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Chapter5.Merchandizing Process

Chapter5.Merchandizing Process - CHAPTER 5 ACCOUNTING FOR...

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CHAPTER 5 ACCOUNTING FOR MERCHANDISING PROCESS Nature of Merchandising Businesses: An organization that is engaged on the buying and re-selling goods from wholesalers to make a profit at the end. On the merchandising business’s income statement, revenue from selling merchandise is reported as sales . The cost of the merchandise sold is subtracted from sales to arrive at gross profit . The operation expenses are subtracted from gross profit to arrive at net income . Merchandise inventory, which is merchandise not sold, is reported as a current asset on the balance sheet. Merchandise on hand (not sold) at the end of the accounting period is called merchandise inventory. Merchandise inventory is reported as a current asset on the balance sheet. When merchandise is sold, the revenue is reported as sales and its cost is reported as an expense called cost of merchandise sold. Financial statements for a Merchandising Business Shows the financial statements for merchandising business that are done in accounting in two different ways. MULTI-STEP INCOME STATEMENT This reports sales, sales returns and allowances, sales discounts and net sales. Sales: Provides the total amount charged to customers for merchandise sold, including cash sales and sales on account. Sales returns and allowances: are granted by the seller to the customer for damaged or defective merchandise. Sales Discounts: are granted by the seller to customers for early payment of amount owed. Net sales: is determined by subtracting sales returns and allowances and sales discounts from sales. NETSOLUTIONS INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2009
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sellers may offer customers sales discounts for early payment of their bills. From the buyer’s perspective , such discounts are referred to as purchase discounts . The buyer may return merchandise to the seller ( a purchase return ), or the buyer may receive a reduction in the initial price at which the merchandise was purchased ( a purchase allowance ). SINGLE-STEP INCOME STATEMENT is one of two commonly used formats for the income statement or profit and loss statement. The single- step format uses only one subtraction to arrive at net income. NETSOLUTIONS INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2009 Merchandising Transactions Illustrating the accounting for merchandise transactions including: sale of merchandise; purchase of merchandise; transportation costs, sales taxes, trade discounts; dual nature of merchandise transactions.
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