1. Principles of Accounting
Asst.Prof.Dr. Panchat Akarak
School of Accounting
Chiang Rai Rajabhat University
Accounting I

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

3. 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.

4. 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.

5. 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

6. 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

7. 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

8. 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

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

10. 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

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

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

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

14. 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

15. 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

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

17. 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

18. 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 ,320

19. 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

20. 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

21. 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

22. 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

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

24. 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

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

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

27. 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

28. 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

29. 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

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

31. 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

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

33. 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

34. 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

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

36. 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

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

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

39. 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

40. 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

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