ch05 - Chapter 5 Chapter Accounting for Merchandising...

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Unformatted text preview: Chapter 5 Chapter Accounting for Merchandising Operations ISV Financial Accounting, Sixth Edition Chapter 5 -1 Accounting for Merchandising Operations Merchandising Operations Recording Recording Purchases of Merchandise Merchandise Freight costs Purchase Purchase returns and allowances allowances Purchase Purchase discounts discounts Summary of Summary purchasing transactions transactions Recording Recording Sales of Merchandise Merchandise Sales returns Sales and allowances allowances Sales Sales discounts discounts Completing Completing the Accounting Cycle Cycle Adjusting Adjusting entries entries Closing Closing entries entries Summary of Summary merchandising entries entries Forms of Forms Financial Statements Statements Multiple-step Multiple-step income statement statement Single-step Single-step income statement statement Classified Classified balance sheet balance Determining Determining cost of goods sold under a periodic system periodic Operating Operating cycles cycles Inventory Inventory systemsperpetual and periodic periodic Chapter 5 -2 Merchandising Operations Merchandising Companies Buy and S ll Goods e Whole r sale Re r taile C onsum r e sales revenue or Theprim sourceof re nue is re rre to as ary ve s fe d sales. Chapter 5 -3 SO 1 Identify the differences between service and merchandising companies. Merchandising Operations Income Measurement Ss ale Re nue ve Less Not use in a S rvice d e busine ss. Illustration 5-1 C of ost Goods S old Equal s Gross Profit Less Cost of goods sold is thetotal cost of m rchandisesold during the e pe riod. Chapter 5 -4 Ope rating Expe s nse Equal s Ne t I ncom e (Loss) SO 1 Identify the differences between service and merchandising companies. Operating Cycles I llustration 5-2 Theope rating cycleof a merchandising company ordinarily is longe r t han that of a service company. Chapter 5 -5 SO 1 Identify the differences between service and merchandising companies. Inventory Systems Perpetual System Fe ature s: 1. Purchase incre Me s ase rchandiseI nve ntory. 2. Fre costs, PurchaseRe ight turns and Allowance and PurchaseDiscounts are s include in Me d rchandiseI nve ntory. 3. C of goods sold is incre d and Me ost ase rchandiseI nve ntory is de ase for cre d e sale ach . 4. Physical count doneto ve I nve rify ntory balance . Thepe tual inve rpe ntory syste provide a continuous re of I nve m s cord ntory and C ost of Goods S old. Chapter 5 -6 SO 1 Identify the differences between service and merchandising companies. Inventory Systems Periodic System Fe ature s: 1. Purchase of m rchandiseincre Purchase s e ase s. 2. Ending I nve ntory de rm d by physical count. te ine 3. C alculation of C of Goods S ost old: Be ginning inve ntory $ 100,000 Add: Purchase ne s, t 800,000 Goods availablefor sale Chapter 5 -7 SO 1 Identify the differences between service and merchandising companies. 900,000 Inventory Systems- Additional Considerations C panie that se m rchandisewith high unit value have om s ll e s t raditionally use pe tual syste s. d rpe m I nstalling pe tual inve rpe ntory syste s is incre m asing popular. A pe tual inve rpe ntory syste provide be r control ove inve m s tte r ntorie s t han a pe riodic syste . m Many sm m rchandising busine s, m all e sse anage can control the rs ir m rchandiseand m e anageday-to-day ope rations using pe riodic inve ntory syste . m Chapter 5 -8 SO 1 Identify the differences between service and merchandising companies. Recording Purchases of Merchandise I llustration 5-4 Madeusing cash or cre dit (on account). Norm re ally corde whe d n goods are re ive ce d. Purchaseinvoiceshould support e cre ach dit purchase . Chapter 5 -9 SO 2 Explain the recording of purchases under a perpetual inventory system. Recording Purchases of Merchandise I nform ation re d to S S re is pre nte be late auk te o se d low. Pre parethejournal e to re thetransaction unde a pe tual inve ntry cord r rpe