Ch4 - Accounting for Merchandise Operations Chapter 4 A200...

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Unformatted text preview: Accounting for Merchandise Operations Chapter 4 A200 Merchandising businesses Service Businesses : Sell services, not tangible goods. Examples: Doctors, Dentists, Accountants, Lawyers, Architects, Landscapers, Barbers, Hairdressers, Mechanics, Teachers (U.T.) Merchandisers (Middle-men) : Purchase tangible goods from Manufacturers. Sell tangible goods ( merchandise ) to Customers. Examples: Grocery Stores, Clothing Stores, Car Dealerships (the Mall, the Strip) Merchandisers are both buyers and sellers of goods. Differences on the Income Statement Service Firm Income Statement Fees Earned (Operating Expenses) Net Income Merchandising Firm Income Statement (Multiple-step) Sales (Sales Returns & Allowances) (Sales Discounts) Net Sales (Cost of Merchandise Sold) Gross Profit (Operating Expenses) Net Income Computing Cost of Merchandise Sold (COMS) Sales (Sales Returns & Allowances) MI Beg Balance (Sales Discounts) +Purchases Net Sales -Purchase Discounts (Cost of Merchandise Sold)-Purchase Returns + Allows Gross Profit +Transportation-in (Operating Expenses)*-MI End Balance Net Income = COMS * Selling expenses (advertising, sales commissions, storefront expenses such as rent, utilities, depreciation, insurance, supplies etc) and Administration expenses (administrative salaries, rent, utilities, depreciation, insurance on administrative building.) Compute COMS Merchandise Inventory (Jan 1) 20,000 Purchases 300,000 Purchase discounts 10,000 Purchase returns & allowances 5,000 Transportation In 2,000 Merchandise Inventory (Dec 31) 30,000 Computing COMS Merchandise Inventory (Jan 1) $20,000 Purchases $300,000 Purchase discounts (10,000) Purchase returns & allowances ( 5,000) 285,000 Transportation In 2,000 Merchandise available for sale: $307,000 Less: Merchandise Inventory (Dec 31) ( $30,000) COMS $277,000 This is computed by taking a physical count of inventory on hand Sales and Purchase Discounts...
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Ch4 - Accounting for Merchandise Operations Chapter 4 A200...

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