Reimersppt_ch05 - Chapter 5 Accounting for Merchandising...

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Chapter 5 Accounting for Merchandising Operations
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In Chapter 4 You learned how to: o Prepare Adjusting Entries o Prepare Closing Entries o Use the Adjusted Balances to prepare Financial Statements o Complete the Accounting Cycle
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In Chapter 5 You will learn: o How Merchandise is Acquired and Sold o How Inventory Purchases and Sales are recorded in a firm’s accounting records o How to prepare Financial Statements that are meaningful for a merchandising operation
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Merchandising Operations Buy Merchandise to Sell to their Customers Wholesalers sell their merchandise to Retailers Retailers Sell their merchandise directly to the final consumer 2 Categories
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Target is a Retailer
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The Operating Cycle for a Merchandiser…
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In Chapter 2, we discussed the Historical Cost Principle Assets are recorded on the Balance Sheet at cost Cost includes all costs necessary to get the asset ready for its intended purpose $5,000
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The Historical Cost Principle also applies to Inventory o Inventory is a Current Asset o It is recorded on the Balance Sheet at Historical Cost o Cost includes all costs necessary to get the inventory ready for its intended purpose o Let’s look at the cost components for Inventory…. .
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Let’s assume a Perpetual Inventory System o A Perpetual Inventory system records all changes in the value of Inventory directly in the Inventory Account.
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This example begins on page 229 in your text. On June 1, 20X6, Quality Lawn Mowers purchases 100 lawn mowers for $150 each on account from Black & Decker.
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Here’s the invoice…. . This is the Invoice Date This is the Invoice Amount This information is needed to record the purchase of inventory
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The journal entry to record the purchase of inventory…. 15,000 $ 15,000 $ Equity Inventory Accounts Payable Assets Liabilities
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The Purchase of Inventory is restricted to the Balance Sheet Assume the Initial Investment by shareholders was $100,000 cash.
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Shipping Terms – FOB Shipping Point Title transfers to BUYER at the time the goods are shipped Buyer Owns the goods in transit Freight Costs are paid by the BUYER This increases the cost of the goods purchased.
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Reimersppt_ch05 - Chapter 5 Accounting for Merchandising...

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