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

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Accounting for Merchandise Operations Chapter 4 A200
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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.
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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
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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 Return’s + Allow’s 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.)
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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
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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
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