Principles of Accounting Asst.Prof.Dr. Panchat Akarak p.thipnew1@hotmail.com School of Accounting Chiang Rai Rajabhat University Accounting I

Merchandising Company Outline 1.Perpetual Inventory Procedure 2. Sales Revenues 3. Cost of Goods Sold-Recorded

1.Perpetual Inventory Procedure Perpetual inventory procedure is often used with items having a high unit cost to enhance internal control. a. Using perpetual inventory procedure, there are no purchases or purchases related accounts. b. The Merchandise Inventory account is used to record purchases for resale. c. At the time of sale, Merchansdise Inventory is credited leaving a balance showing the cost of inventory on hand.

1. Perpetual Inventory Cards Perpetual inventory cards can show the maximum and minimum number of units the company wishes to stock at any time in addition to reflecting quantity and cost of items purchased and sold. At year end when a physical inventory is taken and compared with perpetual records, any shortages are debited to loss from Inventory Shortage and Merchandise Inventory is credited. There are no purchases or purchase related accounts to be closed and only cost of goods sold requires a closing entry.

Sales Revenues 2. Sales Revenues Recording Gross Sales Recording Cost of Goods Sold Sales Returns and Allowances Recording Cost of Goods Returns Returns Sales Discount

Cost of Goods sold 3. Cost of Goods Sold Perpetual Inventory System Recording Purchases to Inventory Purchases Returns to deducted Inventory Purchase Discounts to deducted Inventory Transportation-In to Cost of Inventory Inventories Ending

2. Sales Revenues Recording Gross Sales at sale price Dr. Cash/Accounts Receivable xx Cr. Sales Revenues xx Recoding COGS- at cost Dr. Cost of Goods Sold xx Cr. Inventory xx

Sales Returns and Allowances Merchandise returned by the buyer is recorded in a Sales Returns and Allowances account which is a contra revenue account to Sales. Dr. Sales Return and Allowances xx Cr. Cash/Accounts Receivable xx and Dr. Inventory xx Cr. Cost of Goods Sold xx

Sales Discounts Sales Discounts which is a contra revenue account to Sales. Dr. Cash xx Sale Discounts xx Cr. Accounts Receivable xx

2. Purchases of Merchandising Perpetual Inventory Purchases of Merchandise: Dr. Inventory xx Cr. Cash/Accounts Payable xx and Cr. Cash/Accounts Payable xx Payment Transportation-In

Purchases Returns Purchases Returns and Allowance Dr. Cash/Accounts Payable xx Cr. Inventory xx

Purchases Discounts Purchases Discounts Dr. Accounts Payable xx Cr. Cash xx Inventory xx

Transportations Transportation-In is Costs Transportation-Out Dr. Inventory XX Cr. Cash XX Transportation-Out Dr. Transportation-out XX Transportation-out is Operating Expenses

Vocabulary Sales Revenues Gross Sales Net Sales Trade Discount Cash Discount Sale Discount Sale Returns and Allowances Inventories Purchases of Merchandise Purchases Returns and Allowances Purchases Discount

Vocabulary Cost of Goods Sold Transportation Costs Transportation-In Transportation-Out Beginning Inventory Net cost of purchases Cost of goods available for sale Ending Inventory

Vocabulary Operating Expense Gross margin Gross Profit Other revenues Other expense Selling expense Administrative expense

Exercise The following condensed trial balance was taken from the ledger of the Sun shop at the end of its annual accounting period: The Sun Shop Trial Balance December 31, 2015

The Sun Shop Trial Balance December 31, 2015 A/C No. Amount Cash 11 1,440 Inventory Ending 12 7,200 Land Property and Equipment 13 9,600 Notes Payable 21 3,520 Sun Capital 31 12,960 Sun Drawing 32 4,800 Sales 41 41,840 Sales Returns and Allowances 42 400 Cost of Goods Sold 51 22,880 Selling Expenses 52 8,000 Administrative Expenses 53 4,000 Total 58,320

Exercise (Cont.) Required: 1. copy the trial balance onto a work sheet from and complete the work sheet under the assumptions that there are no adjustments. 2. Prepare compound closing entries from the work sheet. 3. Prepare Income Statement Answer Net Income = 6,560

The Sun Shop Trial Balance December 31, 2015 Cash 11 1,440 Inventory Ending 12 7,200 Land Property and Equipment 13 9,600 Notes Payable 21 3,520 Sun Capital 31 12,960 Sun Drawing 32 4,800 Sales 41 41,840 Sales Returns and Allowances 42 400 Cost of Goods Sold 51 22,880 Selling Expenses 52 8,000 Administrative Expenses 53 4,000 Total = 58,320 58,320

