StudyGuideChap05 - CHAPTER 5 Merchandising Operations Study...

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5-1 CHAPTER 5 Merchandising Operations Study Objectives Identify the differences between a service enterprise and a merchandising company. Explain the recording of purchases under a perpetual inventory system. Explain the recording of sales revenues under a perpetual inventory system. Distinguish between a single-step and a multiple-step income statement. Determine the cost of goods sold under a periodic inventory system. Explain the factors affecting the profitability. Chapter Outline Typical Income Statement Layout (Periodic Inventory) One of the few things I want students to memorize! Sales $5,000,000 Less: Sales Returns & Allowances 250,000 Net Sales $ 4,500,000 Cost of Goods Sold : Beginning Inventory: $1,500,000 Add: Purchases $2,000,000 Freight-in 25,000 2,025,000 Cost of Goods Available for Sale: $3,525,000 Less: Ending Inventory 1,250,000 Cost of Goods Sold 2,275,000 Gross Profit on Sales $ 2,225,000 Sales and Administrative Expenses: Sales Expenses : Sales Salaries Expenses $1,250,000 Freight-out 250,000 Administrative Expenses : Rent Expense 250,000 Utilities Expense 100,000 1,850,000 Net Income $ 375,000 Study Objective 1 - Identify the Differences Between a Service Enterprise and a Merchandising Company 1. Merchandising company: the primary source of revenues is the sale of merchandise, referred to as sales revenue or sales . a. Unlike expenses for a service company, expenses for a merchandising company are divided into two categories: i.Cost of goods sold - the total cost of merchandise sold during the period. ii.Operating expenses - selling and administrative expenses.
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5-2 Study Objective 2 - Explain the Recording of Purchases under a Perpetual Inventory System 1. Inventory : Merchandise purchased for resale is called Inventory. a. Inventory is recorded by the merchandiser when the goods are received from the seller. b. Purchases (of inventory) should be supported by business documents that provide written evidence of the transaction. Every cash purchase should be supported by a canceled check or a cash register receipt indicating the items purchased and the amounts paid. Each credit purchase should be supported by a purchase invoice , which indicates the total purchase price and other relevant information. 2. Inventory Systems: There are two commonly used inventory systems; the Periodic system (the number of inventory items is only known periodically when the inventory is counted) and the Perpetual system (an approximate number of inventory items is tracked by the computer and the quantity of inventory is more or less known at any given point in time. a. “shrinkage” (theft; misfiling etc) causes the perpetual system to be less than perfect. b. A physical inventory must be taken periodically (at least once a year) in either system in order to confirm the number of items in inventory. Event Periodic Inventory System Perpetual Inventory System Record Purchase on Account of inventory costing $10,000 Purchases 10,000 Accounts Payable 10,000 Inventory 10,000 Accounts Payable 10,000 Record sale of inventory costing $5,000 for $11,000 on account Accounts Receivable 11,000 Sales 11,000 Accounts Receivable 11,000 Sales 11,000 Cost of Sales 5,000 Inventory 5,000 c.
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