Accounting principles 8th weygars kieso kimmel chapter 05

Chapter 5-1 CHAPTER ACCOUNTING FOR MERCHANDISING OPERATIONS Accounting Principles, Eighth Edition Chapter 5-2 Study Study Objectives Objectives Identify the differences between service and merchandising companies Explain the recording of purchases under a perpetual inventory system Explain the recording of sales revenues under a perpetual inventory system Explain the steps in the accounting cycle for a merchandising company Distinguish between a multiple-step and a single-step income statement Explain the computation and importance of gross profit Determine cost of goods sold under a periodic system Chapter 5-3 Accounting Accounting for for Merchandising Merchandising Operations Operations Merchandising Merchandising Operations Operations Operating cycles Inventory systems— perpetual and periodic Chapter 5-4 Recording Recording Purchases Purchasesof of Merchandise Merchandise Recording Recording Sales Salesof of Merchandise Merchandise Completing Completingthe the Accounting Accounting Cycle Cycle Freight costs Purchase returns and allowances Purchase discounts Summary of purchasing transactions Sales returns and allowances Sales discounts Adjusting entries Closing entries Summary of merchandising entries Forms Formsof of Financial Financial Statements Statements Multiple-step income statement Single-step income statement Classified balance sheet Determining cost of goods sold under a periodic system Merchandising Merchandising Operations Operations Merchandising Companies Buy and Sell Goods Wholesaler Retailer Consumer The primary source of revenues is referred to as sales revenue or sales Chapter 5-5 LO Identify the differences between service and merchandising companies Merchandising Merchandising Operations Operations Income Measurement Sales Revenue Less Cost of Goods Sold Not used in a Service business Equals Cost of goods sold is the total cost of merchandise sold during the period Chapter 5-6 Gross Profit Illustration 5-1 Less Operating Expenses Equals Net Income (Loss) LO Identify the differences between service and merchandising companies Operating Operating Cycles Cycles Illustration 5-2 The operating cycle of a merchandising company ordinarily is longer than that of a service company Chapter 5-7 LO Identify the differences between service and merchandising companies Inventory Inventory Systems Systems Perpetual System Features: Purchases increase Merchandise Inventory Freight costs, Purchase Returns and Allowances and Purchase Discounts are included in Merchandise Inventory Cost of Goods Sold is increased and Merchandise Inventory is decreased for each sale Physical count done to verify Merchandise Inventory balance The perpetual inventory system provides a continuous record of Merchandise Inventory and Cost of Goods Sold Chapter 5-8 LO Identify the differences between service and merchandising companies Inventory Inventory Systems Systems Periodic System Features: Purchases of merchandise increase Purchases Ending Inventory determined by physical count Calculation of Cost of Goods Sold: Beginning inventory $ 100,000 Add: Purchases, net Chapter 5-9 800,000 Goods available for sale LO Identify the differences between service and merchandising companies Recording Recording Purchases Purchases of of Merchandise Merchandise Made using cash or credit (on account) Illustration 5-4 Normally recorded when goods are received Purchase invoice should support each credit purchase Chapter 5-10 LO Explain the recording of purchases under a perpetual inventory system Forms Forms of of Financial Financial Statements Statements Illustration 5-11 Key Items: Net sales Gross profit Gross profit rate Operating expenses Nonoperating activities Net income Chapter 5-42 LO Distinguish between a multiple-step and a single-step income statement Forms Forms of of Financial Financial Statements Statements Review Question The multiple-step income statement for a merchandiser shows each of the following features except: Chapter 5-43 a gross profit b cost of goods sold c a sales revenue section d investing activities section LO Distinguish between a multiple-step and a single-step income statement Forms Forms of of Financial Financial Statements Statements Single-Step Income Statement Subtract total expenses from total revenues Two reasons for using the single-step format: 1) Company does not realize any type of profit until total revenues exceed total expenses 2) Format is simpler and easier to read Chapter 5-44 LO Distinguish between a multiple-step and a single-step income statement Forms Forms of of Financial Financial Statements Statements Illustration 5-12 SingleStep Chapter 