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chapter5 - CHAPTER 5 Accounting for Merchandising...

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Chapter 5-1 CHAPTER 5 Accounting for Merchandising Operations ACCT100 Autumn 2011 Teresa Chu Chapter 5-2 Merchandising Operations Buy and sell merchandise as primary source of revenue Sales/Sales revenue: Revenue earned from selling merchandise Cost of goods sold: Total cost of merchandise sold during the period
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Chapter 5-3 Merchandising Operations Income Measurement Illustration 5-1 Net Income (Loss) Less Less Equals Equals Sales Revenue Cost of Goods Sold Gross Profit Operating Expenses Chapter 5-4 Inventory Systems Keep track of inventory to determine what is available for sale and what has been sold 2 inventory systems (1) Periodic system NO detailed inventory records Determine COGS only at end of accounting period (periodically) through physical inventory count COGS = Beginning inventory + Purchases – Ending inventory
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Chapter 5-5 Inventory Systems (2) Perpetual system Continuous (perpetual) and detailed record of cost of each inventory purchase and sale Separate inventory records for each product Determine COGS each time a sale occurs Become popular because of computers and electronic scanners Provide better control of inventory than periodic system Chapter 5-6 Purchase using cash or credit (on account) Record when goods are received Checks or cash register receipts support record of cash purchase Merchandise Inventory XX Cash XX Purchase invoices support record of credit purchase Merchandise Inventory XX Accounts payable XX Recording Purchases
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Chapter 5-7 Information related to Steffens Co. is presented below. Prepare the journal entry to record the transaction under a perpetual inventory system. 1. On April 5, purchased merchandise from Bryant Company for $25,000 terms 2/10, net/30, FOB shipping point Merchandise inventory 25,000 April 5 Accounts payable 25,000 Recording Purchases Chapter 5-8 FOB shipping point: Seller places goods FOB the carrier, buyer pays freight costs Merchandise Inventory XX Cash XX FOB destination: Seller places the goods FOB to the buyer’s place of business, seller pays freight costs (hence NO entry for the buyer) Freight-out/Delivery expense XX Cash XX Freight Costs Recording Purchases
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Chapter 5-9 2. On April 6, paid freight costs of $900 on merchandise purchased from Bryant Merchandise inventory 900 April 6 Cash 900 Recording Purchases Chapter 5-10 Goods are returned to seller because goods are damaged or defective, of inferior quality, or do not meet buyer’s specifications Purchase Returns and Allowances Recording Purchases If credit purchase, reduce “Accounts payable” OR if cash purchase, reduce “Cash” (cash refund) Keep merchandise if seller grants an allowance (deduction) from purchase price Purchase Return Purchase Allowance
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