CH5+Merchandising+Operations+and+Multiple-Step+Income+Statement-09F (1)

CH5+Merchandising+Operations+and+Multiple-Step+Income+Statement-09F (1)

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Ch 5 Acct 207 1 ACCT 207 - Chapter 5 Merchandising Operations and Multiple-step Income Statement I. Income Statement is expanded to account for the selling of merchandise inventory: Multiple Step Format Net Sales (see III B. below) - Cost of goods sold (an expense account) Gross profit (also called gross margin) (subtotal) Less: Operating Expenses (including Bad Debt Expense) (including Freight-Out Expense) Net Operating Income (NOI) or Earnings (subtotal) before Interest and Taxes (EBIT) Plus/minus : other revenue/expenses (heading) Example: Interest income and/or expenses Pretax income (subtotal) Minus: Income tax expense (if corporation) Net Income II. Non-operating Activities (also includes some non-recurring expenses) Other Revenues and Gains Other Expenses and Losses Interest revenue from notes Interest expense on notes receivable and marketable securities payable and bonds payable Dividend revenue from investments Casualty losses from recurring in stock of other companies causes such as vandalism and accidents Gain from the sale of property, Loss from the sale of property, plant, and equipment plant, and equipment Rent revenue from subleasing Loss from strikes by employees a portion of the building and suppliers
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Ch 5 Acct 207 2 Refer to text: On page 240 see Walmart’s single step income statement and then compare to Walmart’s multi-step income statement. Also review the multi-step income statement on pg 243. III. Selling goods: A. Generally, service companies have little to no inventory. Manufacturing companies make their goods and sell to merchandisers. Merchandisers can be retailers (direct to consumers) or wholesalers (sell to retailers). Marketing is always changing especially with the advent of e-commerce. We will learn about manufacturer’s income statement in Acct 208. B. Goods can be typically sold for cash or credit and recorded when the goods are transferred from seller to buyer. You must understand from which perspective you are referring to. Each company can be both a buyer and a seller. C. Seller: Gross Profit (synonym = gross margin) “mark up on the goods” 1. Gross profit ratio = gross profit ÷ net sales 2. Gross profit + cost of goods sold = net sales 3. Profit margin = net income ÷ net sales D . Net Sales = Gross sales (both credit and cash)
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CH5+Merchandising+Operations+and+Multiple-Step+Income+Statement-09F (1)

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