Chapter 6 Merchandising Operations and the Multistep Income Statement PDF

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Chapter 6: Merchandising Operations an Multistep Income Statement Thursday, October 17, 2019

10:10 AM

Inventory Systems Three Accounts are particularly important to a merchandiser: 1. Inventory (current asset) - The merchandiser's total cost of acquiring goods tha has not yet sold 2. Sales Revenue - Total selling price of all goods that the merchandiser did sell t customers 3. Cost of Goods Sold - Total cost of all goods that the merchandiser did sell to customers Gross Profit = Net Sales - Cost of Goods Sold

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Periodic Inventory System - Updates the inventory records for merchandise purchase sales, and returns only at the end of the accounting period • Periodic systems require that inventory be physically counted by employees at end of the period Perpetual Inventory System - The inventory records are updated continuously, that is every time inventory is bought, sold, or returned • Often combined with bar codes and optical scanners • Still physically counted at the end of the period

Recording Inventory Purchases • ALL inventory related transactions will be posted in the inventory account

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Purchase Discounts - A purchase price reduction given for prompt payment of an acc balance

E6-8 1) June 3rd - Diamond Inventory 4100 Acc. Payable

4100

2) June 5th - Diamond Acc. Payable 1,100 Inventory

1,100

3) June 6th - Club Inventory 1,000

ount

Two-thirty, Net-sixty

Acc. Payable

1,000

4) June 11th… Paid the balance owed to Diamond Inc. 4100-1100 = 3000 3000*2% = 60 3000-60 = 2940

Recording Inventory Sales • Merchandisers record revenue when they fulfill their performance obligations b transferring control of goods to a customer, either for cash or on credit - For a merchandiser who is shipping goods to a customer, the transfer of contro occurs at one of two possible times: 1. FOB shipping point - The sale is recorded when the goods leave the selle shipping department § The buyer is responsible for the transportation costs 2. FOB destination - The sale is recorded when the goods reach their destin (the customer) § The seller is responsible for the transportation costs When using an perpetual inventory system, whenever a sale is made there are 2 sepa journal entries. → The first one is the sale, second is the cost of the goods

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Sale Returns and Allowances • When goods sold to customers arrive in damaged condition or are otherwise unsatisfactory, the customer can: 1. Return them for a full refund 2. Keep them and ask for a reduction in the selling price, called an allowanc

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• COGS is an expense account !! Recording Purchase Transactions • Beginning Inventory + Purchases = Cost of Goods for Sale - Ending inventory Cost of Goods Sold • Purchases + Freight-in (transportation costs) - Purchase Returns and Allowanc Purchase discounts = Net purchases

Multistep Income Statement

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For every sales dollar the company is earning, ___ cents is gross profit...