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Chapter 5 Outline[1]

Chapter 5 Outline[1] - Chapter Outline I A B C 1 2 D E 1 2...

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Chapter Outline Notes I. Merchandising Activities A. Merchandise consists of products, also called goods, that a company acquires to resell to customers. Merchandisers can be either wholesalers (those that buy from manufacturers or other wholesalers and sell to retailers or other wholesalers) or retailers (those that buy from wholesalers or manufacturers and sell to consumers). B. Reporting Income for a Merchandiser Revenue from selling merchandise ( net sales ) minus the cost of goods (merchandise) sold to customers is called gross profit . Gross profit minus expenses (generally called operating expenses ) determines the net income or loss for the period. C. Reporting Inventory for a Merchandiser A merchandiser's balance sheet is the same as service businesses with the exception of one additional current asset called: 1 . Merchandise Inventory, or Inventory , refers to products a company owns and intends to sell. 2. The cost of this asset includes the cost incurred to buy the goods, ship them to the store, and make them ready for sale. D. Operating Cycle for a Merchandiser Begins by purchasing merchandise and ends by collecting cash from selling the merchandise. E. Inventory Systems Two alternative inventory systems that can be used to collect information about the cost of goods sold and the inventory (cost of goods available) are: 1. Perpetual inventory system which continually updates accounting records for merchandising transactions—specifically, those records of inventory available for sale and inventory sold. Technological advances and competitive pressures have dramatically increased the use of this method. 2. Periodic inventory system which updates the accounting records for merchandise transactions only at the end of a period . Note: This outline describes the accounting using a Perpetual Inventory System. Periodic Inventory is only discussed in the appendix section of this outline. Also note, the terms inventory and merchandise inventory are synonymous. Inventory is used for brevity.
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Chapter Outline Notes II. Accounting for Merchandise Purchases The invoice serves as a source document for this event. A. Trade Discounts Deductions from list price (catalog price) to arrive at invoice price (actual selling price). Trade discounts are not entered into accounts. 1.
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Chapter 5 Outline[1] - Chapter Outline I A B C 1 2 D E 1 2...

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