Module 5 - Accounting for Merchandising Business ACG 2021...

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Accounting for Merchandising Business ACG 2021: Chapter 5
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Merchandising Business Revenue activities of a merchandising business involve the buying and selling of merchandise Comparison to service business Service Business Merchandising Business Fees earned Sales Less Operating expenses Less Cost of merchandise sold =Net income =Gross Profit Less Operating expenses =Net Income
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New Accounts on the Income Statement SALES – revenues collected from the sale of merchandise COST OF MERCHANDISE SOLD – the purchase price plus incidentals of merchandise available for resale GROSS PROFIT – Sales – Cost of merchandise sold
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Income Statement INCOME STATEMENT Gem City Music Income Statement For the Year Ended December 31, 20— Revenue from sales: Sales $189,300 Less:: Sales returns and allowances $1,700 Sales discounts 500 2,200 Net sales $187,100 Cost of merchandise sold XXXX 100,000 Gross profit $87,100 Operating expenses: Selling expenses: Sales salaries expense $17,700 Administrative expenses: Rent expense 7,800 Office salaries expense 22,550 Depreciation expense—office equipment 2,800 33,150 Total operating expenses 50,850 Income from operations $ 36,250 Other expense: Interest expense 2,000 Net income $ 34,250
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Computation of Costs Computation of Cost of Merchandise Sold Purchases Less merchandise inventory, December 31 =Cost of merchandise sold Computation of Cost of Merchandise Purchased Purchases Less: purchases returns and allowances Less: purchases discount =Net purchases Add: transportation in =Cost of merchandise purchased
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Balance Sheet Accounts Merchandise inventory – merchandise on hand at the end of an accounting period.
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Merchandising Terms Sales – total amount charged to customers for merchandise sold Sales returns and allowances – are granted by the seller to customers for damaged or defective merchandise Sales discount – are granted by the seller to customers for early Net sales = Sales – returns - discount
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Merchandising Terms Cost of goods sold Cost of merchandise sold to customers Purchases discounts Offered by the seller to buyer For early payment Purchases allowances and returns Buyer may receive a reduction in the intial price at which the merchandise is purchased.
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Merchandising Terms Merchandise available for sale = Beginning merchandise inventory + net purchases Net purchases = Purchases minus discounts – returns and allowances
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Accounting for Sales Under the perpetual inventory system, all sales require the reporting of the removal of inventory from the books at the same time.
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Accounting for Sales CASH SALES Example 1: Sold merchandise for cash $5,000. Cost of merchandise sold $3,200 Date Account PR Debit Credit Cash $5,000 Sales $5,000 Cost of merchandise sold 3,200 Merchandise inventory 3,200
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