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Financial Accounting Chapter 5 Notes

by: bauer47 Notetaker

Financial Accounting Chapter 5 Notes ACC-142

Marketplace > Iowa Central Community College > Accounting > ACC-142 > Financial Accounting Chapter 5 Notes
bauer47 Notetaker

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About this Document

These notes cover how to account for a merchandising business.
Financial Accounting
DawnA. Humburg
Class Notes
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This 3 page Class Notes was uploaded by bauer47 Notetaker on Wednesday March 2, 2016. The Class Notes belongs to ACC-142 at Iowa Central Community College taught by DawnA. Humburg in Fall 2015. Since its upload, it has received 14 views. For similar materials see Financial Accounting in Accounting at Iowa Central Community College.


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Date Created: 03/02/16
Financial Accounting CH 1-4 were the accounting cycle; studied the service type of business CH 5 > merchandising business; remember the types of businesses are SMM (service, merchandising, manufacturing) 1. What is the function of a merchandiser? Sells products, purchase inventory or products, donations (good for PR) a. Page 283 > difference between the income statements and BS i. IS > for service businesses, we use a single step IS (revenues – expenses = net income); for merchandising businesses, we use multiple step IS because we need to know more information ii. BS > for both we still have A = L + SHE; for merchandising businesses we will use Merchandise Inventory as a part of the assets 2. Inventory Systems (how they are set up): a. Periodic > you have to count everything to know what you have in inventory and what you have sold; old-fashioned (before computers) b. Perpetual > on-going; we always know the inventory count and the dollar amount or cost of our inventory because of computers (bar codes and scanning; scan inventory in and scan it out); still need to count your inventory because of things like theft i. Even though we use a perpetual system, we still need to count the inventory at least once in the accounting period; the difference between the computer and the physical count is called inventory shrinkage (theft, broken items, perishable items, human errors (misplaced)) For the following table: **we are using a perpetual inventory system (COGS= cost of goods sold) (SR&A = sales revenue & allowances) (x = contra) (S Disc. = Sales Discount) Transaction Buyer’s Records Seller’s Records Nov. 1: merchandise was DR Merch. Inv. (+CA) Retail: purchased with a retail 1,000 DR A/R (+CA) price of $1000; cost of CR A/P (+CL) 1,000 $250; shipping terms 1,000 CR Sales (+R, +SHE) FOB destination (free on 1,000 board to the buyer) Cost: DR COGS (+E, -SHE) 250 ($200); credit terms CR Merch. Inv. (-CA) 1/10, n/30 250 Shipping: DR Delivery Exp. 200 CR Cash 200 1000 – 250 = 750 (gross profit) Nov. 5: merchandise was DR A/P (-CL) Retail: returned, retail of $400,400 DR SR&A (+xR), -R, -SHE) cost of $100 CR Merch. Inventory (-CA) 400 400 CR A/R (-CA) 400 Cost: DR Merch. Inv. (+CA) 100 CR COGS (-E, +SHE) 100 Nov. 11: Received DR A/P (-CL) DR Cash (+CA) payment on Nov. 1 600 594 purchase CR Cash (600 x .99) DR S Disc. (+xR,-R,-SHE) 594 6 CR Merch. Inventory (-CA) CR A/R (-CA) 6 600 OR Nov. 20: received DR A/P (-CL) DR Cash (+CA) payment on Nov. 1 600 600 purchase CR Cash (-CA) CR A/R (-CA) 600 600 Nov. 1: merchandise was DR Merch. Inv. (+CA) Retail: DR A/R purchased ……….. 1,000 shipping terms FOB CR A/P (+CL) 1000 Shipping Point …………. 1,000 CR Sales AND 1000 DR Merch. Inv. (+CA) Cost: 200 DR COGS Ch. 5 notes cont. > Single Step income statement > revenue – expense = net income Multiple Step income statement: 1. Sales > revenue; CR; we record the retail in this acct. 2. SR&A > xRev.; DR; used when we record the retail amount of a customer’s return 3. SDisc. > xRev.; DR; used when we offer a discount to our customers 4. Net Sales > not an account; it is the first step 5. COGS > Expense; DR; records our cost of purchasing inventory most likely from a wholesaler 6. Gross Profit > not an account; it is the second step; net sales – COGS 7. Operating Expenses > split between selling exp. and administrative exp.; incurred for merchandising 8. Total Operating Expenses > add selling and admin 9. Operating Income > not an account; it is the third step; GP – Oper. Exp.; tells us our net income from merchandising 10.Other revenues and (expenses) > from other activities other than merchandising 11.Net Income > operating income (– or +) other rev. /exp. (refer to page 303) All line items on the MSI/S from operating income and above are called core or normal business activities; those below operating income are called peripheral (outside of the scope of merchandising) or non-operating activities


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