Ch05_Wey_Fin_6e

Ch05_Wey_Fin_6e - Chapter 5 Chapter Accounting for...

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Unformatted text preview: Chapter 5 Chapter Accounting for Merchandising Operations Financial Accounting, Sixth Edition Chapter 5 -1 Accounting for Merchandising Operations Merchandising Operations Operating Operating cycles cycles Inventory Inventory systems— systems— perpetual and perpetual periodic periodic Chapter 5 -2 Recording Recording Purchases of Merchandise Merchandise Recording Recording Sales of Merchandise Merchandise Freight costs Purchase Purchase returns and allowances allowances Purchase Purchase discounts discounts Summary of Summary purchasing transactions transactions Sales returns Sales and allowances allowances Sales Sales discounts discounts Completing the Completing 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 Merchandising Operations Merchandising Companies Buy and S ll Goods e Whole r sale Re r taile Theprim sourceof re nue is re rre to as ary ve s fe d sales. Chapter 5 -3 C onsum r e sales revenue or SO 1 Identify the differences between service and merchandising companies. Merchandising Operations Income Measurement Ss ale Re nue ve Less C of ost Goods S old Not use in a S rvice d e busine ss. Equal s Cost of goods sold is thetotal cost of m rchandisesold during thepe e riod. Chapter 5 -4 Gross Profit Illustration 5-1 Less 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. Recording Purchases of Merchandise Madeusing cash or cre (on account). dit I llustration 5-4 Norm re ally corde whe d n Purchaseinvoiceshould purchase . Chapter 5 -6 goods arere ive ce d. support e cre ach dit SO 2 Explain the recording of purchases under a perpetual inventory system. 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 -7 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 Chapter 5 -8 800,000 Goods availablefor sale SO 1 Identify the differences between service and merchandising companies. 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 -9 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 5-10 SO 7 Determine cost of goods sold under a periodic system. Recording Purchases of Merchandise E5-2 I nform ation re d to S ffe C is pre nte be late te ns 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 rchandisefromBryant C pany for $25,000 de om t e s 2/10, ne rm t/30, FOB shipping point. April 5 Chapter 5-11 Me rchandiseinve ntory Accounts payable 25,000 25,000 SO 2 Explain the recording of purchases under a perpetual inventory system. Recording Purchases of Merchandise Not all purchases increase Merchandise Inventory. E5-2 Pre parethejournal e to re thetransaction unde a pe tual ntry cord r rpe inve ntory syste . m 3. On April 7, purchase e d quipm nt on account for $26,000. e April 7 Chapter 5-12 Equipm nt e Accounts payable 26,000 26,000 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 the 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 Fre costs incurre by these r on outgoing m rchandisearean ope ight d lle e rating e nseto the xpe se r (Fre lle ight-out or De ry Expe ). live nse Chapter 5-13 SO 2 Explain the recording of purchases under a perpetual inventory system. Recording Purchases of Merchandise E5-2 Continued Pre parethejournal e to re thetransaction ntry cord unde a pe tual inve r rpe ntory syste . m 2. On April 6, paid fre costs of $900 on m rchandisepurchase from ight e d Bryant. April 6 Chapter 5-14 Me rchandiseinve ntory C ash 900 900 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 Purchase Allowance Re turn goods for cre if thesale dit was m on cre or for a cash ade dit, re fund if thepurchasewas for cash. May chooseto ke p the e m rchandiseif these r will grant e lle an allowance(de duction) fromthe purchaseprice . Chapter 5-15 SO 2 Explain the recording of purchases under a perpetual inventory system. Recording Purchases of Merchandise E5-2 Continued Pre parethejournal e to re thetransaction ntry cord unde a pe tual inve r rpe ntory syste . m 4. On April 8, re turne dam d m rchandiseto Bryant C pany and d age e om was grante a $4,000 cre for re d dit turne m rchandise de . April 8 Chapter 5-16 Accounts payable Me rchandiseinve ntory 4,000 4,000 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 5-17 SO 2 Explain the recording of purchases under a perpetual inventory system. Recording Purchases of Merchandise Purchase Discounts Terms Terms 2/10 1/10 EOM 2%discount if paid within 10 days. 1%discount if paid within first 10 days of ne m xt onth. Chapter 5-18 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. SO 2 Explain the recording of purchases under a perpetual inventory system. Recording Purchases of Merchandise E5-2 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 Bryant C pany in full. om (Discount = $21,000 x 2% = $500) April 15 Accounts payable Me rchandiseinve ntory C ash Chapter 5-19 21,000 420 20,580 SO 2 Explain the recording of purchases under a perpetual inventory system. Recording Purchases of Merchandise E5-2 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 Bryant C pany in full. om What entry would be made if the company failed to pay within 10 days? April 16 or late r Chapter 5-20 Accounts payable C ash 21,000 21,000 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 $ 25,000 $ 25,000 invest ed at 10% f or 20 days S avings by t aking t he discount $ $ 5 00.00 136.99 363. 