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1、Accounting for Merchandising Business,ACG 2021:Chapter 5,Merchandising Business,Revenue activities of a merchandising business involve the buying and selling of merchandiseComparison to service business,New Accounts on the Income Statement,SALES revenues collected from the sale of merchandiseCOST OF
2、 MERCHANDISE SOLD the purchase price plus incidentals of merchandise available for resaleGROSS PROFIT Sales Cost of merchandise sold,Income Statement,INCOME STATEMENTGem City MusicIncome Statement For the Year Ended December 31,20Revenue from sales:Sales$189,300 Less:Sales returns and allowances$1,7
3、00 Sales discounts500 2,200Net sales$187,100Cost of merchandise sold XXXX100,000Gross profit$87,100Operating expenses:Selling expenses:Sales salaries expense$17,700 Administrative expenses:Rent expense 7,800 Office salaries expense 22,550 Depreciation expenseoffice equipment 2,800 33,150Total operat
4、ing expenses50,850 Income from operations$36,250Other expense:Interest expense2,000Net income$34,250,Computation of Costs,Computation of Cost of Merchandise SoldPurchasesLess merchandise inventory,December 31=Cost of merchandise sold Computation of Cost of Merchandise PurchasedPurchasesLess:purchase
5、s returns and allowancesLess:purchases discount=Net purchasesAdd:transportation in=Cost of merchandise purchased,Balance Sheet Accounts,Merchandise inventory merchandise on hand at the end of an accounting period.,Merchandising Terms,Sales total amount charged to customers for merchandise soldSales
6、returns and allowances are granted by the seller to customers for damaged or defective merchandiseSales discount are granted by the seller to customers for earlyNet sales=Sales returns-discount,Merchandising Terms,Cost of goods soldCost of merchandise sold to customersPurchases discountsOffered by t
7、he seller to buyerFor early paymentPurchases allowances and returnsBuyer may receive a reduction in the intial price at which the merchandise is purchased.,Merchandising Terms,Merchandise available for sale=Beginning merchandise inventory+net purchasesNet purchases=Purchases minus discounts returns
8、and allowances,Accounting for Sales,Under the perpetual inventory system,all sales require the reporting of the removal of inventory from the books at the same time.,Accounting for Sales,CASH SALESExample 1:Sold merchandise for cash$5,000.Cost of merchandise sold$3,200,Credit sales,Bank cardsMaster
9、cardVisaMonies directly deposited in business accountRequires a debit to CASHService charge must be later recorded as expense,Bank cards,Example 9:Sold merchandise on VISA$10,000.Cost of merchandise sold is$4,000.Credit card expense is 3%of sales.,Bank cards,Example 3:Sold merchandise on VISA$6,000.
10、Cost of merchandise sold is$3,000.Credit card expense is 3%of sales.,Example 10,Cash 6,000 Sales 6,000Cost of merchandise 3,000 Merchandise inventory 3,000Credit card expense 180 Cash 180,Credit sales,Two types:American expressOn accountResults in debit to ACCOUNTS RECEIVABLE,Sales of Account,Exampl
11、e 4:Sold merchandise on account$6,000.Cost of merchandise sold is$3,000.,Recap,Under the perpetual inventory system,all sales transactions consist of at least two entries.The first entry records the sale at the selling price with a debit to how it will be paid and credit to sales.The second entry re
12、cords the merchandise leaving the business with a debit to cost of merchandise sold and credit to merchandise inventory for the cost of the merchandise.,Sales discounts,A reduction in the price of the good for early payment.This account is a contra SALESUpon payment of the account receivable,if the
13、payment is within the discount period,we record the discount.Credit terms terms of when payments for merchandise are to be made.Net 30 days full amount due in 30 days2/10 2%discount if paid within 10 days,Example on Sales Discount,Example 5:Sold merchandise on account$5,000,terms 2/10,n/30.Cost of m
14、erchandise sold is$4,000.Sales$5,000Discount 2%Discount$100Sales$5,000Less discount 100Net amount 4,900,Sales discount,Sales Returns and Allowances,Merchandise sold may be returned to the sellerMerchandise sold may be reduced in price due to defectsThis account is CONTRA salesIncreases with a debit,
