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Accounting Chapter4 - Reporting & Analyzing Merchandising Operations

by: Katie Mulliken

Accounting Chapter4 - Reporting & Analyzing Merchandising Operations ACCT2101

Marketplace > University of Georgia > Accounting > ACCT2101 > Accounting Chapter4 Reporting Analyzing Merchandising Operations
Katie Mulliken
GPA 3.91

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Accounting Chapter4 - Reporting & Analyzing Merchandising Operations, Merchandising inventory, net income, net sales, cost of goods sold, gross profit, transportation costs
Intro to Accounting 1
Class Notes
Accounting, reporting and allaying merchandising operations, merchandising inventory
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This 4 page Class Notes was uploaded by Katie Mulliken on Tuesday April 5, 2016. The Class Notes belongs to ACCT2101 at University of Georgia taught by Bhandarkar in Spring 2016. Since its upload, it has received 14 views. For similar materials see Intro to Accounting 1 in Accounting at University of Georgia.


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Date Created: 04/05/16
Chapter 4—Reporting & Analyzing Merchandising Operations Merchandising Companies— sell products to earn revenues Merchandise—consists of products (goods) that a company acquires to resell to customers  Clothing Electronics Office supplies Merchandiser—earns net income by buying/selling merchandise. Merchandisers identify as: wholesalers & retailers  Wholesaler—intermediately that buys products from manufactures or other wholesalers and sells them to retailers or other wholesalers  Retailer—buys from manufacturer and wholesalers  sells to customers Manufacturer  Wholesaler  Retailer  Customer Merchandising Inventory— an asset account that a company owes and intends to sell  Cost of merchandising inventory = Cost incurred to buy the goods, ship them to the store & make ready to sell Reporting income for a merchandising company… Net Sales – Cost of Goods Sold = Gross Profit Gross Profit (-Expenses) = Net Income Net sales—revenues from selling merchandise Gross profit = Gross Margin (Net Sales – Cost of Goods Sold) = Gross Profit (– Expenses) = Net Income Cost of Goods Sold (G.O.G.S)— merchandising company buys product before selling in retail  Expense account Normal Balance = Debit o Beginning Inventory— inventory left over from the last period that can be sold now o Net Cost of Purchases— cost of new purchases that a company buys to sell with B.I. o Merchandise Available for Sale— goods a company owns & expects to sell with business o Ending Inventory— inventory left over to be sold next period o Cost of Goods Sold—expense, often largest expense on merchandiser income statement Beginning Inventory + Net Cost of Purchases = Merchandise Available for Sale Ending Inventory + Cost of Goods Sold = Merchandise Available for Sale B.I. + N.C.O.P = M.A.F.S. = E.I. + C.O.G.S Inventory Systems—there are two different systems used to account for inventory: 1) Perpetual Method— Continuously updates balance of merchandise inventory o Our class uses this! - Barcode Scanning makes this possible 2) Periodic Method—Updates balance of merchandise inventory at end of period Why do companies like receiving cash right away at fewer prices? - Keep operating cycle short bc assets in inventory & receivables aren’t productive Merchandising Transactions Purchase discounts: (for credit sales) to induce early payment of the amount due, seller grants the buyer a deduction from the invoice price (typically 30 days pay full) Cash discount—granted by sellers to encourage buyers to pay earlier  Buyers view it as a purchase discount  Sellers view it as a sales discount Credit period—amount of time allowed before full payment is due Purchase Transactions—merchandising company as a buyer Sales Transactions—merchandising company as a seller Invoice: SIP-OC-FGI 1) Seller 2) Invoice date 3) Purchaser 4) Order number 5) Credit terms 6) Freight terms 7) Goods 8) Invoice amount Purchase Discounts  2 ÷ 10 , n ÷ 30 2= discount period 10= # days discount is available n= full payment 30= credit period Purchase Discounts—if paid within 10 days, 2% discount, otherwise entire amount due Sales/ Purchase Returns—merchandise a buyer acquires but then returns to the seller Sales/ Purchase Allowance—reduction in the cost of defective or unacceptable merchandise that a buyer acquires Debit Memorandum—notification sender debited receipts account in sender records Seller (the maker of a DM) debits accounts payable of memo’s receiver Transportation Costs FOB — “Free on Board”, point of transfer, determines who pays the delivery Seller  Shipping Company (Merchandise)  Buyer  FOB Shipping Point  BUYER pays o Ownership transfers to buyer when goods are transported to carried, the moment it’s shipped, it belongs to the buyer o Transportation In o Buyer adds cost of transportation to cost of merchandise  Merchandise Inventory (Debit)  Cash (Credit)  FOB Destination  SELLER pays o Ownership transfers to buyer when goods are delivered to the buyer o Transportation Out o Seller treats cost of transportation as a delivery  Delivery Expense (debit)  Cash/ Accounts Payable (credit) Cost of Merchandise Purchased —(Net Cost of purchases) Assuming credit purchase, return, payment within discount Period & F.O.B. Shipping Point Invoice cost of merchandise purchases - Purchase returns & allowances - Purchase Discounts + Cost of transportation – in = Net cost of merchandise purchases Accounting for Merchandise Sales Assuming credit sales, return, receipt of payment within discount period & F.O.B. Destination Sales - Sales returns & allowances - Sales discounts + Net Sales - Cost of Goods Sold = Gross Profit


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