1. Accounting For Merchandising CPA, MBA By Rachelle Agatha, CPA, MBA Slides by Rachelle Agatha, CPA, with excerpts from Warren, Reeve, Duchac

2. 2 1.Distinguish between the activities and financial statements of service and merchandising businesses. 2.Describe and illustrate the financial statements of a merchandising business. After studying this chapter, you should be able to:

3. 3 3.Describe and illustrate the accounting for merchandise transactions including: sale of merchandise purchase of merchandise transportation costs, sales taxes, trade discounts dual nature of merchandising transactions. After studying this chapter, you should be able to: 4.Describe the adjusting and closing process for a merchandising business.

4. 4 Objective 1 5-2 Distinguish between the activities and financial statements of service and merchandising businesses.

5. 5 Service Business Fees earned$XXX Operating expenses–XXX Net income$XXX 6-1

6. 6 Merchandising Business Sales$XXX Cost of Merchandise Sold–XXX Gross Profit$XXX Operating Expenses–XXX Net Income$XXX 6-1

8. 8 When merchandise is sold, the revenue is reported as sales, and its cost is recognized as an expense called cost of merchandise sold or Cost of Goods Sold. 6-1

9. 9 The cost of merchandise sold is subtracted from sales to arrive at gross profit. This amount is called gross profit because it is the profit before deducting the operating expenses. 6-1

10. 10 Merchandise on hand (not sold) at the end of an accounting period is called merchandise inventory. 6-1

12. 12 Describe and illustrate the financial statements of a merchandising business. Objective 2 6-2

13. 13 The multiple-step income statement contains several sections, subsections, and subtotals. 6-2 Multiple-Step Income Statement

14. 14 The Sales account provides the total amount charged to customers for merchandise sold, including cash sales and sales on account. 6-2

15. 15 Sales returns and allowances are granted by the seller to customers for damaged or defective merchandise. 6-2

16. 16 Sales discounts are granted by the seller to customers for early payment of amounts owed. 6-2

17. 17 Net sales is determined by subtracting sales returns and allowances and sales discounts from sales. 6-2

19. 19 Cost of merchandise sold was discussed earlier. It is the cost of the merchandise sold to customers. 6-2

20. 20 Sellers may offer customers sales discounts for early payment of their bills. From the buyer’s perspective, such discounts are referred to as purchase discounts. 6-2

21. 21 The buyer may return merchandise to the seller ( a purchase return ), or the buyer may receive a reduction in the initial price at which the merchandise was purchased ( a purchase allowance ). 6-2

24. GROSS PROFIT

25. 25 Understand the accounting for merchandise transactions including: sale, purchase, transportation costs, sales taxes, and trade discounts. Objective 3 6-3

26. Sale Transaction

28. 28 The terms for when payments for merchandise are to be made, agreed on by the buyer and the seller, are called credit terms. If buyer is allowed an amount of time to pay, it is known as the credit period. 6-3 Sales Discounts

29. Payment Transaction

31. Purchase Inventory (Perpetual System)

32. Return & Payment on Account

33. Payment with Discount

34. The buyer bears the transportation cost Add cost to inventory FOB ( Free On Board) Shipping Point

36. The seller bears the transportation cost Cost is delivery expense FOB ( Free On Board) Destination

38. Buyer vs. Seller

39. Record Shrinkage Perform physical inventory and difference is shrinkage

40. Periodic vs. Perpetual System Periodic system: Revenues are recorded when sales occur No inventory is recorded or cost of sales Physical inventory taken and inventory is adjusted

41. Summary  Merchandising business  Operating Cycle  Sales Transactions  Purchase Transactions  Financial Statements .