acc_L_3_Merchandise 1.docx - Week 3 Recording Analysing...

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Accounting
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Chapter 6 / Exercise 1
Accounting
Reeve/Warren
Expert Verified
Week 3 Recording, Analysing, Managing and Reporting Merchandising Operations – 1 Learning Objectives/Outcomes 1. Identify the differences between a service business and a merchandising business 2. Explain the recording of purchases under a perpetual inventory system. 3. Explain the recording of sales revenues under a perpetual inventory system. 4. Prepare a fully classified statement of profit or loss. 5. Record the closing entries for merchandising entities (perpetual only this week, refer to appendix 5C). 6. Use ratios to analysis profitability. Readings: Chapter 4 (appendix not required until Wk 9) -------------------------------------------------------------------------------------------------------------------------------------- LO1 - MERCHANDISING OPERATIONS Merchandising businesses differ from a service business in that they buy and resell inventory Inventory are all the goods held for sale in the normal course of operations o E.g. of Merchandising business - JB Hi Fi. Harvey Norman, Woolworths o Management needs to make sure that there are enough inventories to meet customer needs o This requires an efficient inventory replenishment system to ensure the products most in demand will be readily available for the customers as needed to keep track of its inventory to determine what is available for sale and what has been sold The operating cycle of a merchandising business ordinarily is longer than a service business due to the purchase of inventory and its eventual sale lengthen the cycle. o There is also an added asset account called ‘ Inventory’ for merchandising firms. How does profit measurement differ between a merchandising business and a service business? sales (sale of inventory) are the main source of revenue referred to as sales revenue expenses are divided into two main categories: cost of sales, and operating expenses 1. Cost of sales ( Cost of Goods Sold) direct costs associated with inventory sold minus the cost from its supplier plus any additional costs necessary to get merchandise into inventory and ready for sale. o Cost of Sales = Opening Stock + Purchases – Purchase Returns and Allowances – closing stock 2. Operating expenses indirect expenses in running the business, including o selling, administrative, financial Expenses Service business Doesn’t have COGS. No gross profit in a service business
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Chapter 6 / Exercise 1
Accounting
Reeve/Warren
Expert Verified
Conceptual Framework 49 An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. 53 The future economic benefit embodied in an asset is the potential to contribute, directly or indirectly, to the flow of cash and cash equivalents to the entity…It may also take the form of convertibility into cash or cash equivalents... 89 An asset is recognised in the balance sheet when it is probable that the future economic benefits will flow to the entity and the asset has a cost or value that can be measured reliably.

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