. 1C.) Income is measured like this: Sales Revenue Cost of Goods Sold= Gross Profits. Gross Profitsoperating expenses=net income (loss) 1D.) Cost of goods sold simply means it is the cost of buying that good, for retailers it is an expense. 1E.) Perpetual inventory system system where inventory is updated after each sale. 1F.) Periodic inventory system inventory is accounted for by physical count or a certain time basis. Recording Purchases of Merchandise A.) Freight cost is an operating expense for the seller when they pay for shipping. B.) Ownership of goods passes to buyer when goods are being shipped to them and also when the buyer actually receives the goods. C.) FOB Shipping point buyer pays for shipping of goods and ownership goes to buyer when the carrier accepts the goods. D.) FOB Destinationownership of goods remains with seller until it reaches buyer. E.) A purchase return is when a purchases returns goods for cash or credit. F.) A purchase allowance is when the purchaser returns goods for whatever reason and gets money off of the item. G.) Credit terms may permit buyer to claim a cash discount for prompt payment.
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