QUICK SUMMARY FOR BASIC CONCEPTS OF

ACCOUNTING FOR MERCHANDISING OPERATIONS

- 3 basic types of company operations;

Services-Merchandisers-Manufacturers
- Merchandising Companies buy Products for resale to earn revenue (called net sales).
- Products purchased for resalse are called inventory (also can be called merchandise
inventory or merchnadise).
- Merchandising companies can sell inventory in the wholesale market or to consumers
in the retail market.
- Operating Cycle for a Merchandiser

- The flow of costs in an inventory system

Beg. Inventroy + Net Purchases = Merchandise Available for Sale = Ending Inventory + COGS
- Two alternative inventory accounting systems can be used to collect information about
cost of goods sold and cost of inventory:
1- perpetual system or
2- periodic system.
- The perpetual inventory system continually updates accounting records for merchandising
transactions.
- The periodic inventory system updates the accounting records for merchandise transactions
only at the end of a period.
- The key components of a merchandiser’s net income.
Sales – Sales Discount – Sales Returns and Allowances – Net Sales – COGS – Gross Profit –
Operating Expenses – Selling Expenses – General and Adminitstrative Expenses – Operating
Income (Income from Operations) – Other Revenues and Gains or Expenses and Losses
(Non-Operating Activities) – Net income.

All of the above represent basic concepts of Accounting for merchandising businesses, that
can be part of MCQs or similar questions in the Final Exam.

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 Accounting Applications_Part 10

Problem (5-1): From the adjusted trial balance given below for the Mirror Company, prepare a multiple-step
income statement in a good form. Salaries expense and depreciation expense on the building are equally
divided between selling activities and the general and administrative activities.

    

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 Answers

PROBLEM (5-1) A IS TO BE SOLVED JOINTLY BY THE INSTRUCTOR AND THE STUDENTS