1. for a Merchandising Business

2. What is merchandise? A ‘good’ (anything really)
Bought for a certain price
Sold for a higher price
Goods are bought and sold for profit!
Can of coke in store: $1.00
Can of coke from factory: $0.24
‘Gross Profit’ $ 0.76

3. Accounting Term: ‘Gross Profit’
Note:
Accounting Term: ‘Gross Profit’
The term ‘Gross Profit’ refers to the amount:
An item is sold for
minus how much it was purchased for
eg. USB Bracelet from China $4.60
Sold for $10.00
Gross Profit $5.40

4. Service vs. Merchandising
So far we have studied Service Businesses….

5. Merchandising Business
A merchandising or retail operation buys good from wholesalers and manufacturers and sell them to the public.

6. So what?
The biggest difference, from an accounting point of view, is the idea of inventory.
Inventory?
Home depot?
Grocery store?
Wal-Mart?

7. Goods Sold vs. Goods Not Sold
Once you have purchased inventory, you will either:
sell the goods
not sell the goods

8. Periodic Inventory System
The cost of goods that were sold is determined ‘periodically’.. only once a year!
It is done in the same fashion as determining how many supplies were used in the fiscal period.

9. ‘Physical Inventory’
The unsold goods are physcially counted once a year.

10. Merhandise purchased $100,000 Ending Inventory $3,000
Cost of Goods Sold $97,000
Physical Inventory

11. Accounting Term: ‘Cost of Goods Sold’
Note:
Accounting Term: ‘Cost of Goods Sold’
The term ‘Cost of Goods Sold’ refers to the amount:
Of inventory that was sold during the fiscal period.
It is determined by taking a ‘physical inventory.’
eg. Merchandise Purchased $10,000
Physical Inventory $ 2, Cost of Goods Sold $ 8,000

12. Book Store Imagine you own a book store…
It is the end of the year… and we are going to do a ‘physical inventory’

13. Example
EXAMPLE: Corina has a business selling books on eBay. An inventory count at the beginning of November shows that she has $800 worth of inventory on hand. Over the month, she purchases another $2,400 worth of books. Her inventory count at the end of November shows that she has $600 of inventory on hand. Calculate COGS.

14. Answer Beginning Inventory + Purchases – Ending Inventory =
Cost of Goods Sold
800
2400
600
2600

15. Calculate COGS and Gross Profit
Sales
Beginning Inventory
Purchases
Ending Inventory 1. $
32 000
74 250
33 500 2. $
85 600
88 300 3. $
65 550
60 584 4. $
33 800
82 640 5. $
48 500
50 300

16. Answer COGS Gross Profit 1. 72 750 52 250 2. 407 660 342 925 3. 4.
82 940
91 060 5.