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Class _6,7,8-Merchandising Businesses

Class _6,7,8-Merchandising Businesses - Merchandising...

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Merchandising Businesses Service Businesses: Generate revenue by selling services Examples: Law firms, accounting firms, consulting firms Merchandising Businesses: Generate revenue by selling goods Buy goods (merchandise inventory) from companies (suppliers) Merchandising Businesses Include: Retail Companies-sell goods to final consumer Wholesale Companies-sell to other businesses Examples: Sears, Target, Harris Teeter versus Expenses that are matched with the period in which they are incurred Perpetual Inventory System Purchase of Inventory = Increase in Inventory Account Sale of Inventory = Decrease in Inventory Account versus Periodic Inventory System Only adjust inventory account at the end of the accounting period Product Costs (Inventory Costs) Costs incurred to acquire merchandise and ready it for sale (record in inventory account) Examples: Costs to purchase goods, shipping and handling costs, transit insurance, storage costs Period Costs (Selling & Administrative Costs) Examples: advertising, administrative salaries, sales commissions, general insurance, loan interest Inventory account is perpetually (continuously) adjusted throughout the accounting period
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Income Statement Example: Revenues $100.00 Operating Expenses (75.00) Net Income $25.00 Example: 2010 Sales Revenue $100.00 Cost of Goods Sold (50.00) Gross Margin $50.00 Less: Operating Expenses Selling and Administrative Expense $(20.00) Transportation-out (5.00) Operating Income $25.00 Non-Operating Items
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