ntory syste . m On May 4, purchase m rchandisefromPW Audio S de upply for $3,800 te s rm 2/10, ne t/30, FOB shipping point. May 4 Me rchandiseI nve ntory Accounts Payable 3,800 3,800 Not all purchases increase Merchandise Inventory. Chapter 5-10 SO 2 Explain the recording of purchases under a perpetual inventory system. Recording Purchases of Merchandise Recording Freight Costs Te s rm FOB shipping point - se r place goods Fre On Board t he lle s e carrie and buye pays fre costs. r, r ight FOB destination - se r place thegoods Fre On Board to the lle s e buye placeof busine and se r pays fre costs. r’s ss, lle ight Chapter 5-11 SO 2 Explain the recording of purchases under a perpetual inventory system. Recording Purchases of Merchandise On May 6, S S re paid fre costs of $150 to Acm Fre C pany. auk te o ight e ight om May 6 Me rchandiseI nve ntory C ash 150 150 Fre costs incurre by these r on outgoing m rchandisearean ope ight d lle e rating e nset o the xpe se r (Fre lle ight-out or De ry Expe ). live nse May 4 Fre ight-out (De ry Expe ) live nse C ash 150 150 Chapter 5-12 SO 2 Explain the recording of purchases under a perpetual inventory system. Recording Purchases of Merchandise Purchase Returns and Allowances Purchaser may be dissatisfied be causegoods dam d or age de ctive of infe quality, or do not m e spe fe , rior e t cifications. Purchase Return Re turn goods for cre if thesale dit was m on cre or for a cash ade dit, re fund if thepurchasewas for cash. Purchase Allowance May chooseto ke p the e m rchandiseif these r will grant e lle an allowance(de duction) fromthe purchaseprice . Chapter 5-13 SO 2 Explain the recording of purchases under a perpetual inventory system. Recording Purchases of Merchandise Assum that on May 8 S S re re e auk te o turne dam d m rchandiseto PW d age e Audio S upply and was grante a $300 cre for re d dit turne m rchandise de . May 8 Accounts Payable Me rchandiseI nve ntory 300 300 Chapter 5-14 SO 2 Explain the recording of purchases under a perpetual inventory system. Recording Purchases of Merchandise Recording Purchase Discounts C dit te s m pe it buye to claima cash discount for prom re rm ay rm r pt paym nt. e Advantage s: Purchase save m y. r s one S lle shorte theope er ns rating cycle . Exam : C dit te s of 2/10, n/30, is re “two-te ne thirty.” 2%cash ple re rm ad n, t discount if paym nt is m within 10 days. e ade Chapter 5-15 SO 2 Explain the recording of purchases under a perpetual inventory system. Recording Purchases of Merchandise Purchase Discounts Terms Terms 2/10 2%discount if paid within 10 days. 1/10 EOM 1%discount if paid within first 10 days of ne m xt onth. n/30, n/60, or n/10 EOM Ne am t ount duein 30 days, 60 days, or within thefirst 10 days of thene xt m onth. Chapter 5-16 SO 2 Explain the recording of purchases under a perpetual inventory system. Recording Purchases of Merchandise On May 14, t helast day of thediscount pe , S S re paid the riod auk te o am ount dueto PW Audio S upply in full. (Discount = $3,500 x 2% = $70) May 14 Accounts Payable C ash Me rchandiseI nve ntory 3,500 3,430 70 I f S S re f aile to takethediscount , and inste m full paym nt auk te o d ad ade e of $3,500 on June3, it would re thetransaction as: cord June3 Chapter 5-17 Accounts Payable C ash 3,500 3,500 SO 2 Explain the recording of purchases under a perpetual inventory system. Recording Purchases of Merchandise Recording Purchase Discounts S hould discounts betake whe offe d? n n re Discount of 2% on $ 3,500 $ 3,500 invest ed at 10% f or 20 days Savings by t aking t he discount $ 7 0.00 19.18 $ 50. 