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Chapter 7 The Merchandising Company. Merchandising Sell goods (products) Net Income: Revenue – Cost of Goods Sold = Gross Profit Gross Profit – Expenses.

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Presentation on theme: "Chapter 7 The Merchandising Company. Merchandising Sell goods (products) Net Income: Revenue – Cost of Goods Sold = Gross Profit Gross Profit – Expenses."— Presentation transcript:

1 Chapter 7 The Merchandising Company

2 Merchandising Sell goods (products) Net Income: Revenue – Cost of Goods Sold = Gross Profit Gross Profit – Expenses = Net Income Schedule of Cost of Goods Sold provides details on an income statement

3 Schedule of Cost of Goods Sold

4 Inventory An account that stores the value of goods not yet resold Periodic System: count merchandise not sold at the end of the period to determine cost of goods sold Perpetual System: record inventory and cost of goods sold when sales made

5 Cost Accounts Purchases: debit when buying goods for resale in periodic system Purchase Returns and Allowances: credit when returning goods not useful Purchase Discounts: credit when making payment for good early Transportation on Purchases: debit to receive goods, similar to expense Cost of Goods Sold is created at period end in periodic and debited in every sale in perpetual

6 Revenue Accounts Sales: credited to indicate revenue Sales Returns and Allowances: debited to show customer not satisfied with goods Sales Discounts: debited when customer pays early

7 Terms of Sale COD: customer pays when goods delivered Net 30: full amount due in 30 days EOM: full amount due at end of the month 2/10, n/30: receive 2% discount if paid within 10 days after invoice received

8 Invoices Sales Invoice: dr A/R cr Sales Credit Invoice: dr Sales Returns cr A/R Purchase Invoice: dr Purchases or Inventory cr A/P

9 Journal Entries Credit Sale dr A/R300 cr Sales300 1/10, net 30, invoice #45 dr Sales Returns and Allowance 100 cr A/R100 Return

10 Journal Entries (periodic) Payment within discount period dr Cash 297 dr Sales Discounts 3 cr A/R300 Payment beyond discount dr Cash300 cr A/R300

11 Journal Entries (periodic) Purchase goods for resale (periodic) dr Purchases400 cr Cash or A/P400 2/15, n/30, invoice #P398 Payment within discount period* dr A/P400 cr Purchase Discounts 8 cr Cash392 Cheque #26 for invoice #P398 * Otherwise A/P and Cash

12 Journal Entries Transportation (for goods for resale) dr Transportation-In50 cr A/P or Cash50 Delivery Charge ( for goods sold to customers) dr Delivery Expense25 cr A/P or Cash 25

13 Journal Entries (perpetual) Sale: dr A/R or Cash400 cr Sales400 and dr Cost of Goods Sold300 cr Inventory300 Purchase good for resale: dr Inventory300 cr A/P or Cash300

14 Journal Entries (perpetual) Inventory shortage (count at end of period) dr Inventory Shortage20 cr Inventory20 Charge shortage to expense

15 Sales Taxes GST: Goods and Services Tax 5% PST: Provincial Sales Tax 8% Typical Sale: dr Cash or A/R113 cr Sales100 cr GST Payable 5 cr PST Payable 8

16 Sales Taxes GST on Purchases: dr Purchases (or Inventory, etc.)200 dr GST Refundable 10 cr Cash or A/P210 Remit GST if owing: dr GST Payable500 cr GST Refundable450 cr Cash 50 Refund of GST is owed: dr GST Payable450 dr Cash 50 cr GST Refundable 500

17 Credit Cards Increases sales Typical Sale: dr Cash660 dr Visa Discount Expense 18 cr Sales600 cr PST Payable 48 cr GST Payable 30 $600 x 3% visa charge

18 Debit Cards Charged by banks and as good as cash to retailer dr Cash dr Debit Card Expense 0.25 cr Sales 100 cr PST Payable 8 cr GST Payable 5

19 Worksheet (perpetual) Original NEW Close all

20 Complete Income Statement

21 Chart of Accounts Assets 100s (e.g. Inventory 130) Liabilities 200s Equities 300s Revenues 400s (e.g. Sales 400, Sales Returns 401) Cost Accounts 500s (e.g. Cost of Goods Sold 500, Purchases 500, Purchase Returns 501, etc.) Expenses 600s


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