1Chapter 5 ACCOUNTING FOR MERCHANDISING BUSINESS Professor Dominica LeeSeptember 20052Objectives:(1)compare a service business’s I/S to a merchandising business’s I/S.(2)Journalize the entries for merchandise transactions.(3)Prepare an I/S for a merchandising business.ACY1111D. Lee2005-20063Merchandising FirmsMerchandising firms are firms that buy and sell goods.Expenses for a merchandising company are divided into (1) the cost of goods sold and (2) operating expenses (expenses incurred in the process of earning sales revenue). Service BusinessMerchandising BusinessFees earnedRevenue (sales)-Operating exp.-Cost of goods sold= Net income= Gross ProfitOperating exp.= Net IncomeACY1111D. Lee2005-20064Gross profit from sales is usu. expressed as a % of sales: gross profit %In B/S, merchandising Co. has an added asset: inventory.Inventory Systems(1) Perpetual Inventory System(2) Periodic Inventory SystemACY1111D. Lee2005-20065Perpetual Inventory SystemKeeps a continuous recordfor each inventory item. Therefore, the Merchandise Inventory A/C at all times equals the cost of merchandise on hand.Cost of Goods Sold: recorded as goods are sold.Still have to count the inventory annually.ACY1111D. Lee2005-20066Periodic Inventory SystemDoes not keep a continuous record of inventory.Have to count inventories at least once a year. Cost of Goods Sold: recorded at year end, based on physical inventory count.Disadvantage: because goods not on hand are assumed to be sold, therefore, cannot determine amount of inventory losses.ACY1111D. Lee2005-2006
This preview has intentionally blurred sections.
Sign up to view the full version.