15、Sales returns&allowances,Example 6:Sold merchandise on account$7,000,terms 1/15,n/30.Cost of merchandise sold is$3,800,Sales returns&allowances,Return merchandise with sales price of$2,000 and cost of$1,000.,Recap of Sales Example,Example 7:ABC Merchandising had the following transactions:Sold merch
16、andise and received payment by VISA at$6,000,cost of merchandise sold is$4,000.Sold merchandise on account for$7,500 with credit terms 1/10,n/30.Cost of the merchandise is$4,500.Sold merchandise on account for$4,000,cost of merchandise is$2,500.Received a return of the merchandise in(c)of sales pric
17、e of$2,000 and cost of$1,750.Received payment within the discount period for merchandise in(b).Received payment for merchandise in(c).,Accounting for Purchases,Assume a perpetual inventory systemEach purchase and sale of merchandise is recorded as it occursExample 1:purchase merchandise for resale$4
18、,000 on account,Purchases Discount,Credit termsPurchases discounts are discounts taken by the buyer for early payment of an invoice.These discounts reduce the cost of the merchandise purchased.Should be taken when offered if not it is a LOSS to the business.,Purchase discount,Example 9:Purchase merc
19、handise for resale$4,000,terms 2/10,n/30 on account.Invoice:$4,000Discount(2%x$4,000)80Net of discount 3,920,Purchase discount,Purchase Discount,Reduction of the cost of the merchandise is reflected in the merchandise inventory account.Example 10:Purchase merchandise for resale$6,000,terms 1/15,n/30
20、 on account.,Purchases Returns and Allowances,Purchase returns merchandise is returned to the sellerPurchase allowances price adjustmentDebit memorandum notification of the return or allowance by seller,Purchases Returns and Allowances,Example 11:Returned merchandise on account$2,500.,Example,Exampl
21、e 12:Purchased merchandise of$8,000 on terms 2/10,n/30.Ennis pays the original invoice less a return of$2,500 within the discount period.Record the above entries,Recap of Purchases Example,Example 7:ABC Merchandising had the following transactions:Purchased merchandise and received payment by VISA a
22、t$6,000.Purchased merchandise on account for$7,500 with credit terms 1/10,n/30.Purchased merchandise on account for$4,000.Return of the merchandise in(c)of sales price of$2,000.Paid within the discount period for merchandise in(b).Paid for merchandise in(c).,Transportation Costs,The terms of a sale
23、should indicate when the ownership of the merchandise passes to the buyer.This point determines which party,the buyer or the seller must pay the transportation costs.,Transportation Costs,FOB shipping pointThe ownership of the merchandise passes to the buyer when the seller delivers the merchandise
24、to the transportation company.Buyer pays the transportation costsExample 13:Purchased merchandise for$4,000 with shipping costs of$50 FOB shipping point.,FOB shipping point,Transportation Costs,FOB destination pointThe ownership of the merchandise passes to the buyer when the seller delivers the mer
25、chandise to the buyer.Seller pays the transportation costsExample 14:Sold merchandise for$4,000 with shipping costs of$50 FOB destination.Cost of merchandise sold is$2,000.,FOB destination point,Transportation costs,FREIGHT TERMSFOBFOBShipping PointDestinationOwnership(title)passes to buyerwhen merc
26、handiseDelivered toReceivedisfreight carrierby buyerTransportationcosts are paidby BuyerSellerRisk of loss duringtransportationbelongs toBuyerSeller,Sales Taxes,Liability to the businessCreate a SALES TAX PAYABLE accountExample 15:Sold merchandise on account$7,000,plus 5%sales tax.Cost of merchandis
27、e sold is$3,800.,Sales Taxes,Recap of Transactions,Adjusting Entries,Inventory ShrinkageDifference between physical count and booksExample 16:Suppose that physical inventory shows balance of$20,000 and books show balance of$23,000.Record the shrinkage.,Closing Entries,Accounts that must be closedSalesRent revenueSales returns and allowancesSales discountsCost of merchandise soldAll expenses and revenuesDividends,
