Chapter06 - 6-1 Chapter 6 Merchandising Activities...

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BUSI1002KLT, 07/08 6-1 Merchandising Activities Chapter 6
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BUSI1002KLT, 07/08 6-2 Learning Objective LO1 To describe the operating cycle of a merchandising company.
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BUSI1002KLT, 07/08 6-3 Comparing a Service Company with a Merchandising Company Merchandising Company Service Company Provide services for fees while keeping some supplies needed for the service. Purchase inventory from other businesses in a ready-to-sell condition.
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BUSI1002KLT, 07/08 6-4 Comparing Merchandising Activities with Manufacturing Activities Merchandising Company Purchase inventory in ready-to-sell condition. Manufacturing Company Manufacture inventory and have a longer and more complex operating cycle.
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BUSI1002KLT, 07/08 6-5 Retailers and Wholesalers Retailers sell merchandise directly to the public. Wholesalers buy merchandise from several different manufacturers and then sell this merchandise to several retailers.
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BUSI1002KLT, 07/08 6-6 Operating Cycle of a Merchandising Company 1. Purchase of merchandise 3. Collection of the receivables 2. Sale of merchandise on account Cash Inventory Accounts Receivable
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BUSI1002KLT, 07/08 6-7 Learning Objective LO2 To understand the components of a merchandising company’s income statement.
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BUSI1002KLT, 07/08 6-8 Income Statement of a Merchandising Company Computer City Condensed Income Statement For the Year Ended December 31, 2007 Revenue from sales 900,000 $ Less: Cost of goods sold 540,000 Gross profit 360,000 $ Less: Expenses 270,000 Net income 90,000 $ Cost of goods sold represents the expense of goods that are sold to customers. Gross profit is a useful means of measuring the profitability of sales transactions.
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BUSI1002KLT, 07/08 6-9 Accounting System Requirements for Merchandising Companies General Ledger Accounts Receivable Date Debit Credit Balance 2007 June 1 10,000 10,000 15 3,000 7,000 Although general ledger accounts provide useful information, they do not provide much of the detailed information needed in the daily business operations. Who owes us money?
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BUSI1002KLT, 07/08 6-10 Accounting System Requirements for Merchandising Companies Subsidiary Ledger Heather Jacobs Date Debit Credit Balance 2007 June 1 7,000 7,000 15 2,000 5,000 General Ledger Accounts Receivable Date Debit Credit Balance 2007 June 1 10,000 10,000 15 3,000 7,000 Subsidiary Ledger Jake Sparks Date Debit Credit Balance 2007 June 1 3,000 3,000 15 1,000 2,000 Control Account Subsidiary Ledgers
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BUSI1002KLT, 07/08 6-11
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BUSI1002KLT, 07/08 6-12 Two Approaches Used in Accounting for Merchandise Inventories Perpetual Inventory System Periodic Inventory System
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BUSI1002KLT, 07/08 6-13 Learning Objective LO3 To account for purchases and sales of merchandise in a perpetual inventory system.
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BUSI1002KLT, 07/08 6-14 Perpetual Inventory Systems The inventory account is continuously updated to reflect items on hand. Let’s look at some entries!
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BUSI1002KLT, 07/08 6-15 Perpetual Inventory Systems On September 5, Worley Co. purchased 100 laser lights for resale for $30 per unit from Electronic City on account.
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BUSI1002KLT, 07/08 6-16 Perpetual Inventory Systems On September 10, Worley Co. sold 10 laser lights for $50 per unit on account to ABC Radios.
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