ch05 - CHAPTER 5 Accounting for Merchandising Operations...

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CHAPTER 5 Accounting for Merchandising Operations STUDY OBJECTIVES 1. IDENTIFY THE DIFFERENCES BETWEEN A SERVICE ENTERPRISE AND A MERCHANDISER. 2. EXPLAIN THE ENTRIES FOR PURCHASES UNDER A PERPETUAL INVENTORY SYSTEM. 3. EXPLAIN THE ENTRIES FOR SALES REVENUES UNDER A PERPETUAL INVENTORY SYSTEM. 4. EXPLAIN THE STEPS IN THE ACCOUNTING CYCLE FOR A MERCHANDISER. 5. DISTINGUISH BETWEEN A MULTIPLE-STEP AND A SINGLE-STEP INCOME STATEMENT. 6. EXPLAIN THE COMPUTATION AND IMPORTANCE OF GROSS PROFIT. 5-1
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CHAPTER REVIEW Measuring Net Income 1. (S.O. 1) A merchandiser is an enterprise that buys and sells goods to earn a profit. Mer- chandisers that purchase and sell directly to consumers are retailers, and those that sell to retailers are known as wholesalers. 2. The primary source of revenue for a merchandiser is sales revenue. Expenses are divided into two categories: (1) cost of goods sold and (2) operating expenses. 3. Sales less cost of goods sold is called the gross profit (or gross margin) on sales. For ex- ample, if sales are $5,000 and cost of goods sold is $3,000, gross profit is $2,000. 4. After gross profit is calculated, operating expenses are deducted to determine net income (or loss). 5. Operating expenses are expenses incurred in the process of earning sales revenue. Operating Cycles 6. The operating cycle of a merchandiser is as follows: Receive Cash Cash Buy Inventory Merchandise Inventory Sell Inventory Accounts Receivable Inventory Systems 7. A merchandiser may use either a perpetual or a periodic inventory system in determining cost of goods sold. a. In a perpetual inventory system, detailed records of the cost of each inventory item are maintained and the cost of each item sold is determined from the records when the sale occurs. b. In a periodic inventory system, detailed inventory records are not maintained and the cost of goods sold is determined only at the end of an accounting period. 5-2
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Purchase Transactions 8. (S.O. 2) Under the perpetual inventory system, purchases of merchandise for sale are recor- ded in the Merchandise Inventory account. For a cash purchase, Cash is credited; for a credit purchase, Accounts Payable is credited. 9.
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This note was uploaded on 01/27/2010 for the course MGT 011A taught by Professor Hancock,john during the Spring '07 term at UC Davis.

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ch05 - CHAPTER 5 Accounting for Merchandising Operations...

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