Lecture Notes CHAPTER 5

Lecture Notes CHAPTER 5 - CHAPTER 5 Merchandising...

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CHAPTER 5 Merchandising Operations Chapter Outline Study Objective 1 - Identify the Differences Between a Service Enterprise and a Merchandising Company H In a merchandising company , the primary source of revenues is the sale of merchandise, referred to as sales revenue or sales . n Unlike expenses for a service company, expenses for a merchandising company are divided into two categories: n Cost of goods sold - the total cost of merchandise sold during the period. n Operating expenses - selling and administrative expenses. The operating cycle of a merchandising company ordinarily is longer than that of a service company. The purchase of merchandise inventory and its eventual sale lengthen the cycle. Steps in the operating cycles for a service company and a merchandising company: Service Company Merchandising Company Perform Services Buy Inventory (Cash or Accounts Payable) Bill Customers (Accounts Receivable) Sell Inventory Collect Cash from Accounts Receivable Bill Customers (Accounts Receivable) Collect Cash from Accounts Receivable Merchandising companies use one of two systems to account for inventory Perpetual Detailed records of the cost of each inventory purchase and sale are maintained and the records continuously show the inventory that should be on hand for every item. For control purposes, companies take a physical inventory count to verify the accuracy of the inventory records. Periodic
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Detailed records of the goods on hand are not kept throughout the period. A physical inventory is taken at the end of the accounting periods to determine cost of goods on hand as well as cost of goods sold. Even with sophisticated computer systems, scanners, and software, not all companies use a perpetual system to keep up with inventory costs. Many companies will use a perpetual system to keep up with inventory quantities and a periodic system to keep up with costs. Study Objective 2 - Explain the Recording of Purchases under a Perpetual Inventory System The purchase of merchandise for resale is normally recorded by the merchandiser when the goods are received from the seller. n Every purchase should be supported by business documents that provide written evidence of the transaction. n Every cash purchase should be supported by a canceled check or a cash register receipt indicating the items purchased and the amounts paid. n Each credit purchase should be supported by a purchase invoice , which indicates the total purchase price and other relevant information. n Cash purchases are recorded by an increase in Merchandise Inventory and a decrease in Cash. Credit purchases are recorded by an increase in Merchandise Inventory and an increase in Accounts Payable. For example, the entry to record the May 4 purchases merchandise inventory by Sauk from PW Audio, 2/10, n/30 (as shown in the text) is: May 4 Merchandise Inventory 3,800 Accounts Payable 3,800 n Goods that are damaged, defective, or of inferior quality may be returned to the seller for credit if the sale was made on credit, or for a cash refund if the purchase
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This note was uploaded on 03/01/2010 for the course ACCT 2301 taught by Professor White during the Spring '08 term at Central Texas College.

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Lecture Notes CHAPTER 5 - CHAPTER 5 Merchandising...

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