Merchandising Business

Copyright Doug Hillman 1999

Merchandising Income Statement

Net Sales Cost of Goods Sold Gross Margin Operating Expenses Net Operating Margin

Copyright Doug Hillman 1999

Merchandising Income Statement

Other Revenues and Expenses Net Income before Taxes Income Tax Expense Net Income

Copyright Doug Hillman 1999

Net Sales
Sales Total or gross sales of merchandise Trade discounts Percentage reduction from list price Sales returns and allowances Reduction of price after sale Return of unacceptable merchandise

Copyright Doug Hillman 1999

Net Sales
Sales Discounts Discount for payment within a stated period 2/10, n/30 2% discount if paid within 10 days Gross amount due in 30 days

Copyright Doug Hillman 1999

Net Sales
Gross sales revenue Deduct: Sales returns and allowances Sales discounts Net sales revenues

Copyright Doug Hillman 1999

Merchandise Inventory Systems

Periodic inventory system Determine cost of goods sold and inventory balance only at end of each accounting period Perpetual inventory system Determine cost of goods sold and inventory balance after each sale.

Copyright Doug Hillman 1999

Cost of Goods Sold: Periodic

Merchandise inventory, beginning Purchases Transportation in Gross delivered cost of purchases Deduct: Purchases returns and allowances Purchases discounts Net cost of purchases Cost of goods available for sale Deduct: Merchandise inventory, ending Cost of goods sold
Copyright Doug Hillman 1999

Purchases
Records the cost of all merchandise bought for resale Recorded at invoice cost

Copyright Doug Hillman 1999

Transportation In
FOB shipping point Buyer is owner during transit and is responsible for transportation costs FOB destination Seller is owner during transit and is responsible for transportation costs

Copyright Doug Hillman 1999

10

Purchases Returns and Allowances

Contra account to purchases Records Price concessions after purchase Returns of merchandise

Copyright Doug Hillman 1999

11

Purchases Discounts
Contra account to purchases Records Cash discounts allowed for payments within discount period

Copyright Doug Hillman 1999

12

Net Cost of Purchases

Purchases Transportation in Gross delivered cost of purchases Deduct: Purchases returns and allow Purchases discounts Net cost of purchases

Copyright Doug Hillman 1999

13

Merchandise Inventory
Cost of merchandise on hand Amount determined by Physical count of units on hand Pricing at respective costs

Copyright Doug Hillman 1999

14

Cost of Goods Sold: Periodic

Merchandise inventory, beginning Purchases Transportation in Gross delivered cost of purchases Deduct: Purchases returns and allowances Purchases discounts Net cost of purchases Cost of goods available for sale Deduct: Merchandise inventory, ending Cost of goods sold
Copyright Doug Hillman 1999

15

Gross Margin on Sales

Difference between net sales and cost of goods sold Gross means must still deduct expenses

Copyright Doug Hillman 1999

16

Operating Expenses
Selling expenses Expenses incurred in advertising, selling, and delivering General and administrative expenses Other operating expenses such as office expenses, computer services, and executive salaries

Copyright Doug Hillman 1999

17

Net Operating Margin

Gross margin Less operating expenses

Copyright Doug Hillman 1999

18

Other Revenue and Expenses

Revenues and expenses that do not relate to the principal activity of the business Separation permits calculation of net operating margin without influence of these nonoperating items

Copyright Doug Hillman 1999

19

Income Tax Expense

Corporations must pay taxes on income Calculation prescribed by federal and state laws

Copyright Doug Hillman 1999

20

Net Price Method

Purchases discounts lost method Record the purchase at invoice price less cash discount If paid after discount period lapses, extra cost recorded as Purchases Discount Lost

Copyright Doug Hillman 1999

21

Analyzing Information
Are net sales increasing or decreasing? What is percentage change in net sales? Is percentage of cost of goods sold to net sales increasing or decreasing?

Copyright Doug Hillman 1999

22

Analyzing Information
Is gross margin percent increasing or decreasing? Is percentage of operating expenses to net sales increasing or decreasing? Is gross margin percent increasing or decreasing?

Copyright Doug Hillman 1999

23