Accounting 211 - Chapter 5 Accounting for Merchandising Operations Accounting 211 Instructor Professor John Ahmad CHAPTER 5 ACCOUNTING FOR

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Chapter 5 Chapter 5 Accounting for Merchandising Operations Accounting 211 Instructor: Professor John Ahmad
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After studying this chapter, we will be able to: 1 identify the differences between a service enterprise and a merchandising company 2 explain the entries for purchases under a perpetual inventory system 3 explain the entries for sales revenues under a perpetual inventory system 4 explain the steps in the accounting cycle for a merchandising company CHAPTER 5 ACCOUNTING FOR MERCHANDISING OPERATIONS
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5 distinguish between a multiple-step and a single-step income statement 6 explain the computation and importance of gross profit 7 determine the cost of goods sold under a periodic system CHAPTER 5 ACCOUNTING FOR MERCHANDISING OPERATIONS After studying this chapter, we will be able to:
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MERCHANDISING COMPANY A merchandising company buys and sells goods to earn a profit. 1) Wholesalers sell to retailers 2) Retailers sell to consumers Primary source of revenue is Sales
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Expenses for a merchandiser are divided into two categories: 1 Cost of goods sold The total cost of merchandise sold during the period 2 Operating expenses Expenses incurred in the process of earning sales revenue (Examples: sales salaries and insurance expense) Gross profit is equal to Sales Revenue less Cost of Goods Sold MEASURING NET INCOME
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INCOME MEASUREMENT PROCESS FOR A MERCHANDISING COMPANY
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OPERATING CYCLES FOR A SERVICE COMPANY AND A MERCHANDISING COMPANY
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INVENTORY SYSTEMS Merchandising entities may use either: 1) Perpetual Inventory Detailed records of the cost of each item are maintained, and the cost of each item sold is determined from records when the sale occurs . 2) Periodic Inventory Cost of goods sold is determined only at the end of an accounting period .
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PERPETUAL VS. PERIODIC
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COST OF GOODS SOLD To determine the cost of goods sold under a periodic inventory system : 1) Determine the cost of goods on hand at the beginning of the accounting period, 2) Add to it the cost of goods purchased, AND 3) Subtract the cost of goods on hand at the end of the accounting period.
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Merchandise is purchased for resale to customers, the account Merchandise Inventory is debited for the cost of goods. Like sales, purchases may be made for cash or on account (credit). The purchase is normally recorded by the purchaser when the goods are received from the seller. Each credit purchase should be supported by a purchase invoice . PURCHASES OF MERCHANDISE
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PURCHASES OF MERCHANDISE SALES INVOICE
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For purchases on account, Merchandise Inventory is debited and Accounts Payable is credited. For purchases on account, Merchandise Inventory is debited and Accounts Payable is credited.
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This note was uploaded on 02/13/2012 for the course ACCOUNTING 211 taught by Professor Mcfarlane during the Spring '11 term at University of Phoenix.

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Accounting 211 - Chapter 5 Accounting for Merchandising Operations Accounting 211 Instructor Professor John Ahmad CHAPTER 5 ACCOUNTING FOR

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