Ch 6.pdf - LEARNING OBJECTIVES LO1: Define merchandising...

This preview shows page 1 - 3 out of 11 pages.

1Dr. Bingbing HUSchool of BusinessACCT1005 Principles ofAccounting IChapter 6 Accounting for MerchandisingOperationsLEARNING OBJECTIVESLO1: Definemerchandising accounting, and differentiate perpetualfrom periodic inventory systems.LO2: Describe the terms of sale related to merchandising transactions.LO3: Prepare an income statement, and record merchandisingtransactions under the perpetual inventory system.LO4: Describe the features of multistep and single-step classifiedincome statements.LO5: Explain the role of the operating cycle in evaluating the liquidityof a merchandising company.2Concepts UnderlyingMerchandising AccountingMerchandising company:an enterprise thatpurchasesandsellsgoods to earn a profit.Additional accounts: Merchandise Inventory (MI), Sales,Cost of goods sold (COGS), etc.Operating cycle: the cycle of buying and holdingmerchandise until it is sold and then collecting paymentfor the sales.3Two basic systems of accounting formerchandise inventoryTwo basic systems of accounting formerchandise inventoryMerchandise Inventory (MI):goodsheld for resalepurpose in the normal course of merchandisers’business.Perpetual inventory systemRecord each inventorypurchaseFor each sale, record(1) Cost of goods sold& reduction inMI; and (2)Sales revenueMI account continuously show the balance ofinventory onhandPhysical count done to verify inventory balanceCOGS & MIarecontinually updated.A real-time system
Two basic systems of accounting formerchandise inventoryPeriodic inventory systemRecord each inventorypurchaseFor each sale, record onlysale revenuesCost of goods soldand cost ofinventory on handaredetermined onlyat the end of an accounting period(periodically)by physical count.The physical count is calledphysical inventory, whichis usually taken at the end of the accounting period(Balance Sheet date).Comparison of the two inventory systemsPerpetual system:Allows managers torespond to customers’inquiries about productavailability.Allows inventory to beordered more effectivelyto avoid running out ofstock.Companies that sell itemswith a high unit value havetended to use this system.Periodic system:Reduces the amount ofclerical work, so is lessexpensive for smallbusinesses.Companies that sell itemsof low value in highvolume have traditionallyused the periodicinventory system,although computerizationand bar coding arechanging that.6Three transactions involving purchases ofmerchandise1.Purchase on credit2.Purchase returns and allowance3.Payment on account71. Purchase on CreditPurchase is recorded when goods arereceived.The account,Merchandise Inventory (A), is used torecord cost of merchandise purchased.

Upload your study docs or become a

Course Hero member to access this document

Upload your study docs or become a

Course Hero member to access this document

End of preview. Want to read all 11 pages?

Upload your study docs or become a

Course Hero member to access this document

Term
Spring
Professor
N/A
Tags
Revenue, Generally Accepted Accounting Principles, Net Sales, LO2

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture