ch05 - PREVIEW OF CHAPTER 5 ACCOUNTING FOR MERCHANDISING...

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PREVIEW OF CHAPTER 5 ACCOUNTING FOR MERCHANDISING OPERATIONS Merchandising Operations Operating cycles Inventory systems Recording Purchases of Merchandise Purchase returns and allowances Freight costs Purchase discounts Sales returns and allowances Sales discounts Completing the Accounting Cycle Adjusting entries Closing entries Summary of entries Recording Sale of Merchandise Forms of Financial Statements Multiple-step income statement Single-step income statement Classified balance sheet
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A merchandising company is an enterprise that buys and sells goods to earn a profit. 1 Wholesalers sell to retailers 2 Retailers sell to consumers A merchandiser’s primary source of revenue is sales . MERCHANDISING COMPANY
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Expenses for a merchandising company: 1 cost of goods sold and 2 operating expenses Cost of goods sold = total cost of merchandise sold during the period. Operating expenses = expenses incurred in process of earning sales revenue. Examples: sales salaries and insurance expense. Gross profit = sales revenue - cost of goods sold . MEASURING NET INCOME
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Sales Revenue Cost of Goods Sold Gross Profit Operating Expenses Net Income (Loss) Less Equals Less Equals INCOME MEASUREMENT PROCESS FOR A MERCHANDISING COMPANY
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OPERATING CYCLES FOR A SERVICE COMPANY AND A MERCHANDISING COMPANY Accounts Receivable Cash Cash Service Company Merchandising Company Accounts Receivable Merchandis e Inventory Receive Cash Perform Services Receive Cash Buy Inventory Sell Inventory
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INVENTORY SYSTEMS Merchandising entities may use either of the following inventory systems: 1 Perpetual Detailed records of the cost of each inventory item are maintained, and the cost of goods sold is determined from records when the sale occurs . 2 Periodic Cost of inventory on hand and cost of goods sold are determined only at the end of an accounting period .
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PURCHASES OF MERCHANDISE (PERPETUAL) Under a perpetual inventory system, purchases of merchandise for resale are recorded as debits to the Merchandise Inventory account, while Accounts Payable is credited.
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