1. Chapter 4 Accounting for Merchandising Businesses

2. Service Businesses vs. Merchandise Operations Merchandise Operations –Revenue activities involve the buying and selling of merchandise. –Example: Home Depot Inc. Service Businesses –Revenue activities involve providing services to customers. –Example: Family Health Care, P.C.

3. Gross Profit for a Merchandise Operation Gross Profit = Net Sales – COGS Net Sales: revenue less returns and discounts Cost of Goods Sold: cost paid for merchandise

4. NetSolutions – Multiple-Step Income Statement Measures income/loss from the core operations of the business Assume a perpetual inventory system Considers customer returns and discounts

5. NetSolutions – Cost of Merchandise Sold – Periodic Inventory

6. NetSolutions – Income Statement

7. NetSolutions – Retained Earnings Statement

8. NetSolutions – Balance Sheet Value of units on hand, not sold

9. NetSolutions – Statement of Cash Flows Equals cash on balance sheet

10. NetSolutions - Sales Transactions

11. Sample Sales Invoice Credit terms

12. Sales Discounts

13. NetSolutions - Sales Discounts

14. Sales Returns and Allowances

15. NetSolutions - Sales Returns and Allowances

16. Purchase Transaction - Using the Perpetual System

17. Purchase Discounts

18. Purchase Returns and Allowances

19. NetSolutions - Return of Merchandise

20. Transportation Costs

21. NetSolutions - Transportation Costs

22. Sales Taxes Sale is made, liability for sales tax recorded as an obligation of the seller Payment is made to state taxing authority to satisfy obligation

23. Dual Nature of Merchandise Transactions Company A records a sale Company B records a purchase

24. Merchandise Shrinkage

25. NetSolutions - Merchandise Shrinkage