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

2. Merchandising Company
1. Sales revenues 2. Cost of Goods sold

3. Sales revenues
1. Sales revenues Recording Gross Sales Trade discounts Cash discounts Sales returns and Allowances

4. Cost of Goods sold 2.Cost of Goods sold
Two Procedures for Accounting for Inventories
Periodic Inventory System
Perpetual Inventory System
Purchases of Merchandise
Deduction From Purchases
Purchase Discounts
Purchase Returns and Allowances
Transportation Cost
Inventories

5. Sales revenues Recording Gross Sales Dr. Cash xx Cr. Sales revenues xx
Or Dr. Accounts Receivable xx
Cr. Sales revenues xx

6. Discounts
Sale discounts two type as: 1. Trade discounts: as 5% 10% 20% Trade discounts are deductions from the list or catalog price of merchandise to arrive at gross invoice price. Trade discounts may be shown on the seller’s invoice, but they are not recorded in the buyer or seller’s books.

7. Discounts
Sale discounts two type as: 1. Trade discounts: as 5%, 10%, 20%, 5%&10% Trade discounts are used to reduce the cost of catalog publications because separate discount lists can be distributed at less cost than reprinting a catalog. Trade discounts facilitate the quotation of different prices to different types of customers, such as retailers and wholesalers.

8. Discounts
Sale discounts two type as: 2. Cash Discounts or Sale Discounts such as: 2/10, n/30 2/E.O.M., n/60 The terms of the cash discount vary between industries but all cash discounts are offered as an incentive for early payment and are a deduction from the gross invoice price to arrive at actual cost of the purchase.

9. Discounts
Sale discounts two type as: 2. Cash Discounts or Sale Discounts To the seller, a cash discount is a sales discount. To the buyer, a cash discount is a purchase discount.

10. Discounts
Sale discounts two type as: 2. Cash Discounts or Sale Discounts Cash discount terms of 2/10, n/30 Cash discount mean that a discount of 2 Percent of the gross invoice price of the merchandise may be taken of payment is made within ten days following the invoice date, Otherwise, the gross invoice price is due 30 days from the invoice date.

11. Discounts
Sale discounts two type as: 2. Cash Discounts or Sale Discounts Cash Discounts 2/E.O.M., n/60 mean a 2 percent discount may be deducted if the invoice is paid by the end of the month. The gross invoice a mount is due 60 days from the date of the invoice.

12. Discounts
Sale discounts two type as: 2. Cash Discounts or Sale Discounts cash discount 2/10/E.O.M., n/60 mean a 2 percent discount may be deducted if the invoice is paid by the 10th of the month following the date of sale. The gross invoice a mount is due 60 days from the date of the invoice.

13. Discounts
Sale discounts two type as: 2. Cash Discounts or Sale Discounts The sales Discount account is a contra revenue account to sales and is shown as a deduction from gross sales in the income statement.

14. 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 xx Or
Dr. Sales Return and Allowances xx
Cr. Accounts Receivable xx

15. Merchandising Company
Cost of Goods Sold
Cost of goods sold indicates the cost to the seller of the goods sold to the byer of the merchandise, This is a section of the classified income statement.
Merchandise inventory is the quantity of goods on hand and available for sale at any given time.

16. Merchandising Company
Cost of Goods Sold
Cost of goods sold is determined by computing the cost of beginning inventory plus the cost of goods purchased less the ending inventory

17. Merchandising Company
Purchases of Merchandise
Two procedures for accounting for inventories
The Perpetual Inventory procedure and Periodic inventory procedure for accounting for inventory.

18. Merchandising Company
Purchases of Merchandise: Periodic inventory
Dr. Purchase account xx
Cr. Cash xx
payment is made Or
Cr. Accounts Payable xx
Payment will be made later

19. Merchandising Company
Purchases of Merchandise
The Purchases account is shown income Statement debit column of the work sheet and as part of the Cost of Goods Sold section of the classified income statement.

20. Merchandising Company
Deduction from Purchases
Deductions from purchases to arrive at net purchases include purchase discounts and purchase returns and allowance which are recorded in contra accounts to the Purchases account.
Dr. Cash/Accounts Payable xx
Cr. Purchase returns and allowance xx

21. Merchandising Company
Purchase Discounts
The byer may be able to take a purchase discount on the merchandise bought of the credit terms specify that a discount can deducted if the invoice is paid within a stated time period.

22. Merchandising Company
Purchase Discounts
The purchase Discount account is a contra account to Purchases which reduced the recorded gross invoice cost of the purchase to price actually paid
The entry to record purchase discounts is to debit Accounts Payable and to credit Cash and Purchase Discounts

23. Merchandising Company
Purchase Returns and Allowances
The Purchase Return and Allowance account is a contra account to the Purchase account and is shown on the Income Statement as a deduction from Purchase
The Purchase Returns and Allowance account normally has a credit balance

24. Merchandising Company
Transportation Costs
The term f.o.b. shipping point means free on board at shipping point and the buyer incurs all transportation costs after the merchandise is loaded at the point of shipment.

