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Reading Pages 232-241

by: Ravshan Samiev

Reading Pages 232-241 ACG 201 - 004

Ravshan Samiev
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About this Document

These notes cover the important parts of the Accounting for Merchandising Operations chapter for the next exam.
Financial Accounting
Daniel Ivancevich
Class Notes




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This 2 page Class Notes was uploaded by Ravshan Samiev on Thursday August 11, 2016. The Class Notes belongs to ACG 201 - 004 at University of North Carolina - Wilmington taught by Daniel Ivancevich in Fall 2016. Since its upload, it has received 5 views. For similar materials see Financial Accounting in Accounting at University of North Carolina - Wilmington.


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Date Created: 08/11/16
Notes Test 2 Ch. 5 Accounting for Merchandising Operations  P. 232­241  9/22 • Merchandizing Firms buy finished products, warehouse and display the products for varying periods of time, and then resell the products • Typical relationship  • Manufacturer > Wholesaler and/or Retailer > Consumer • Manufacturers convert raw materials and component parts into a finished product through  the application of skilled labor and machine operation • Usually sell their products to wholesale distributors, process referred to as Business­to­ Business (B2B) • Wholesalers buy finished products from manufacturing firms in large quantities • Sells and ships the products to various retailers in smaller quantities to satisfy local demand  for the product • Retailers typically buy products from wholesale distributors and resell the finished products  to individual consumers in what is referred to as a Business­to­Customer (B2C) transaction • 3 primary transactions in a Operating Cycle of a Merchandising Firm 1. The purchase of merchandise and its placement in inventory  2. The removal of merchandise from inventory when sold and delivered to the customer 3. The receipt of cash from the customer in payment for a cash­and ­carry or prior credit  purchase • These transactions involve 3 current asset accounts: cash, accounts receivable, and  inventory • 2 primary transactions in a Operating Cycle of a Service Firm 1. Performing a service  4. Receiving cash from the customers • No inventory to warehouse or display • B2B transaction is usually credit, because retailers are given some amount of time to pay the  wholesaler • Retailers call this sale “sale on account” or “sale on credit”  • To pay retailers, consumers can pay with cash, credit, or use an open account (is a charge  account provided by a retailer for its customers) • For a open account transaction the retailer may not charge the customer for 30 to 60 days or longer, depending upon the length of the credit terms • Merchandise Inventory: the perpetual inventory system and the periodic inventory  system • The main difference between the two is the timing of when the cost of merchandising  inventory is calculated • Perpetual (up­to­date) system is calculate every sale  • Periodical system is calculated when the physical count of the inventory is done • The major advantage with the perpetual system is the increased control it provides over the  inventory • Management can then be more aware of theft or spoilage since physical inventory can be  compared to the records • Most merchandising firms use the perpetual inventory system, because of the growing use of  computerized accounting systems • FOB shipping point: When the buyer is responsible for shipping costs • FOB destination: When the seller is responsible for shipping costs • Purchase return: The purchaser ships the unsatisfied merchandise back to the seller and  receives a credit against the amount due equal to the invoice price of the returned  merchandise • Purchase allowance: The purchaser retains the merchandise, and the seller reduces the  amount that the purchaser owes the seller for the shipment, in effect reducing the sales price • Credit period: is the maximum amount of time, often in days, that a purchaser can take to pay a seller for the purchased items • Credit period is frequently described as net credit period or net terms • Example: n/30 indicates a credit period of 30 days • Cash discount or Sales Discount: is the amount that the seller deducts from the invoice price  if payment is made within the allowed discount period • Some refer to the cash discount offered to credit customers as a “quick­pay incentive”  • Discount Period is the maximum amount of time, stated in days, that a purchaser has to pay  the seller of the purchaser wants to claim the cash discount • Format of “cash discount percent/discount period”  • Example: 1/10 indicates a cash discount of 1 percent of the invoice price and a discount  period of 10 days following the invoice date • Combine cash discount, the discount period with the notion for the credit period • Example: 1/10, n/30; 1 percent in 10 days or the full invoice price in 30 days      


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