Week 6 Notes- Chapter 5: Merchandising
Week 6 Notes- Chapter 5: Merchandising Accy 206
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This 3 page Class Notes was uploaded by Khaylian Leflore on Monday October 19, 2015. The Class Notes belongs to Accy 206 at Northern Illinois University taught by Mark Hogan in Fall 2015. Since its upload, it has received 31 views. For similar materials see Introduction to Financial Accounting in Accounting at Northern Illinois University.
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Date Created: 10/19/15
Week 6 Notes Chapter 5 Merchandising Merchandising Operations gt Merchandising companies buy and sell goods inventory gt Wholesaler 9 Retailer 9 Consumer gt Gross profit 0 Income measurement 0 Cost of goods sold cost of merchandise inventory sold during the period an expense Sales Revenue Cost of Goods Sold Gross Pro t Gross Pro t Operating Expenses Net Income Loss gt Flow of costs 0 Beginning inventory and cost of goods purchased go into costs of goods available for sale 0 Cost of goods sold and ending inventory are the results of cost of goods available for sale 0 Companies use either a perpetual inventory system or a periodic inventory system to account for inventory Perpetual Inventory System gt Maintains detailed records of the cost of each inventory purchase and sale gt Records continuously show inventory that should be on hand for every item gt Company records revenue and cost of goods sold each time a sale occurs gt Provides better control over inventories than the periodic system gt Before an invoice is paid it s matched with the purchase order and receiving report 9 a 3way match Purchase Returns and Allowances gt Purchaser may be dissatisfied because goods are damaged or defective of inferior quality or do not meet specifications gt Purchase retum return goods for credit if the sale was made on credit or for a cash refund if the purchase was for cash gt Purchase allowance may choose to keep the merchandise if the seller will grant a reduction of the purchase price Purchase Discounts gt Credit items may permit buyer to claim a cash discount for prompt payment gt 210 n30 2 discount if paid within 10 days otherwise net amount due within 30 days gt Advantages purchaser saves money seller shortens the operating cycle by converting the accounts receivable into cash faster Sales and Returns Allowances gt Flip side of purchase returns and allowances gt SRampA contrarevenue a separate account gt Sales not reduced directly because would obscure importance of sales returns and allowances as a percentage of sales could distort comparisons gt Sales discounts contrarevenue gt Sales SRampA sales discounts net sales Income Statement Presentations gt Single step revenues expenses net income gt Multiple step gross profit income from operations net income 0 Key items net sales gross profit operating eXpenses non operating activities net income Periodic Inventory System gt Do not keep continuously updated detailed records of goods on hand gt Cost of goods sold determined by count physical inventory at the end of the accounting period gt Calculation of cost of goods sold 0 Beginning inventory net purchases goods available 0 Goods available ending inventory cost of goods sold 0 Purchases follow the same concepts we saw for inventory under the perpetual system 0 Net purchases freight cost of goods purchased Evaluating Profitability gt Gross profit rate measures and sees if the margin selling price gt cost of goods sold 0 Gross profit gross profit rate Net sales 0 A decline in the gross profit rate might have several causes 1 Selling products with a lower markup 2 Increased competition may result in lower selling price 3 Company forced to pay higher prices to its suppliers without being able to pass these costs on to their customers gt Profit margin ratio measures the percent of each dollar of sales that results in net income 0 Measures the extent by which selling price covers all expenses including cost of goods sold 0 Net income profit margin Net sales
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