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acct ch 4 - Reporting and Analyzing Merchandising...

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Reporting and Analyzing Merchandising Operations I. Merchandising opportunities A. Merchandising companies sell products to ear a profit 1. Do not manufacture 2. Products = merchandising inventory = current asset B. Manufacturer sells to wholesaler who sells to the retailer who sells to the costumer 1. Wholesaler and retailer are merchandisers II. Reporting incomes A. Gross product = net sales (revenue earned) – cost of goods sold (COGS) B. Net income = net sales – COGS – expenses III. Operating cycle A. Begins with the purchase of merchandise and ends with the collection of cash from the sales of merchandise B. Operating cycle 1. Beginning inventory + net cost of purchases = merchandise available for sale 2. Merchandise available for sale = ending inventory (current asset)+ COGS (expense) 3. Ending inventory for period one = beginning inventory for period two IV. Inventory systems A. Perpetual method: continuously updates the balance of merchandise inventory 1. Most common because it provides more accurate information B. Periodic method: updates the balance of merchandise inventory at the end of the accounting period 1. Not popular because inconvenient 2 Used for miniscule expenses like paperclips V. Merchandising transactions A. Trade discount 1. Used by manufacturers and wholesalers to offer better prices to those who buy greater quantities a) Incentive to buy more b) Not list price
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