1. The Merchandising Company
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/R cr Sales /10, net 30, invoice #45
Return
dr Sales Returns and Allowance cr A/R

10. Journal Entries (periodic)
Payment within discount period
dr Cash dr Sales Discounts cr A/R
Payment beyond discount
dr Cash cr A/R

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

12. Journal Entries Transportation (for goods for resale)
dr Transportation-In cr A/P or Cash
Delivery Charge (for goods sold to customers)
dr Delivery Expense cr A/P or Cash

13. Journal Entries (perpetual)
Purchase good for resale:
dr Inventory cr A/P or Cash
Sale:
dr A/R or Cash cr Sales
and
dr Cost of Goods Sold cr Inventory

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

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

16. Sales Taxes GST on Purchases:
dr Purchases (or Inventory, etc.) dr GST Refundable cr Cash or A/P
“Remit” GST if owing:
Refund of GST is owed:
dr GST Payable 500 cr GST Refundable 450 cr Cash
dr GST Payable dr Cash cr GST Refundable 500

17. Credit Cards
Increases sales
Typical Sale:
dr Cash dr Visa Discount Expense cr Sales cr PST Payable cr GST Payable $600 x 3% visa charge

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

19. Worksheet (perpetual)
Original
NEW
Close all
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