Chapter Five

Chapter Five - ACCOUNTING FOR MERCHANDISING OPERATIONS...

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Unformatted text preview: ACCOUNTING FOR MERCHANDISING OPERATIONS CHAPTER 5 IDENTIFY THE DIFFERENCES BETWEEN A SERVICE COMPANY AND A MERCHANDISING COMPANY SALES REVENUE, in a merchandising company, the primary source of revenues is the sale of merchandise, referred to as sales revenue or sales . INCOME MEASUREMENT PROCESS for a merchandising company Unlike expenses for a service company, expenses for a merchandising company are divided into two categories.- COST OF GOODS SOLD is the total cost of the merchandise sold during the period. o This expense is directly related to revenue recognized from the sale of goods.- OPERATING EXPENSE The operating the cycle is longer than that of a service company. ACCOUNTING FOR MERCHANDISING OPERATIONS CHAPTER 5 INVENTORY SYSTEMS, companies use one of two systems to account for inventory.- PERPETUAL INVENTORY SYSTEM o Has detailed records of each inventory purchases and sales. o Records cost of goods sold each time a sale occurs. o Indicates the amount of inventory on hand at all times.- PERIODIC INVENTORY SYSTEM o Does not keep detailed records of goods on hand throughout this period. o Determines the cost of goods on hand and cost of goods sold only at the end of an accounting period. COMPARING PERPETUAL AND PERIODIC INVENTORY SYSTEMS PURCHASES OF INVENTORY, the purchases of merchandise for resale is recorded by the merchandiser when the goods are received from the seller. ACCOUNTING FOR MERCHANDISING OPERATIONS CHAPTER 5- 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 purchases should be supported by a purchase invoice, which indicates the total purchase price and other relevant information. FREIGHT COSTS, the sales agreement should indicate whether the seller or the buyer is to pay the cost of transporting the goods to buyers place of business. FOB SHIPPING POINT (FREIGHT ON BOARD)- Goods placed free on board the carrier by seller.- Buyers pay freight costs. FOB DESTINATION (FREIGHT ON BOARD)- Goods placed free on board at buyers business.- Sellers pay freight costs. ACCOUNTING FOR FREIGHT COSTS When the purchaser directly incurs the freight costs, the account merchandise inventory is debited and cash is credited. ACCOUNTING FOR MERCHANDISING OPERATIONS CHAPTER 5 Freight costs incurred by the seller on outgoing merchandise are debited to freight-out (or delivery expense...
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This note was uploaded on 10/18/2010 for the course ACCT 210 taught by Professor Degaetano during the Fall '10 term at Montclair.

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Chapter Five - ACCOUNTING FOR MERCHANDISING OPERATIONS...

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