Accounting Notes Ch.5

Accounting Notes Ch.5 - Accounting Notes Chapter 5 Show the...

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Unformatted text preview: Accounting Notes Chapter 5 Show the difference between the calculation of net income for service and merchandising businesses - Income calculation for a merchandising business The merchandising business has different types of revenue and expense items on its income statement Cost of goods sold is the cost to the merchandising firm of the goods sold to customers during a period of time. The difference between cost of goods sold and net sales revenue is gross margin on sales (or simply gross margin) Gross margin gives us information on the ability to sell merchandise at a price greater than its cost. The difference between gross margin and operating expenses is net operating margin. Identify the sales revenue accounts and calculate net sales revenue - S al e s r e c or d s t h e t o t al or gr o s s s al e s of m e r c h a n di s e Th e d e bit t o a c c o u n t s r e c eiv a bl e r e c or d s a n incr e a s e in a n a s s e t Th e cr e dit t o s al e s , a r e v e n u e a c c o u n t, r e c or d s t h e gr o s s incr e a s e in o w n e r s' e q uity - S al e s r e t ur n s a n d allow a n c e s is a c o n tr a a c c o u n t t o s al e s - S al e s di s c o u n t is a c o n t r a a c c o u n t t o s al e s A c a s h dis c o u n t is a d e d u c tio n fro m t h e invoic e p ric e of g o o d s allow e d if p a y m e n t is m a d e wit hi n a s p e cifie d p e rio d of ti m e . Th e di s c o u n t p e rio d is t h e p e rio d in w hic h t h e c a s h di s c o u n t is a v ail a bl e - Th e n e t s al e s r e v e n u e is t h e gr o s s s al e s r e v e n u e s al e s r e t ur n s a n d allow a n c e s s al e di s c o u n t s Calc ul a t e t h e c o s t of g o o d s s old for t h e p e rio d - Purc h a s e s is a n e x p e n s e a c c o u n t o nly u s e d t o r e c or d p ur c h a s e s of g o o d s for r e s al e - Tra n s p or t a tio n In is a n e x p e n s e a c c o u n t a d d e d t o p u r c h a s e s . Wh e n t h e c o s t of tr a n s p or t a tio n is t h e r e s p o n si bility of t h e b u y e r, it d e bit s t h e c o s t t o tr a n s p o r t a tio n In F.O.B. s hi p pin g p oi nt = titl e (ow n e r s hip) t o g o o d s p a s s e s t o t h e b u y e r w h e n t h e s ell er t ur n s t h e s hi p m e n t o v e r t o a c o m m o n c arri er. Buy e r's r e s p o n si bility t o p a y for tr a n s p or t a tio n c o s t s F.O.B. d e s ti n a tio n = titl e t o g o o d s p a s s e s t o t h e b u y e r a t t h e d e s ti n a tio n. S ell er is r e s p o n si bl e for tr a n s p o r t a tio n c o s t s - Purc h a s e r e t ur n s a n d allow a n c e s Co ntr a a c c o u n t t o p ur c h a s e s Cr e dit t o p ur c h a s e s a n d allow a n c e s - Purc h a s e s di s c o u n t s Co ntr a a c c o u n t t o p ur c h a s e s Rec or d s c a s h di s c o u n t s allow e d for p a y m e n t s m a d e wit hin t h e di s c o u n t p e rio d - Ne t Cos t of Purc h a s e s Th e invoic e c o s t of p u r c h a s e s + tr a n s p o r t a tio n In p ur c h a s e s r e t ur n s a n d allow a n c e s p ur c h a s e s dis c o u n t s Merchandise inventor y shows the cost of m erchandise on hand at the end of each accounting period - Cost of goods sold Add t he beginning inventor y to the net cost of purchases to arrive at the cost of good available for sale Deduct the ending inventor y to arrive at the cost of goods sold Prepare a m ultistep income statement and compare it to a singlestep income state ment - Explain how t he net price m ethod enables m anagers to control t he cost of buying m erchand - The alternative procedure to recording purchases discounts is the net price m ethod, a called the purchases discounts lost m ethod. Record purchases at netinvoice price m inus discount. Analyze financial state ment infor mation for reallife companies ...
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