ch 4 notes - I. Merchandising activities A. Basic...

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I. Merchandising activities A. Basic vocabulary 1. Merchandiser: earns net income by buying and selling goods 2. Wholesaler: an intermediary that buys products from manufacturers or wholesalers and sells them to retailers or other wholesalers 3. Retailer: an intermediary that buys products from manufacturers or wholesalers and sells them to customers B. Reporting income for a merchandiser 1. Net income = net sales ( revenues from selling merchandise) – cost of goods sold – cost of other expenses in the period 2. Gross profit = net sales – cost of goods sold a) Cost of goods sold = expense of buying and preparing the merchandise C. Reporting inventory for a merchandiser 1. Balance sheet includes current assets (merchandiser inventory) a) Merchandiser inventory: products that a company owns and intends to sell * Includes cost of buying, shipping, storing and preparing the goods for sale D. Operating cycle for a merchandiser 1. Steps a) Purchase of merchandise b) Inventory for sale c) Credit sales d) Accounts receivable e) Cash 2. Duration a) Differs * Department store = months * Grocery store = weeks b) Companies try to keep duration short because assets tied up in inventory and receivables are not productive E. Inventory systems 1. Inventory: products a company owns and expects to sell in its normal operations a) Beginning inventory + net cost of purchases = merchandise available for sale
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b) Merchandise available for sale = ending inventory + cost of goods sold 2. Inventory accounting systems a) Perpetual: continually updates accounting records for merchandising transactions (records of inventory available for sale and inventory sold) * Become more popular because of advances in technology and competitive pressures b) Periodic: updates the accounting records for merchandise transactions only at the end of a period II. Accounting for merchandise purchases A. Merchandise inventory account
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This note was uploaded on 02/09/2012 for the course ACCT 1310 taught by Professor Staff during the Fall '10 term at Texas State.

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ch 4 notes - I. Merchandising activities A. Basic...

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