ACC151Chapt4 - Chapter 4 Accounting for Merchandising...

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Chapter 4: Accounting for Merchandising Operations MERCHANDISING ACTIVITES Service organizations sell time to earn revenue (Ex: accounting firms, law firms, and plumbing services) Manufacturer Wholesaler Retailer Customer REPORTING INCOME OF A MERCHANDISER Merchandising companies sell products to earn revenue (Ex: Sporting goods, clothes, and auto parts stores) Net Sales – Cost of Goods Sold = Gross Profit – Expenses = Net Income OPERATING CYCLE FOR A MERCHANDISER Begins with the purchase of merchandise and ends with the collection of cash from the sale of merchandise; how long it takes to make money INVENTORY Current Asset; hold available for sale in hopes to sell and generate future benefit TRADE DISCOUNTS Used by manufacturers and wholesalers to offer better prices for greater quantities purchased Ex) Matrix Inc. offers a 30% trade discount on orders of 1,000 units or more of their popular product Racer. Each Racer has a list price of $5.25 Quantity Sold 1,000 Price per Unit 5.25 Total 5,250 Less 30% Discount (1,575) Invoice Price 3675 Invoice : How to determine where transaction comes from 1. Seller 2. Invoice Date 3. Purchaser 4. Order Number 5. Credit Terms: the time allotted to make the payment without being considered late 6. Freight Terms 7. Goods 8. Invoice Amount
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PURCHASE ON DISCOUNT If payment comes in within the period Apply to only accounts receivable balances Pronounced “two-ten, net thirty” Date Debit Credit 6/20
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ACC151Chapt4 - Chapter 4 Accounting for Merchandising...

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