Transactions in a Merchandising Business.docx -...

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Transactions in a Merchandising Business Accounting for Merchandising Business The steps in the accounting cycle for a merchandising business are the same as the steps for a service business. However, merchandising businesses use additional accounts and entries which are required in recording merchandising transactions. Measuring Profit Completing the Accounting Cycle Net Sales Cost of Goods Sold Gross Profit Operating Expenses Profit Using Worksheet Adjusting and Closing entries Preparing Financial Statements Post-Closing Trial Balance Forms of Income Statement MEASURING PROFIT Service Business REVENUES Less EXPENSES Equals PROFIT Revenues – Expenses = Profit Merchandising Business NET SALES Less COST OF SALES Equals GROSS PROFIT Less OPERATING EXPENSES Equals PROFIT Net Sales – Cost of Sales = Gross Profit – Operating Expenses = Profit Cost of goods sold is the total cost of merchandise sold during the period. Operating expenses are deducted from gross profit or loss. Operating Expenses may be distribution costs (selling expenses) or administrative expenses. Merchandise Inventory includes the goods purchased for the principal purpose in selling them in the ordinary course of business operations. Cost of goods sold refers to the expenses (sold) portion of goods held for sale, while merchandise inventory refers to the asset (unsold portion of goods held for sale). Inventory System used for Merchandisng Transactions 1. Periodic Inventory System 2. Perpetual Inventory System Accounting for Sales and other Related Account Sales – recorded when earned. Sales Returns and Allowances – return of goods and price adjustment.
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