01 Passing up thediscount offe d e re quate to paying an inte st rateof 2%on the s re useof $25,000 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 5-21 SO 2 Explain the recording of purchases under a perpetual inventory system. Recording Purchases of Merchandise Summary of Purchasing Transactions E5-2 Merchandise I nvent ory Debit 5th - Purchase 6th – Fre ight-in Balance Chapter 5-22 $25,000 900 Credit $4,000 420 8th - Re turn 15th - Discount $21,480 SO 2 Explain the recording of purchases under a perpetual inventory system. Recording Sales of Merchandise Madefor cash or cre (on account). dit I llustration 5-4 Norm re ally corde whe d n e d, usually whe arne n goods transfe from r se r to buye lle r. S s invoiceshould ale support e cre ach dit sale . Chapter 5-23 SO 3 Explain the recording of sales revenues SO under a perpetual inventory system. under Recording Sales of Merchandise Two Journal Entries to Record a Sale #1 #2 Chapter 5-24 C or Accounts re ivable ash ce Ss ale XXX C of goods sold ost Me rchandiseinve ntory XXX XXX Sellin g Price Cost XXX SO 3 Explain the recording of sales revenues SO under a perpetual inventory system. under Recording Sales of Merchandise E5-5 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 5-25 SO 3 Explain the recording of sales revenues SO under a perpetual inventory system. under Recording Sales of Merchandise E5-5 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. 500,000 C of goods sold ost Me rchandiseinve ntory Chapter 5-26 Accounts re ivable ce Ss ale 350,000 500,000 350,000 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 5-27 SO 3 Explain the recording of sales revenues SO under a perpetual inventory system. under Recording Sales of Merchandise E5-5 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. Chapter 5-28 S s re ale turns and allowance s Accounts re ivable ce 27,000 27,000 SO 3 Explain the recording of sales revenues SO under a perpetual inventory system. under Recording Sales of Merchandise Recording E5-5 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. 27,000 Me rchandiseinve ntory C of goods sold ost Chapter 5-29 S s re ale turns and allowance s Accounts re ivable ce 19,800 27,000 19,800 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 5-30 SO 3 Explain the recording of sales revenues SO under a perpetual inventory system. under Recording Sales of Merchandise E5-5 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. 463,540 * C ash S s discounts ale Accounts re ivable ce * 9,460 ** 473,000 *** ($473,000 – $9,460) ** [($500,000 – $27,000) X 2% *** ($500,000 – $27,000) Chapter 5-31 SO 3 Explain the recording of sales revenues SO under a perpetual inventory system. under Recording Sales of Merchandise E5-5 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 Chapter 5-32 $ 500,000 (27,000) (9,460) 463, 540 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 5-33 SO 4 Explain the steps in the accounting cycle for a merchandising company. Completing the Accounting Cycle Closing Entries C all accounts that affe ne incom . lose ct t e E5-8 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 Re quire d: $ 21,600 Rent ex pense $ 20,000 21,000 S alar y ex pense 61,000 218,000 S ales discount 10,000 7,000 S ales r et ur ns 13,000 12,000 S ales 350,000 (a) Pre parethene ssary adjusting e for inve ce ntry ntory. (b) Pre parethene ssary closing e s. ce ntrie Chapter 5-34 SO 4 Explain the steps in the accounting cycle for a merchandising company. Completing the Accounting Cycle E5-8 (a) Pre parethene ssary adjusting e for inve ce ntry ntory. E5-8 C of goods sold ost Me rchandiseinve ntory Ending invent or y per books 600 600 $ 21,600 Ending invent or y per count O ver st at ement of invent or y $ Chapter 5-35 21,000 600 SO 4 Explain the steps in the accounting cycle for a merchandising company. Completing the Accounting Cycle E5-8 (b) Pre parethene ssary closing e s. ce ntrie E5-8 Ss ale 350,000 I ncom sum ary em 350,000 I ncom sum ary em C of goods sold ost Fre ight-out I nsurancee nse xpe Re e nse nt xpe S alary e nse xpe S s discounts ale S s re ale turns I ncom sum ary em Re taine e d arnings Chapter 5-36 341,600 8,400 218,600 7,000 12,000 20,000 61,000 10,000 13,000 8,400 SO 4 Explain the steps in the accounting cycle for a merchandising company. 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 5-37 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 Chapter 5-38 I llustration 5-8 SO 5 Distinguish between a multiple-step and a single-step income statement. SO 6 Explain the computation and importance of gross profit. 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 5-39 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 5-40 SO 5 Distinguish between a multiple-step and a single-step income statement. ...
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