In this chapter, the learning objectives are: 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.
Chapter 5-1 CHAPTER ACCOUNTING FOR MERCHANDISING OPERATIONS Accounting Principles, Eighth Edition Chapter 5-2 Study Objectives Study 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 multiplestep and a singlestep income statement Explain the computation and importance of gross profit Determine cost of goods sold under a periodic system Chapter 5-3 Accounting for Merchandising Operations Accounting for Merchandising 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 Operations Merchandising 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 1 Identify the differences between service and merchandising companies Merchandising Operations Merchandising Operations Income Measurement Sales Revenue Not used in a Service business Less Cost of Goods Sold Equals Cost of goods sold is the total cost of merchandise sold during the period Chapter 5-6 Gross Profit Illustration 51 Less Operating Expenses Equals Net Income (Loss) LO 1 Identify the differences between service and merchandising companies Operating Cycles Operating Cycles Illustration 52 The operating cycle of a merchandising company ordinarily is longer than that of a service company Chapter 5-7 LO 1 Identify the differences between service and merchandising companies Inventory Systems Inventory 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 1 Identify the differences between service and merchandising companies Inventory Systems Inventory 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 1 Identify the differences between service and merchandising companies Recording Purchases of Merchandise Recording Purchases of Merchandise Made using cash or credit (on account) Illustration 54 Normally recorded when goods are received Purchase invoice should support each credit purchase Chapter 5-10 LO 2 Explain the recording of purchases under a perpetual inventory system Illustration 511 Forms of Forms of Financial Financial Statements Statements Key Items: Net sales Gross profit Gross profit rate Operating expenses Nonoperating activities Net income Chapter 5-42 LO 5 Distinguish between a multiplestep and a singlestep income statement Forms of Financial Statements Forms of Financial Statements Review Question The multiplestep income statement for a merchandiser shows each of the following features except: a gross profit. b cost of goods sold. c a sales revenue section d investing activities section Chapter 5-43 LO 5 Distinguish between a multiplestep and a singlestep income statement Forms of Financial Statements Forms of Financial Statements SingleStep Income Statement Subtract total expenses from total revenues Two reasons for using the singlestep 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 5 Distinguish between a multiplestep and a singlestep income statement Forms of Financial Statements Forms of Financial Statements Illustration 512 Single Step Chapter 5-45 LO 5 Distinguish between a multiplestep and a singlestep income statement Forms of Financial Statements Forms of Financial Statements Classified Balance Sheet Chapter 5-46 Illustration 513 LO 5 Distinguish between a multiplestep and a singlestep income statement Calculation of Calculation of Gross Profit Gross Profit Illustration 511 Key Items: Net sales Gross profit Gross profit rate Illustration 58 Chapter 5-47 LO 6 Explain the computation and importance of gross profit Determining Cost of Goods Sold Under a Periodic Determining Cost of Goods Sold Under a 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 7 Determine cost of goods sold under a periodic system Determining Cost of Goods Sold Under a Periodic Determining Cost of Goods Sold Under a Periodic System System Calculation of Cost of Goods Sold Illustration 514 $316,000 Chapter 5-49 LO 7 Determine cost of goods sold under a periodic system Recording Purchases of Merchandise under a Periodic System Recording Purchases of Merchandise under a Periodic System *E517 Information related to Chevalier Co. is presented below. Prepare *E517 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 5 Chapter 5-50 LO 8 Purchases Accounts payable 22,000 22,000 Explain the recording of purchases and sales of inventory under a periodic inventory system Recording Purchases of Merchandise under a Periodic System Recording Purchases of Merchandise under a Periodic System *E517 Continued Prepare the journal entry to record the transaction *E517 Continued under a periodic inventory system 2. On April 6, paid freight costs of $600 on merchandise purchased from Paris April 6 Chapter 5-51 LO 8 Freightin (Transportationin) Cash 600 600 Explain the recording of purchases and sales of inventory under a periodic inventory system Recording Purchases of Merchandise under a Periodic System Recording Purchases of Merchandise under a Periodic System *E517 *E517 Continued Prepare the journal entry to record the transaction Continued under a periodic inventory system 4. On April 8, returned damaged merchandise to Paris Company and was granted a $4,000 allowance April 8 Chapter 5-52 LO 8 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 Purchases of Merchandise under a Periodic System Recording Purchases of Merchandise under a Periodic System *E517 *E517 Continued Prepare the journal entry to record the transaction Continued under a periodic inventory system 5. 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 Accounts payable Cash Purchase Discounts Chapter 5-53 LO 8 18,000 17,640 360 Explain the recording of purchases and sales of inventory under a periodic inventory system Recording Sales of Merchandise under a Periodic System Recording Sales of Merchandise under a Periodic System E55 Prepare the journal entry for Wheeler Company to record a sale of E55 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. 3 Accounts receivable 500,000 Sales 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 8 Explain the recording of purchases and sales of inventory under a periodic inventory system Worksheet for a Merchandising Company Chapter 5-55 Illustration 5B1 LO 9 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 backup 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 ... Determine cost of goods sold under a periodic system Chapter 5-3 Accounting? ?for? ?Merchandising? ?Operations Accounting? ?for? ?Merchandising? ?Operations Merchandising Merchandising Operations Operations Operating cycles Inventory.. .CHAPTER? ? ACCOUNTING FOR MERCHANDISING OPERATIONS Accounting? ?Principles, Eighth Edition Chapter 5-2 Study Objectives Study Objectives Identify the differences between service and? ?merchandising? ?companies... The primary source of revenues is referred to as sales revenue or sales Chapter 5-5 LO 1 Identify the differences between service and? ?merchandising? ?companies Merchandising? ?Operations Merchandising? ?Operations Income Measurement Sales