ACC 501 Unit 3 Lecture.pdf - ACC 501 Unit 3 Lecture Unit...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
ACC 501 Unit 3 Lecture Unit Learning Outcomes Unit 3 ULO 1. Account for merchandising operations and the purchase/sale of merchandise inventory using a perpetual inventory system ULO 2. Adjust and close the accounts of a merchandising business preparing the financial statements ULO 3. Relate accounting principles and controls to merchandise inventory including the lower-of-cost-or- market rule, inventory turnover and days’ sales in inventory to evaluate business performance ULO 4. Journalize and post sales and cash receipts, purchases, cash payments, and other transactions in a manual accounting information system using special journals and subsidiary ledgers describing how they would be recorded in a computerized accounting information system ULO 5. Describe the components of internal control and control procedures including bank accounts applied to cash receipts, cash payments, and petty cash transactions ULO 6. Use the cash ratio to evaluate business performance
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
MERCHANDISING OPERATIONS AND INVENTORY A merchandiser is a business that sells merchandise, or goods, to customers. Two main types of inventory accounting systems are used by merchandisers: (1) A perpetual inventory system, which keeps a running record of merchandise inventory, and (2) a periodic inventory system, which requires businesses to obtain a physical count of inventory to determine quantities on hand. THE PERPETUAL INVENTORY SYSTEM TO ACCOUNT FOR THE PURCHASE AND SALE OF MERCHANDISE INVENTORY PURCHASE The operating cycle of a merchandising business begins with purchase of inventory from a seller. Purchases are documented by an invoice from the seller, requesting payment for the purchases. Purchase discounts, purchase returns, and purchase allowances decrease the amount of net purchases, while freight in increases the amount of net purchases. Sellers offer purchase discounts to purchasers as an incentive for early payment. Purchase returns arise when businesses allow purchasers to return merchandise that is defective, damaged, or otherwise unsuitable, while a purchase allowance is granted to the purchaser as an incentive to keep goods that are not “as ordered.” To determine when title to the purchased goods transfers to the purchaser, the purchase agreement specifies FOB (free on board) terms either as FOB shipping point, in which case the buyer takes ownership of the goods at the shipping point, and the buyer pays the freight, or as FOB destination point, in which case the buyer takes ownership at the delivery destination point, and the seller pays the freight. The amount of net purchases is calculated as: Purchases of inventory Purchase returns and allowances Purchase discounts + Freight in SALE Sales revenue is the amount that a merchandiser receives from selling its inventory. Sales discounts, offered by the seller as an incentive for the purchaser to pay early, are recorded in a contra account to sales revenue and reduce the amount of cash received from a customer for early payment. Sales returns and allowances are recorded in a contra
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern