1. Reporting & Analyzing Merchandising Operations
Chapter 4

2. Merchandising Activities
Merchandise
Consists of products that a company acquires to resell to customers
Retailer
Is an intermediary that buys products from manufacturers and wholesalers
                         
                      

3. Income Statement Net sales = (Sales – sales return)
Less Cost of goods sold
Gross profit
Less expenses
Net income

4. Inventory Systems Cost of goods sold Inventory
Is the cost of merchandise sold to customers during a period.
Largest single expense on a merchandiser’s income statement
Inventory
Refers to products a company owns and expects to sell in its normal operations
Assets

5. Inventory Systems Perpetual system Periodic Inventory system
Continually updates accounting records for merchandising transactions
Periodic Inventory system
Updates the accounting records for merchandise transactions only at the end of a period.

6. Accounting for Merchandising Purchases
Merchandise inventory –
Cost of merchandise purchased for resale.
Purchase cost, shipping fees, taxes, etc.
Purchased $1,200 of merchandise on credit
Merchandise inventory ,200
Accounts payable ,200

7. Trade Discount
When a manufacturer or wholesaler prepares a catalog of items it has for sale, it usually gives each item a list price.
Trade discount
An item’s intended selling price equals list price minus a given percent.
Purchase discounts
Cash discount on the list price

8. Terms
Credit terms
For a purchase include the amounts and timing of payments from a buyer to a seller
EOM
End of month

9. Purchase Discount Credit terms: 2/10, n/30
2% discount within 10 days
Full amount in 30 days
Purchased merchandise on credit $3,000
Merchandise inventory 3,000
Accounts payable ,000

10. Purchase Discount Paid the prior purchase within the discount period.
Gross invoice: $3,000
2% discount
Net to be paid ,940

11. Purchase discount Accounts payable 3,000 Merchandise inventory 60
Cash
Reduction in merchandise inventory to reflect the true cost.

12. Example 2: Purchased merchandise on account $5,000, terms 1/10, n/60.
Record the payment within the discount period

13. Example 2 Merchandise inventory 5,000 Accounts payable 5,000
Invoice ,000
Discount
Net of invoice 4,950

14. Example 2
Accounts payable 5,000
Merchandise inventory
Cash

15. Purchases Returns & Allowances
Refers to merchandise a buyer acquires but then returns to the seller.
Allowance is a reduction in price for defective merchandise

16. Purchase returns
Global returns merchandise worth $500 and purchased on account.
Accounts payable
Merchandise inventory

17. Transportation Costs FOB
Which determines who pays transportation costs
Shipping point
Means the buyer accepts ownership when the goods depart the seller’s place of business.

18. Transportation Costs Destination
Means ownership of goods transfer to the buyer when the goods arrive at the buyer’s place of business.

19. Transportation Cost
Mackey purchases merchandise FOB shipping point. Transportation costs of $75 paid cash
Merchandise inventory
Cash

20. Sales of Merchandise
Each sales transaction for a seller of merchandise involves two parts.
Revenue
Cost of goods sold

21. Sales of Merchandise Cost of goods sold Sales
Records the cost of the goods sold.
Expense account
Reduces the balance in the inventory account
Sales
Revenue account
                                                         
                            
                            
                            

22. Entry for Sales
Sold merchandise on credit for $2,400. Merchandise had a cost of $1,600
Accounts receivable 2,400
Sales 2,400
Cost of goods sold ,600
Merchandise inventory ,600

23. Example 3
Mary sold merchandise on account for $5,000 with a cost of $2,000. Record the entries for the sale.

24. Example 3 Accts receivable 5,000 Sales 5,000 Cost of goods sold 2,000
Merchandise inventory 2,000

25. Sales Discount Reduction in the price of the good for early payment
Expense account

26. Sales Discount
Suppose that merchandise is sold for $5,000 with terms 2/10, n30. Cost of $2,500. Record the sale
Accts receivable 5,000
Sales ,000
Cost of goods sold 2,500
Merchandise inventory 2,500

27. Sales Discount Record the payment within the discount period
Net price ,900

28. Sales Discount
Cash ,900
Sales discount
Accounts receivable ,000

29. Example 4
Suppose that merchandise sold on account for $6,000 terms 1/15, n/30. Record the payment within the discount period.

30. Example 4 Sales 6,000 Discount 1% 60 Net 5,940 Cash 5,940
Accts receivable ,000

31. Sales Returns & Allowances
Returns: refer to merchandise that customers return to the seller after sale
Allowances – reductions in price of the merchandise sold to customers

32. Sales Returns & Allowances
Contra revenue account
Increases with a debit
Suppose that merchandise sold for $3,000 with cost of $1,600 is returned.
Sales Returns ,000
Accounts receivable ,000
Merchandise inventory 1,600
Cost of goods sold

33. Homework Purchases Sales Buyer/Seller Revenues EX 4-1, 4-5