Account Name Trial Balance Income Statement Financial Position Dr. Cr. Cash 1,440 Inventory Ending 7,200 Land Property &Equipment 9,600 Notes Payable 3,520 Sun Capital 12,960 Sun Drawing 4,800 Sales 41,840 Sales Returns 400 Cost of Goods Sold 22,880 Selling Expenses 8,000 Administrative Expenses 4,000 Total 58,320 35,280 23,040 16,480 Net Income 6,560

The Sun Shop Income Statement For the year ended December 31, 2015 Sales 41,840 Less Sale Returns 400 Net Sales 41,440 Cost of goods sold 22,880 Gross margin 18,560 Operating Expense.- Selling Expense 8,000 Administrative Expense 4,000 12,000 Net Income 6,560

Closing Entry 2015 Dec.31 Dr. Sale 41,840 Cr. Income Summary 41,810 To close credit account balance

Closing Entry 2015 Dec.31 Dr. Income Summary 35,280 Cr. Sales Returns &Allowance 400 Cost of Goods Sold 22,880 Selling Expense 8,000 Administrative Expenses 4,000 To close debit account balance

Closing Entry 2015 Dec.31 Dr. Income Summary 6,560 Cr. Sum Capital 6,560 To close Income Summary to Capital account

Closing Entry 2015 Dec.31 Dr. Sun Capital 4,800 Cr. Sun Drawing 4,800 To close Drawing to Capital

Accounting Cycle 1 Adjusting Journal Entries Post Entries to Ledger Accounts Prepare Unadjusted Trial Balance Adjusting Journal Entries Prepare Adjusted Trial Balance 1 Record Journal Entries Prepare Financial Statement Record Reversing Entries/ Opening Entries Prepare Post. Closing Trial Balance Record Closing Entries

Step of booking Step 1 Recorded 1. General Journal Step 2 Posting 2. Ledger/ GL Step 3 Balance Accounts 3. Trial Balance Step 4 Recorded Adjusted 4. General Journal Step 5 Prepare worksheet 5. Working Paper Step 6 Prepare F/S 6. Financial Statement Step 7 Prepare Closing 7. General Journal Step 8 Recorded Opening/ 8. General Journal Reversing entries

The Accounting Cycle Summarized The Work Sheet 10 Columns The Trial Balance Columns The Adjustments Columns The Adjusted Trial Balance Columns The Income Statement Columns The Financial Position Statement Columns

The Accounting Cycle Summarized Preparing Financial Statements from the work sheet (or Working paper) Income Statement Financial Position Statement

The Accounting Cycle Summarized Journalizing Adjusting Entries the Closing Process Closing the Revenue Account(s) Closing the Expense Account(s) Closing the Profit and Loss Summary Account Closing the Owner’s Drawing Account Closing Process Summarized Post-Closing Trial Balance

Financial Statement Financial Position Statement -Liabilities -Assets -Liabilities -Owner’s Equity

Financial Position Statement Assets Liabilities & Equity Current Assets Current Liabilities Cash Xx Bank overdraft xx Accounts Receivable Accounts Payable Inventory Ending Short term loan Note Receivable Note Payable Supplies other Liabilities Noncurrent Assets Noncurrent Liabilities Land Loan Building-net Owner’s Equity Equipment-net Capital-John Total Assets Total Liabilities & Equity

The classified Financial Position Statement Current Assets such as; -Cash and Cash Equivalent -Accounts Receivable, -Inventory Ending -Note Receivable, -Prepaid Expenses -Accrued Revenue -Supplies on hand

The classified Financial Position Statement Noncurrent Assets such as; -Long term Investment -Land -Buildings -Machinery -Equipment -Accumulated Depreciation

The classified Financial Position Statement Current Liabilities such as; -Bank Overdraft -Accounts Payable, -Note Payable, -Accrued Expenses -Deferred Revenue -Shot term loan -Shot term other liabilities

The classified Financial Position Statement Noncurrent Liabilities such as; -Long term Loan -Note Payable-long term -Bond

Financial Statement Income Statement:- -Revenues -Expenses -Profit/Loss

Income Statement Expenses Revenues Cost of goods sold Xx Sale revenues Salaries Other revenues Rent expense Selling expense Advertising Expenses Transportation-Out Depreciation Expense Utilities Expenses Bad debt Net Income Total

Income Statement Sales.- xx Less Sale Returns Sale Discounts Xx Net Sales Cost of goods sold.- Gross margin Operating Expense.- Selling Expense Administrative Expense Net Income

Thank you for your Attention Q & A The End Thank you for your Attention Q & A