82 Passing up thediscount offe d e re quate to paying an inte st rateof 2%on the s re useof $3,500 for 20 days. Example: 2%for 20 days = Annual rateof 36.5% (365/20 = 18.25 twe nty-day pe riods x 2%= 36.5% ) Chapter 5-18 SO 2 Explain the recording of purchases under a perpetual inventory system. Recording Purchases of Merchandise Summary of Purchasing Transactions Merchandise I nvent ory Debit Credit 4th - Purchase 6th – Fre ight-in Balance $3,800 150 $3,580 $300 70 8th - Re turn 14th - Discount Chapter 5-19 SO 2 Explain the recording of purchases under a perpetual inventory system. Recording Sales of Merchandise I llustration 5-4 Madefor cash or cre (on dit account). Norm re ally corde whe d n e d, arne usually whe n goods transfe r f rom se r to buye lle r. S s invoiceshould ale support e ach cre dit SO 3 SO sale . Chapter 5-20 Explain the recording of sales revenues under a perpetual inventory system. under Recording Sales of Merchandise Two Journal Entries to Record a Sale #1 C or Accounts Re ivable ash ce Ss ale XXX XXX Sellin g Price #2 C of Goods S ost old Me rchandiseI nve ntory XXX XXX Cost Chapter 5-21 SO 3 Explain the recording of sales revenues SO under a perpetual inventory system. under Recording Sales of Merchandise Pre parethejournal e s for PW Audio S ntrie upply. On May 4, PW Audio S upply sold $3,800 of m rchandiseto S S re t e s e auk te o, rm 2/10, n/30, FOB shipping point . C of m rchandisesold was $2,400. ost e May 4 Accounts Re ivable ce Ss ale C of Goods S ost old Me rchandiseI nve ntory 3,800 3,800 2,400 2,400 Chapter 5-22 SO 3 Explain the recording of sales revenues SO under a perpetual inventory system. under Recording Sales of Merchandise Recording Sales Returns and Allowances “Flipside of purchasere ” turns and allowance s. C ontra-re nueaccount (de ve bit). S s not re d (de d) be ale duce bite cause : would obscureim portanceof sale re s turns and allowance as a s pe ntageof sale rce s. could distort com parisons be e total sale in diffe nt twe n s re accounting pe riods. Chapter 5-23 SO 3 Explain the recording of sales revenues SO under a perpetual inventory system. under Recording Sales of Merchandise Recording On May 8, S S re returned m rchandisefor cre of $300. The auk te o e dit original cost of them rchandiseto PW Audio S e upply was $140. May 8 S s Re ale turns and Allowance s Accounts Re ivable ce Me rchandiseI nve ntory C of Goods S ost old 300 300 140 140 Chapter 5-24 SO 3 Explain the recording of sales revenues SO under a perpetual inventory system. under Recording Sales of Merchandise Recording Sales Discount Offe d to custom rs to prom prom paym nt. re e ote pt e “Flipside of purchasediscount. ” C ontra-re nueaccount (de ve bit). Chapter 5-25 SO 3 Explain the recording of sales revenues SO under a perpetual inventory system. under Recording Sales of Merchandise On May 14, PW Audio S upply re ive thebalanceduefromS S re ce d auk te o. May 14 C ash S s Discounts ale Accounts Re ivable ce 3,430 * 70 ** 3,500 *** * ** ($3,500 – $70) [($3,800 – $300) X 2% ] *** ($3,800 – $300) Chapter 5-26 SO 3 Explain the recording of sales revenues SO under a perpetual inventory system. under Completing the Accounting Cycle Adjusting Entries Ge rally thesam as a se ne e rvicecom pany. Oneadditional adjustm nt to m there e ake cords agre with the e actual inve ntory on hand. I nvolve adjusting Me s rchandiseI nve ntory and C of Goods S . ost old Chapter 5-27 SO 4 Explain the steps in the accounting cycle for a merchandising company. Completing the Accounting Cycle Closin g Entries Entries Chapter 5-28 Forms of Financial Statements Multiple-Step Income Statement S hows se ral ste in de rm ve ps te ining ne incom . t e Two ste re to principal ope ps late rating activitie s. Distinguishe be e operating and non-operating s twe n activities. Chapter 5-29 SO 5 Distinguish between a multiple-step and a single-step income statement. I llustration 5-6~7 Forms of Forms Financial Statements Statements Key Items: Ne sale t s Gross profit Gross profit rate I llustration 5-8 Chapter 5-30 SO 5 Distinguish between a multiple-step and a single-step income statement. SO 6 Explain the computation and importance of gross profit. Forms of Financial Statements Nonoperating Activities I llustration 5-10 Chapter 5-31 SO 5 Distinguish between a multiple-step and a single-step income statement. I llustration 5-11 Forms of Forms Financial Statements Statements Key Items: Ne sale t s Gross profit Gross profit rate Ope rating e nse xpe s Chapter 