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Unit 4. The purpose of Unit 4 is to apply basic financial and accounting data to the control of business activities.

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Presentation on theme: "Unit 4. The purpose of Unit 4 is to apply basic financial and accounting data to the control of business activities."— Presentation transcript:

1 Unit 4

2 The purpose of Unit 4 is to apply basic financial and accounting data to the control of business activities.

3 Inventory/Cost of Merchandise Sold Internal Control Notes Payable

4 To calculate Cost of Goods Sold, you can use the following formula: Beginning Inventory +Net Purchases =Cost of Merchandise Available for Sale -Ending Inventory =Cost of Merchandise Sold

5 Nature of Merchandising Businesses When merchandise is sold, the revenue is reported as sales, and its cost is recognized as an expense called cost of merchandise sold. The cost of merchandise sold is subtracted from sales to arrive at gross profit. It is the profit before deducting operating expenses. Gross Profit (continued)

6 Cost of Merchandise Sold The cost of merchandise sold is the cost of the merchandise sold to customers. Merchandise costs consist of all the costs of acquiring the merchandise and readying it for sale, such as purchase and freight costs. A single figure for cost of merchandise sold is shown on the multiple-step income statement.

7 Merchandise on hand (not sold) at the end of an accounting period is called merchandise inventory. Merchandise inventory is reported on the balance sheet. Merchandising businesses may experience some loss of inventory due to shoplifting, employee theft, obsolescence or errors in recording or counting inventory.

8 At the end of the accounting period, inventory shrinkage is recorded by the following adjusting entry: Inventory Shrinkage

9 Sarbanes-Oxley requires companies to maintain strong and effective internal controls over the recording of transactions and the preparing of financial statements. Internal control is broadly defined as the procedures and processes used by a company to: Safeguard its assets. Process information accurately. Ensure compliance with laws and regulations.

10 Control procedures provide reasonable assurance that business goals will be achieved. Control procedures include: Competent personnel, rotating duties, and mandatory vacations Separating responsibilities for related operations Separating operations, custody of assets, and accounting Proofs and security measures

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13 An installment note is a debt that requires the borrower to make equal periodic payments to the lender for the term of the note. Unlike bonds, a note payment includes the following: Payment of a portion of the amount initially borrowed, called the principal Payment of interest on the outstanding balance LO 4

14 Address all six of the Red Flags and apply them to the task given to you to see if you can improve the bottom line. Tell why each red flag presents a potential problem for the gift shop and tell how the red flag could be causing the gift shop to loose money. Also propose some measures you would take to help the gift shop improve net income. Your answer should be at least 100 words per Red Flag.

15 Calculate each red flags impact on either revenues or expenses Calculate each red flags impact on profitability Show a potential remedy or solution to address each red flag

16 http://www.accountingaisle.com/knowledge/accounti ng-control.php http://www.moneyinstructor.com/doc/internalcontrol.asp http://www.ehow.com/info_7765445_red-flags- auditing-financial-statements.html http://eclkc.ohs.acf.hhs.gov/hslc/tta- system/operations/Fiscal/Financial%20Management/ Audits%20and%20Auditing%20Requirements/Howdow einterpr.htm


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