7. [NEW] Accounting for Merchandising Operations
7. [NEW] Accounting for Merchandising Operations
7. [NEW] Accounting for Merchandising Operations
Operations
MNA-2021
Merchandising Operations
Merchandising Companies
Buy and Sell Goods
Income Measurement
Not used in a
Sales Less
Service business.
Revenue
Illustration 5-1
Operating = Net
Cost of goods sold is the total cost
Expenses Income
of merchandise sold during the
(Loss)
period.
Merchandising Operations
Illustration 5-2
Operating
Cycle
The operating
cycle of a
merchandising
company
ordinarily is longer
than that of a
service company.
INVENTORY SYSTEMS
Flow of Costs
Perpetual System
1. Purchases increase Inventory.
2. Freight costs, Purchase Returns and Allowances and
Purchase Discounts are included in Inventory.
3. Cost of Goods Sold is increased and Inventory is decreased
for each sale.
4. Physical count done to verify Inventory balance.
Flow of Costs
Periodic System
1. Purchases of merchandise increase Purchases.
2. Ending Inventory determined by physical count.
3. Calculation of Cost of Goods Sold:
SO 2
Recording Purchases of Merchandise
Purchase Discounts
Credit terms may permit buyer to claim a cash discount
for prompt payment.
Advantages:
Purchaser saves money.
Seller shortens the operating cycle.
8 Inventory 140
Cost of goods sold 140
Recording Sales of Merchandise
Sales Discount
Offered to customers to promote prompt payment.
“Flipside” of purchase discount.
Contra-revenue account (debit).
Recording Sales of Merchandise
Instructions:
(a) Prepare separate entries for each transaction on the books of Spinner Company.
(b) Prepare separate entries for each transaction for Lawrence Company. The
merchandise purchased by Spinner on June 10 had cost Lawrence $6,400
Exercise 7.2
Information related to Kerber Co. is presented below.
1. On April 5, purchased merchandise from Wilkes Company for $23,000, terms 2/10,
net/30, FOB shipping point.
2. On April 6, paid freight costs of $900 on merchandise purchased from Wilkes.
3. On April 7, purchased equipment on account for $26,000.
4. On April 8, returned damaged merchandise to Wilkes Company and was granted a
$3,000 credit for returned merchandise.
5. On April 15, paid the amount due to Wilkes Company in full.
Instructions
(a) Prepare the journal entries to record these transactions on the books of Kerber
Co. under a perpetual inventory system.
(b) Assume that Kerber Co. paid the balance due to Wilkes Company on May 4
instead of April 15. Prepare the journal entry to record this payment.
Worksheet
• Perpetual inventory system – p.228
Adjusting Entry – Perpetual
Financial Statement
• Income Statement
Multiple Step Income Statement – p.180
Single Step Income Statement – p. 180
• Owners Equity Statement
• Balance Sheet
Multiple Step Income Statement
The chart of accounts for the store includes the following: No. 101 Cash, No.
112 Accounts Receivable, No. 120 Inventory, No. 201 Accounts Payable, No.
301 Owner’s Capital, No. 401 Sales Revenue, No. 412 Sales Returns and
Allowances, and No. 505 Cost of Goods Sold.
Instructions:
(a) Journalize the April transactions using a perpetual inventory system.
(b) Enter the beginning balances in the ledger accounts and post the April
transactions.
(c) Prepare a trial balance on April 30, 2019.
PERIODIC
INVENTORY SYSTEM
Periodic Inventory System
Periodic System
Separate accounts used to record purchases, freight
costs, returns, and discounts.
Company does not maintain a running account of
changes in inventory.
Ending inventory determined by physical count.
Periodic Inventory System
Freight Costs
Purchase Discounts
Illustration: On May 14 Sauk Stereo pays the balance due on
account to PW Audio Supply, taking the 2% cash discount allowed
by PW Audio for payment within 10 days. Sauk Stereo records the
payment and discount as follows.
No entry is recorded for cost of goods sold at the time of the sale
under a periodic system.
Recording Sales under Periodic System
Sales Discounts
Illustration: On May 14, PW Audio Supply receives payment of
€3,430 on account from Sauk Stereo. PW Audio honors the 2%
cash discount and records the payment of Sauk’s account
receivable in full as follows.
Illustration 5A-2
Comparison of Entries-Perpetual vs. Periodic
Illustration 5A-2
Excercise 7.4
Prepare the journal entries to record these transactions on
Shabani Company’s books using a periodic inventory system.
(a) On March 2, Shabani Company purchased $900,000 of
merchandise from Ballas Company, terms 2/10, n/30.
(b) On March 6, Shabani Company returned $110,000 of the
merchandise purchased on March 2.
(c) On March 12, Shabani Company paid the balance due to
Ballas Company
Exercise 7.5
This information relates to Shanaya Co.
1. On April 5, purchased merchandise from Dion Company for $25,000,
terms 2/10, net/30, FOB shipping point.
2. On April 6, paid freight costs of $900 on merchandise purchased from
Dion Company.
3. On April 7, purchased equipment on account for $30,000.
4. On April 8, returned some of April 5 merchandise, which cost $2,800, to
Dion Company.
5. On April 15, paid the amount due to Dion Company in full.
Instructions:
(a) Prepare the journal entries to record these transactions on the books of
Shanaya Co. using a periodic inventory system.
(b) Assume that Shanaya Co. paid the balance due to Dion Company on May 4
instead of April 15. Prepare the journal entry to record this payment.
Thank You