25. Merchandising Company
Transportation Costs
The term f.o.b. destination means the seller bears the transportation charges and the goods are shipped to their destination without the buyer paying the delivery charge.

26. Merchandising Company
Transportation Costs
Passage of title is a legal term used to indicate transfer of legal ownership of goods.
The term freight prepaid is used when the seller pays the freight at the time of shipment.
The term freight collect is used then the buyer pays the freight bill upon arrival of the goods.

27. Merchandising Company
Transportation Costs
Dr. Transportation-in XX
Cr. Cash XX
Dr. Transportation-out XX

28. Cost of Goods Sold
The Relationship between the items used in determining cost of goods sold is as follows:
Beginning + Net cost of = Cost of Goods
Inventory Purchase available for Sale
Cost of goods Ending = Cost of goods
available for sale Inventory sale

29. Relationships in the Income Statement
Summarized
Net sales = Gross sales-Sales returns and allowance - Sales discounts.
Net purchases = Purchases + Transportation-in – Purchase returns and allowances - Purchase discounts
Cost of goods sold = Beginning inventory Net cost of purchases - Ending inventory.

30. Relationships in the Income Statement
Summarized (Cont.)
4. Gross margin = Net sales - Cost of goods sold.
5. Net income from operations = Gross margin-
Operating (Selling and Administrative)
Expense.
6. Net Income = Net income from operations +
Nonoperating revenues – Non-operation
expenses.

31. 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

32. 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

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

34. 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

35. Cash
1,440
Inventory (Merchandise Inventory)
6,400
Land Property and Equipment
9,600
Notes Payable
3,520
Sun Capital
12,960
Sun Drawing
4,800
Sales
41,840
Sales Returns and Allowances
400
Purchases
24,000
Purchases Returns and Allowances
480
Transportation-In
160
Selling Expenses
8,000
Administrative Expenses
4,000
Total = 58,800

36. 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. The ending inventory is $7,200.
2. Prepare compound closing entries from the work sheet.
3. Prepare Income Statement
Answer Cost of goods Sole = 22,880
Net Income = 6,560

37. Cash
1,440
Inventory
6,400
Land Property and Equipment
9,600
Notes Payable
3,520
Sun Capital
12,960
Sun Drawing
4,800
Sales
41,840
Sales Returns and Allowances
400
Purchases
24,000
Purchases Returns and Allowances
480
Transportation-In
160
Selling Expenses
8,000
Administrative Expenses
4,000
Total = 58,800
58,800

38. Account Name Trial Balance
Income Statement
Financial Position
Dr.
Cr.
Cash
1,440
Inventory
6,400
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
Purchases
24,000
Purchases Returns
480
Transportation-In
160
Selling Expenses
8,000
Administrative Expenses
4,000
Total = 58,800
58,800
42,960
49,520
23,040
16,480
Net Income
6,560

39. The sun shop Income Statement For year end December 31, 2015
Sale
41,840
Less Sale Returns
400
Net Sale
41,080
Cost of Good Sold.-
Inventory Beginning
6,400
Added Purchases
24,000
Transportation-In
160
total
24,160
Less Purchases returns
480
23,680
Cost of goods available for sale
30,080
Less Inventory ending
7,200
22,880
Gross margin
18,200

40. The sun shop Income Statement For year end December 31, 2015
Sale
41,840
Less Sale Returns
400
Net Sale
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

41. Closing Entry
2015 Dec.31 Dr. Inventory Ending 7,200 Sale 41,840 Purchase Returns & Allowance 480 Income Summary 49,520 To close credit account balance

42. Closing Entry
2015 Dec.31 Dr. Income Summary 42,960 Cr. Inventory Beginning 6,400 Sales Returns &Allowance 400 Purchases 24,000 Transportation-In 160 Selling Expense 8,000 Administrative Expenses 4,000 To close debit account balance

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

44. Closing Entry
2015 Dec.31 Dr. Sun Capital 6,560 Cr. Sun Drawing 6,560 To close Drawing to Capital

45. 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

46. 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

47. 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

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

49. 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

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

51. Financial Position Statement
Assets
Liabilities & Equity
Current Assets
Current Liabilities
Cash Xx
Bank overdraft xx
Accounts Receivable
Accounts Payable
Inventory
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

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

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

54. 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

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

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

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

58. Cost of Good Sold** Cost of Good Sold.- Inventory Beginning xx
Added Purchases-net
Purchase Xx
Transportation-In
total
Less Purchases returns
Purchases discount
Cost of goods available for sale
Less Inventory ending
Cost of Goods Sold

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