Chapter 5 outline (Kimmel)

Accounting: Tools for Business Decision Making

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Chapter 5 Merchandising Operations and the Multiple-Step Income Statement. Merchandise Inventory, or inventory , refers to products a company owns for the purpose of selling to customers. The cost of this asset includes the cost incurred to buy the goods, ship them to the store, and other costs necessary to make them ready for sale. Inventory is a current asset until it is sold When sold, it becomes an expense on the income statement: COST OF GOODS SOLD Sales - Cost of Goods Sold = Gross Profit Perpetual inventory system: 2 Continual record of the amount of inventory available. To record purchase: Dr Inventory Cr Accounts Payable (or cash) Terminology: Trade discounts Deductions from list price (catalog price) to arrive at invoice price (actual selling price). Trade discounts are not entered into accounts. Purchases discounts Credit terms Example: credit terms , 2/10 n/30, offer a 2 % discount if invoice is paid within 10 days of invoice date. Purchase returns are merchandise a purchaser receives but then returns to the supplier. A purchase allowance is a reduction in the cost of defective merchandise that a purchaser receives from a supplier. To record Purchase Returns, Purchase Discounts and Allowances: Dr Accounts Payable (or cash) Cr Inventory Transportation Costs: Shipping Term Who ultimately pays shipping costs? Who owns inventory while in
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Chapter 5 outline (Kimmel) - Chapter 5 Merchandising...

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