201Lec05 - 201Lec05 Merchandising Operations Multiple-Step...

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201Lec05.ppt Merchandising Operations Merchandising Operations Multiple-Step Income Statement Multiple-Step Income Statement 1
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MERCHANDISING MERCHANDISING Service Businesses Make money by providing a service Services can’t be created and stockpiled for later sale. (no INVENTORY!) Usually less working capital needed to start and operate business. Simpler accounting system Service Businesses Make money by providing a service Services can’t be created and stockpiled for later sale. (no INVENTORY!) Usually less working capital needed to start and operate business. Simpler accounting system 3 BASIC TYPES OF COMPANIES 2
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MERCHANDISING MERCHANDISING Merchandiser Make money by selling a product. Usually more working capital needed because inventory must be available for sale. Bigger risk also due to obsolescence, theft, competition on price. Inventory is purchased from a supplier. Merchandiser doesn’t “add value ” to product. Merchandiser Make money by selling a product. Usually more working capital needed because inventory must be available for sale. Bigger risk also due to obsolescence, theft, competition on price. Inventory is purchased from a supplier. Merchandiser doesn’t “add value ” to product. 3 BASIC TYPES OF COMPANIES 3
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MERCHANDISING MERCHANDISING Manufacturer Convert a raw material to a finished good. Direct labor and manufacturing processes used in conversion. 3 types of inventories: Raw materials Work in process Finished goods Manufacturer Convert a raw material to a finished good. Direct labor and manufacturing processes used in conversion. 3 types of inventories: Raw materials Work in process Finished goods 3 BASIC TYPES OF COMPANIES 4
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SERVICE Revenues - Expenses Net Income ========= MERCHANDISING Sales - Contra Sales Net Sales - Cost of Goods Sold (CGS or COGS) Gross Profit - Operating Expenses Income from operations + other revenues and gains - other expenses and losses Income before taxes - Income tax expense Net Income ================= Income Statement- Income Statement- Multiple-Step format. Multiple-Step format. Income Statement- Income Statement- Multiple-Step format. Multiple-Step format. 5
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EXAMPLE Perpetual EXAMPLE Perpetual : : Inventory Inventory C G S C G S EXAMPLE Perpetual EXAMPLE Perpetual : : Inventory Inventory C G S C G S 1 - PERPETUAL PERPETUAL records CGS for each sale. Say sell for $3, cost is $1. Start 10 units, cost = $1 each 10 Sell 2 units 2 2 Sell 5 units 5 5 Purchase 10 units 10 Sell 8 units 8 8 . Balances 5 15 Inventory Methods Inventory Methods - 2 GAAP options: Inventory Methods Inventory Methods - 2 GAAP options: 6
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PERIODIC PERIODIC doesn’t record CGS at all! EXAMPLE Periodic EXAMPLE Periodic : : Inventory Inventory Purchases CGS CGS Start 10 units 10 Sell some No recording Inv/CGS (record revenue but not CGS) Sell some more No recording Inv/CGS Purchase 10 units 10 (must record purchase) Sell some more No recording Inv/CGS What is needed to compute amount CGS? 7
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201Lec05 - 201Lec05 Merchandising Operations Multiple-Step...

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