Chapter 5_Lecture_Summer_2010

Chapter 5_Lecture_Summer_2010 - Chapter 5 Study Objectives...

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1. Identify the differences between service and merchandising companies. 2. Explain the recording of purchases under a perpetual inventory system. 3. Explain the recording of sales revenues under a perpetual inventory system. 4. Explain the steps in the accounting cycle for a merchandising company. 5. Distinguish between a multiple-step and a single-step income statement. 6. Explain the computation and importance of gross profit. 7. Determine cost of goods sold under a periodic system. Chapter 5 Study Objectives Chapter 5 Study Objectives
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Merchandising Operations Merchandising Operations Merchandising Companies Buy and Sell Goods Wholesaler Retailer Consumer The primary source of revenues is referred to as sales revenue or sales .
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The average time it takes a company to: Acquire Inventory Sell the Inventory Collect Cash Operating Cycle Operating Cycle
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The operating cycle of a merchandising company ordinarily is longer than that of a service company . Operating Cycles Operating Cycles
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- A service company provides a service to earn a profit. No COGS No COGS A merchandiser buys and sells goods to earn a profit. Wholesalers/Retailers COGS COGS MERCHANDISER VS. SERVICE COMPANY MERCHANDISER VS. SERVICE COMPANY
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Merchandising Operations Merchandising Operations Income Measurement Cost of goods sold is the total cost of merchandise sold during the period. Not used in a Service business. Net Income (Loss) Less Less Equal s Equal s Sales Revenue Cost of Goods Sold Gross Profit Operating Expenses
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Features: Perpetual System Perpetual System 1. Purchases increase Merchandise Inventory. 2. Freight costs, Purchase Returns and Allowances and Purchase Discounts are included in Merchandise Inventory. 3. Cost of goods sold is increased and Merchandise Inventory is decreased for each sale. 4. Physical count done to verify Inventory balance. The perpetual inventory system provides a continuous record of Inventory and Cost of Goods Sold. Inventory Systems Inventory Systems
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Features: Periodic System Periodic System 1. Purchases of merchandise increase Purchases. 2. Ending Inventory determined by physical count. 3. Calculation of Cost of Goods Sold: Inventory Systems Inventory Systems Beginning inventory $ 100,000 Add: Purchases, net 800,000 Goods available for sale
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PERPETUAL INVENTORY Inventory purchased Record purchase Item sold End of period No entry Inventory purchased Record purchase Item sold Record revenue only End of period Compute and record COGS PERIODIC INVENTORY SOLD Inventory Systems Inventory Systems
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Normally recorded when goods are received. Purchase invoice should support each credit purchase. Purchase Entries – Perpetual Inventory
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Chapter 5_Lecture_Summer_2010 - Chapter 5 Study Objectives...

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