5-32 SO 5 Distinguish between a multiple-step and a single-step income statement. I llustration 5-11 Forms of Forms Financial Statements Statements Key Items: Ne sale t s Gross profit Gross profit rate Ope rating e nse xpe s Nonope rating Nonope activitie s activitie Ne incom t e Chapter 5-33 SO 5 Distinguish between a multiple-step and a single-step income statement. Forms of Financial Statements Single-Step Income Statement S ubtract total e nse fromtotal re nue xpe s ve s Two re asons for using thesingle p form -ste at: 1) C pany doe not re om s alizeany typeof profit until total re nue e e total e nse ve s xce d xpe s. 2) Form is sim r and e r to re at ple asie ad. Chapter 5-34 SO 5 Distinguish between a multiple-step and a single-step income statement. Forms of Financial Statements SingleStep I llustration 5-12 Chapter 5-35 SO 5 Distinguish between a multiple-step and a single-step income statement. Forms of Financial Statements Classified Balance Sheet I llustration 5-13 Chapter 5-36 SO 5 Distinguish between a multiple-step and a single-step income statement. Determining Cost of Goods Sold Under a Determining Periodic System Periodic Periodic System Separate accounts use to re purchase fre d cord s, ight costs, re turns, and discounts. Com pany doe not m s aintain a running account of change in s inve ntory. Ending inve ntory de rm d by physical count. te ine Chapter 5-37 SO 7 Determine cost of goods sold under a periodic system. Determining Cost of Goods Sold Under a Determining Periodic System Periodic Calculation of Cost of Goods Sold I llustration 5-14 $316,000 Chapter 5-38 SO 7 Determine cost of goods sold under a periodic system. Recording Purchases of Merchandise, p.227 E5-1 I nform ation re d to Pagnucci C is pre nte be late o. se d low. Pre parethe journal e to re thetransaction unde a pe tual inve ntry cord r rpe ntory syste . m 1. On April 5, purchase m rchandisefromS ff C pany for $20,000 de te om t e s 2/10, ne rm t/30, FOB shipping point. April 5 Me rchandiseI nve ntory Accounts Payable 20,000 20,000 Chapter 5-39 Recording Purchases of Merchandise 2. On April 6, paid fre costs of $700 on m rchandisepurchase from ight e d Bryant. April 6 Me rchandiseI nve ntory C ash 700 700 3. On April 7, purchase e d quipm nt on account for $29,000. e April 7 Equipm nt e Accounts Payable 29,000 29,000 Chapter 5-40 Recording Purchases of Merchandise 4. On April 8, re turne dam d m rchandiseto S ff C pany and d age e te om was grante a $3,000 cre for re d dit turne m rchandise de . April 8 Accounts Payable Me rchandiseI nve ntory 3,000 3,000 5. On April 15, paid theam ount dueto S ff C pany in full. te om (Discount = $17,000 x 2% = $340) April 15 Accounts Payable Me rchandiseI nve ntory C ash Chapter 5-41 17,000 340 16,660 Recording Purchases of Merchandise E5-1 Continued Pre parethejournal e to re thetransaction ntry cord unde a pe tual inve r rpe ntory syste . m 5. On April 15, paid theam ount dueto S ff C pany in full. te om What entry would be made if the company failed to pay within 10 days? April 16 or late r Accounts Payable C ash 17,000 17,000 Chapter 5-42 Recording Purchases of Merchandise Summary of Purchasing Transactions E5-1 Merchandise I nvent ory Debit Credit 5th - Purchase 6th – Fre ight-in Balance $20,000 700 $17,360 $3,000 340 8th - Re turn 15th - Discount Chapter 5-43 SO 2 Explain the recording of purchases under a perpetual inventory system. Recording Sales of Merchandise E5-4 Pre nte aretransactions re d to Whe le C pany. se d late e r om 1. On De m r 3,Whe le Com ce be er pany sold $500,000 of m rchandiseto Hashm C e i o., t e s 2/10, n/30, FOB shipping point. Thecost of them rchandisesold was rm e $350,000. 