ORIE 3150 September 15 Notes - ORIE 3150 September 15, 2009...

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ORIE 3150 September 15, 2009 Merchandising A. A merchandising business sells goods made by others. Examples are department stores (e.g., BonTon, Macy’s), drug stores (RiteAid, CVS) and discount stores (Wal-Mart, Target, K-Mart). B. The operating cycle includes buying merchandise, selling merchandise, and collecting cash from sales. C. There are (at least) four issues that a merchandising business must address. 1. Cash flow management. 2. Profitability management. 3. Choice of inventory system. 4. Control of merchandising operations. Cost of goods sold: Beginning inventory + Purchases (including freight-in expense) Ending inventory Cost of goods sold. D. Obviously, the ending inventory for one period becomes the beginning inventory for the following period. E. With the periodic inventory system, inventory records are updated only at the end the period, when a physical count is usually taken. F. With the perpetual inventory system, inventory records are updated with every purchase and every sale. G. Goods available for sale = ________________________+_________________. H. Discounts To encourage early payment, many companies offer special terms on accounts receivable. One example is 1%/10, net 30. This means that the customer can take a 1% discount off of the selling price if they pay within 10 days of receipt of the invoice, or must pay the full amount within 30 days. That is, if a company buys an item for $1000 with 1%/10 terms, and pays in two days, the company only has to pay ___________.
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How do we record the sales discount? After all, the company records an accounts receivable when the item is shipped or invoiced. The selling company records the full amount, since it does not know whether or not the
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ORIE 3150 September 15 Notes - ORIE 3150 September 15, 2009...

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