5-45 LO Distinguish between a multiple-step and a single-step income statement Forms Forms of of Financial Financial Statements Statements Classified Balance Sheet Chapter 5-46 Illustration 5-13 LO Distinguish between a multiple-step and a single-step income statement Calculation Calculation of of Gross Gross Profit Profit Illustration 5-11 Key Items: Net sales Gross profit Gross profit rate Illustration 5-8 Chapter 5-47 LO Explain the computation and importance of gross profit Determining Determining Cost Cost of of Goods Goods Sold Sold Under Under aa Periodic Periodic System System Periodic System Separate accounts used to record purchases, freight costs, returns, and discounts Company does not maintain a running account of changes in inventory Ending inventory determined by physical count Chapter 5-48 LO Determine cost of goods sold under a periodic system Determining Determining Cost Cost of of Goods Goods Sold Sold Under Under aa Periodic Periodic System System Calculation of Cost of Goods Sold Chapter 5-49 Illustration 5-14 $316,000 LO Determine cost of goods sold under a periodic system Recording Recording Purchases Purchases of of Merchandise Merchandise under under aa Periodic Periodic System System *E5-17 Information related to Chevalier Co is presented below Prepare the journal entry to record the transaction under a periodic inventory system On April 5, purchased merchandise from Paris Company for $22,000 terms 2/10, net/30, FOB shipping point April Chapter 5-50 LO Purchases Accounts payable 22,000 22,000 Explain the recording of purchases and sales of inventory under a periodic inventory system Recording Recording Purchases Purchases of of Merchandise Merchandise under under aa Periodic Periodic System System *E5-17 Continued Prepare the journal entry to record the transaction under a periodic inventory system On April 6, paid freight costs of $600 on merchandise purchased from Paris April Chapter 5-51 LO Freight-in (Transportation-in) Cash 600 600 Explain the recording of purchases and sales of inventory under a periodic inventory system Recording Recording Purchases Purchases of of Merchandise Merchandise under under aa Periodic Periodic System System *E5-17 Continued Prepare the journal entry to record the transaction under a periodic inventory system On April 8, returned damaged merchandise to Paris Company and was granted a $4,000 allowance April Chapter 5-52 LO Accounts payable 4,000 Purchase returns and allowances 4,000 Explain the recording of purchases and sales of inventory under a periodic inventory system Recording Recording Purchases Purchases of of Merchandise Merchandise under under aa Periodic Periodic System System *E5-17 Continued Prepare the journal entry to record the transaction under a periodic inventory system On April 15, paid the amount due to Paris Company in full Remember the return of $4,000 of merchandise (Discount = $18,000 x 2% = $360) April 15 Chapter 5-53 LO Accounts payable Cash 17,640 Purchase Discounts 360 18,000 Explain the recording of purchases and sales of inventory under a periodic inventory system Recording Recording Sales Sales of of Merchandise Merchandise under under aa Periodic Periodic System System E5-5 Prepare the journal entry for Wheeler Company to record a sale of merchandise under a periodic system On December 3, Wheeler Company sold $500,000 of merchandise to Hashmi Co., terms 2/10, n/30, FOB shipping point Cost of merchandise sold was $350,000 Dec Accounts receivable Sales 500,000 500,000 No entry is recorded for cost of goods sold at the time of the sale under a periodic system Chapter 5-54 LO Explain the recording of purchases and sales of inventory under a periodic inventory system Worksheet for a Merchandising Company Chapter 5-55 Illustration 5B-1 LO Prepare a worksheet for a merchandising company Copyright Copyright “Copyright © 2008 John Wiley & Sons, Inc All rights reserved Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc The purchaser may make back-up copies for his/her own use only and not for distribution or resale The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.” Chapter 5-56 .. .CHAPTER ACCOUNTING FOR MERCHANDISING OPERATIONS Accounting Principles, Eighth Edition Chapter 5-2 Study Study Objectives Objectives Identify... and importance of gross profit Determine cost of goods sold under a periodic system Chapter 5-3 Accounting Accounting for for Merchandising Merchandising Operations Operations Merchandising Merchandising... periodic Chapter 5-4 Recording Recording Purchases Purchasesof of Merchandise Merchandise Recording Recording Sales Salesof of Merchandise Merchandise Completing Completingthe the Accounting Accounting