2. On De m r 8, Hashm C was grante an allowanceof $27,000 for ce be i o. d m rchandisepurchase on De m r 3. e d ce be 3. On De m r 13,Whe le C pany re ive thebalanceduefromHashm C ce be e r om ce d i o. Instructions: Pre thejournal e s to re the transactions on the pare ntrie cord se books of Whe le Com er pany using a pe tual inve rpe ntory syste . m Chapter 5-44 SO 3 Explain the recording of sales revenues SO under a perpetual inventory system. under Recording Sales of Merchandise E5-4 Pre parethejournal e s for Whe le C pany . ntrie e r om 1. On De m r 3, Whe le Com ce be er pany sold $500,000 of m rchandiseto Hashm e i Co., te s 2/10, n/30, FOB shipping point. C of m rchandisesold was rm ost e $350,000. De 3 c. Accounts Re ivable ce Ss ale C of Goods S ost old Me rchandiseI nve ntory Chapter 5-45 500,000 500,000 350,000 350,000 SO 3 Explain the recording of sales revenues SO under a perpetual inventory system. under Recording Sales of Merchandise E5-4 Pre parethejournal e s for Whe le C pany. ntrie e r om 2. On De m r 8, Hashm C was grante an allowance of $27,000 ce be i o. d f or m rchandisepurchase on De m r 3. e d ce be De 8 c. S s Re ale turns and Allowance s Accounts Re ivable ce 27,000 27,000 Chapter 5-46 SO 3 Explain the recording of sales revenues SO under a perpetual inventory system. under Recording Sales of Merchandise Recording E5-4 Pre parethejournal e s for Whe le C pany. ntrie e r om 2. Variation On De 8, Hashm C returned m rchandisefor cre c. i o. e dit of $27,000. Theoriginal cost of them rchandiseto Whe le was e er $19,800. De 8 c. S s Re ale turns and Allowance s Accounts Re ivable ce Me rchandiseI nve ntory C of Goods S ost old Chapter 5-47 27,000 27,000 19,800 19,800 SO 3 Explain the recording of sales revenues SO under a perpetual inventory system. under Recording Sales of Merchandise E5-4 Pre parethejournal e s for Whe le C pany . ntrie e r om 3. On De m r 13, Whe le C pany re ive thebalanceduefromHashm ce be e r om ce d i C o. De 13 c. C ash S s Discounts ale Accounts Re ivable ce * ** Chapter 5-48 463,540 * 9,460 ** 473,000 *** ($473,000 – $9,460) [($500,000 – $27,000) X 2% ] SO 3 Explain the recording of sales revenues SO under a perpetual inventory system. under *** ($500,000 – $27,000) Recording Sales of Merchandise E5-4 Variation Pre parethesale re nuese s ve ction of theincom e state e for Whe le C pany. m nt e r om Wheeler Company I ncome St at ement (Part ial) For t he Mont h Ended Dec. 31, Sales revenue Sales Less: Sales r et ur ns and allowances Sales discount s N et sales $ 500,000 (27,000) (9,460) 463, 540 Chapter 5-49 SO 3 Explain the recording of sales revenues SO under a perpetual inventory system. under Completing the Accounting Cycle Closing Entries E5-6 Pre nte is inform se d ation re d to Roge C for them late rs o. onth of January 2008. Roge use thepe tual inve rs s rpe ntory m thod. e Ending invent or y per books Ending invent or y per count Cost of goods sold Fr eight -out I nsur ance ex pense $ 21,600 21,000 218,000 7,000 12,000 Rent ex pense S alar y ex pense S ales discount S ales r et ur ns S ales $ 20,000 61,000 10,000 13,000 350,000 Re quire d: (a) Pre parethene ssary adjusting e for inve ce ntry ntory. (b) Pre parethene ssary closing e s. ce ntrie Chapter 5-50 SO 4 Explain the steps in the accounting cycle for a merchandising company. Completing the Accounting Cycle E5-6 (a) Pre parethene ssary adjusting e for inve ce ntry ntory. E5-6 C of Goods S ost old Me rchandiseI nve ntory Ending invent or y per books Ending invent or y per count O ver st at ement of invent or y $ 600 600 $ 21,600 21,000 600 Chapter 5-51 SO 4 Explain the steps in the accounting cycle for a merchandising company. Completing the Accounting Cycle E5-6 (b) Pre parethene ssary closing e s. ce ntrie E5-6 Ss ale I ncom S m e um ary I ncom S m e um ary C of Goods S ost old Fre ight-out I nsuranceExpe nse Re Expe nt nse S alary Expe nse S s Discounts ale S s Re ale turns I ncom S m e um ary Re taine Earnings d Chapter 5-52 350,000 350,000 341,600 218,600 7,000 12,000 20,000 61,000 10,000 13,000 8,400 8,400 SO 4 Explain the steps in the accounting cycle for a merchandising company. ...
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This note was uploaded on 03/10/2011 for the course ACCOUNTING acct101 taught by Professor Loons during the Spring '08 term at Uni Konstanz.

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