ACCT 201 Review 2.pptx - ACCT 201 REVIEW 2 Reporting income...

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ACCT 201 REVIEW 2
Reporting income for a merchandiser Revenue for a merchandiser is referred to as sales and the expense for the merchandise is cost of goods sold (inventory while we are holding the merchandise for sale.) The difference between the two is referred to as gross profit or gross margin .
Inventory Systems Two inventory systems Perpetual Inventory System Periodic Inventory System
Accounting for Merchandise Purchases Basic Entry Merchandise Inventory xxx Cash (or Accounts payable) xxx The invoice serves as a source document for this event.
Purchase Discounts Purchase discounts describe a cash discount granted to the purchaser for paying within the discount period. When a purchase discount is taken Merchandise Inventory is reduced by the discount amount at the time of the payment.
Accounting for Merchandise Purchases Basic Entry When Paid and discount is taken Accounts Payable xxx Merchandise Inventory xx Cash xxx
Purchase Returns and Allowances Purchase returns refer to merchandise a buyer acquires but then returns to the seller. A purchase allowance is a reduction in the cost of defective or unacceptable merchandise that a buyer acquires. A debit memorandum is issued by buyer to inform the seller of a debit made to the supplier’s account.
Accounting for Merchandise Purchases Basic Entry When merchandise is returned or an allowance given Accounts Payable xxx Merchandise Inventory xxx
Transportation Costs and Ownership Transfer The buyer and seller must agree on who is responsible for paying any freight costs and who bears the risk of loss during transit for merchandising transactions. Point of transfer is called FOB point FOB shipping point buyer accepts ownership when goods depart seller Buyer pays shipping FOB destination Seller retains ownership until goods arrive at buyers Seller pays shipping
Accounting for Merchandises Sales Merchandising companies must account for sales, sales discounts, sales returns and allowances, and cost of goods sold.
Sales of Merchandise Basic Entry Accounts Receivable (or cash) xxx Sales xxx Cost of goods sold xxx Merchandise Inventory xxx Each sales transaction involves two parts One for revenue One for cost of merchandise sold Gross profit = Sales – cost of goods sold may be stated per unit or in total
Sales Discounts Sales discount is the term used by a seller to describe a cash discount granted to buyers who pay within the discount period. Recorded when customer pays within the discount period. A separate account which is a contra-revenue account (normal balance is debit) Monitored to assess the effectiveness and cost of the discount policy
Sales of Merchandise Basic Entry for sales discount taken Cash xxx Sales Discount xx Accounts Receivable xxx
Sales Returns and Allowances Sales returns refer to merchandise that a customer returns to the seller after a sale.

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