Chapter F5 Power notes Accounting for Merchandising Businesses Learning objectives 1. Nature of Merchandising Business 2a. Accounting for Purchases 2b. Accounting for Sales C5 2c. Transportation Costs 2d merchandise transactions 3. Merchandising Chart of Accounts 4. Merchandising Income Statement 5. Merchandising Accounting Cycle 6. Financial Analysis and Interpretation c5-1
C5 - 1 Learning Objectives Power Notes 1. Nature of Merchandising Business 2a. Accounting for Purchases 2b. Accounting for Sales 2c. Transportation Costs 2d. Merchandise Transactions 3. Merchandising Chart of Accounts 4. Merchandising Income Statement 5. Merchandising Accounting Cycle 6. Financial Analysis and Interpretation Chapter F5 Accounting for Merchandising Businesses C5
Chapter F5 Power notes I Accounting for Merchandising Businesses Slide Power Note Topics 3 Nature of Merchandising Businesses 6. Inventory Costs and Relationships 8. Perpetual Inventory Systems 13. Merchandising Transactions 25 .Merchandising Chart of Accounts 27.Merchandising Financial Statements 34. Ratio of net sales to Assets Ev Note: To select a topic, type the slide# and press Enter c5-2
C5 - 2 • Nature of Merchandising Businesses • Inventory Costs and Relationships • Perpetual Inventory Systems • Merchandising Transactions • Merchandising Chart of Accounts • Merchandising Financial Statements • Ratio of Net Sales to Assets Slide # Power Note Topics 3 6 8 13 25 27 34 Chapter F5 Power Notes Accounting for Merchandising Businesses Note: To select a topic, type the slide # and press Enter
Merchandising and Inventory Merchandising involves selling inventory Inventory is usually an im portant asset Inventory must be accounted for periodically or perpetually Traditional periodic method is often being replaced by perpetual inventory accounting c5-3
C5 - 3 Merchandising and Inventory Merchandising involves selling inventory Inventory is usually an important asset Inventory must be accounted for periodically or perpetually Traditional periodic method is often being replaced by perpetual inventory accounting
Income Statement Comparison Service Business Fees earned $150,000 Operating expenses 120,000 Net income 53000020%0 avenues Merchandising Business Sales revenue $600,000 Cost of mdse. sold 450000 Gross profit $150,000 Operating expenses 120,000 Net income S 30, 000< 5% of revenues c5-4
C5 - 4 Income Statement Comparison Fees earned $150,000 Operating expenses 120,000 Net income $ 30,000 Service Business Sales revenue $600,000 Cost of mdse. sold 450,000 Gross profit $150,000 Operating expenses 120,000 Net income $ 30,000 Merchandising Business 20% of revenues 5% of revenues
Income Statement Comparison Service Business Fees earned $150,000 Operating expenses 120,000 Net income 53000020%0 avenues Merchandising Business Sales revenue $600,000 Cost of mdse. sold 450,000< 75% of revenues Gross profit $150,000 Operating expenses 120,000 Net income S 30, 000< 5% of revenues c5-5
C5 - 5 Income Statement Comparison Fees earned $150,000 Operating expenses 120,000 Net income $ 30,000 Service Business Sales revenue $600,000 Cost of mdse. sold 450,000 Gross profit $150,000 Operating expenses 120,000 Net income $ 30,000 Merchandising Business 20% of revenues 5% of revenues 75% of revenues
Inventory Costs and Relationships LIABILITIES Merchandise ASSETS OWNER'S Inventory EQUITY Net Income Cost of COSTS REVENUES Mdse sold &EXPENSES If merchandise inventory is overstated Cost of merchandise sold is understated Gross profit and net income are. . overstated Ending owner's equity is .... overstated c5-6
C5 - 6 LIABILITIES OWNER’S EQUITY REVENUES ASSETS COSTS &EXPENSES Inventory Costs and Relationships Merchandise Inventory Cost of Mdse. Sold If merchandise inventory is . . . . . . . Cost of merchandise sold is . . . . . . Gross profit and net income are . . . Ending owner’s equity is . . . . . . . . . overstated understated overstated overstated Net Income
Inventory Costs and Relationships LIABILITIES Merchandise ASSETS OWNER'S Inventory EQUITY Net Income Cost of COSTS REVENUES Mdse sold &EXPENSES If merchandise inventory is understated Cost of merchandise sold is overstated Gross profit and net income are... understated Ending owners equity is..... understated c5-7
C5 - 7 LIABILITIES OWNER’S EQUITY REVENUES ASSETS COSTS &EXPENSES Inventory Costs and Relationships Merchandise Inventory Cost of Mdse. Sold If merchandise inventory is . . . . . . . Cost of merchandise sold is . . . . . . Gross profit and net income are . . . Ending owner’s equity is . . . . . . . . . understated overstated understated understated Net Income
Advantages of Using Perpetual Inventory Continuous determination of inventory value Continuous determination of gross profil Affordable with com puters, scanners, and bar codes on most products Perpetual inventory accounting provides management controls Managers know which items are selling fastest and the profit margin on those items c5-8
C5 - 8 Continuous determination of inventory value Continuous determination of gross profit Affordable with computers, scanners, and bar codes on most products Perpetual inventory accounting provides management controls Managers know which items are selling fastest and the profit margin on those items Advantages of Using Perpetual Inventory
Perpetual Inventory System General Journal General Ledger Description Debit Credit Mdse Inventory Mdse Inventory AAccts.payable 5,000 5,000 A5,000 Cost of Mdse. Sold In a perpetual system, A Purchase on account Mdse Inventory is an B Return of merchandise active asset account All changes are recorded as they occur. c5-9
C5 - 9 Perpetual Inventory System General Journal Description Debit Credit General Ledger Mdse. Inventory 5,000 Accts. Payable 5,000 Mdse. Inventory A 5,000 Cost of Mdse. Sold A In a perpetual system, Mdse. Inventory is an active asset account. All changes are recorded as they occur. Purchase on account Return of merchandise A B
Perpetual Inventory System General Journal General Ledger Description Debit Credit Mdse Inventory Mdse Inventory AAccts.payable 5,000 5,000 A5,0001000(B Ba4,000 B Accts Payable 1,000 Mdse Inventory 1000 Cost of Mdse. Sold In a perpetual system, A Purchase on account Mdse Inventory is an BReturn of merchandise active asset account All changes are recorded Sale of merchandise as they occur. c5-10
C5 - 10 Perpetual Inventory System General Journal Description Debit Credit General Ledger Mdse. Inventory 5,000 Accts. Payable 5,000 Accts. Payable 1,000 Mdse. Inventory 1,000 Mdse. Inventory A 5,000 Cost of Mdse. Sold A 1,000 B B Bal 4,000 In a perpetual system, Mdse. Inventory is an active asset account. All changes are recorded as they occur. Purchase on account Return of merchandise Sale of merchandise A B C