Professional Documents
Culture Documents
Learning Objectives
1. Nature of Merchandising Business
2a. Accounting for Purchases
2b. Accounting for Sales C6
2c. Transportation Costs
2d. Merchandise Transactions
3. Merchandising Chart of Accounts
4. Merchandising Income Statement
5. Merchandising Accounting Cycle
6. Financial Analysis and Interpretation
C6 - 1
Chapter 6 Power Notes
Accounting for Merchandising Businesses
C6 - 3
Income Statement Comparison
Service Business
Fees earned $150,000
Operating expenses 120,000
Net income $ 30,000 20% of revenues
Merchandising Business
Sales revenue $600,000
Cost of mdse. sold 450,000
Gross profit $150,000
Operating expenses 120,000
Net income $ 30,000 5% of revenues
C6 - 4
Income Statement Comparison
Service Business
Fees earned $150,000
Operating expenses 120,000
Net income $ 30,000 20% of revenues
Merchandising Business
Sales revenue $600,000
Cost of mdse. sold 450,000 75% of revenues
Gross profit $150,000
Operating expenses 120,000
Net income $ 30,000 5% of revenues
C6 - 5
Inventory Costs and Relationships
LIABILITIES
Net Income
C6 - 6
Inventory Costs and Relationships
LIABILITIES
Net Income
C6 - 7
Advantages of Using Perpetual Inventory
C6 - 8
Perpetual Inventory System
General Journal General Ledger
Description Debit Credit
Mdse. Inventory
Mdse. Inventory 5,000
A Accts. Payable 5,000
A 5,000
In a perpetual system,
A Purchase on account Mdse. Inventory is an
active asset account.
B Return of merchandise All changes are recorded
as they occur.
C6 - 9
Perpetual Inventory System
General Journal General Ledger
Description Debit Credit
Mdse. Inventory
Mdse. Inventory 5,000
A Accts. Payable 5,000
A 5,000 1,000 B
Bal 4,000
B Accts. Payable 1,000
Mdse. Inventory 1,000
In a perpetual system,
A Purchase on account Mdse. Inventory is an
active asset account.
B Return of merchandise All changes are recorded
C Sale of merchandise as they occur.
C6 - 10
Perpetual Inventory System
General Journal General Ledger
Description Debit Credit
Mdse. Inventory
Mdse. Inventory 5,000
A Accts. Payable 5,000
A 5,000 1,000 B
2,500 C
Is invoice
paid within 10 Full amount is due
days of No within 30 days of
invoice invoice date.
date?
C6 - 13
Credit Terms, Cash Discounts
Credit Terms: 2/10, n/30
Is invoice
paid within 10 Full amount is due
days of No within 30 days of
invoice invoice date.
date?
Yes
2% of invoice
amount is
allowed as a
cash discount.
C6 - 14
Credit Terms, Cash Discounts
Credit Terms: 2/10, n/30
Is invoice
paid within 10 Full amount is due
days of No within 30 days of
invoice invoice date.
date?
C6 - 15
Selling and Buying Merchandise Inventory
Seller Buyer
Description Debit Credit Description Debit Credit
Jan 12. Merchandise was sold with credit terms of 2/10, n/30.
C6 - 16
Selling and Buying Merchandise Inventory
Seller Buyer
Description Debit Credit Description Debit Credit
Jan 12. Merchandise was sold with credit terms of 2/10, n/30.
C6 - 17
Selling and Buying Merchandise Inventory
Seller Buyer
Description Debit Credit Description Debit Credit
C6 - 18
Accounting for Merchandise Transactions
Scully Company (Seller) Burton Co. (Buyer)
Description Debit Credit Description Debit Credit
C6 - 19
Accounting for Merchandise Transactions
Scully Company (Seller) Burton Co. (Buyer)
Description Debit Credit Description Debit Credit
Accts. Receivable 5,000 Mdse. Inventory 5,000
Sales 5,000 Accts. Payable 5,000
Cost of Mdse. Sold 3,500
Mdse. Inventory 3,500
C6 - 20
Accounting for Merchandise Transactions
Scully Company (Seller) Burton Co. (Buyer)
Description Debit Credit Description Debit Credit
C6 - 22
Accounting for Merchandise Transactions
Scully Company (Seller) Burton Co. (Buyer)
Description Debit Credit Description Debit Credit
C6 - 23
Accounting for Merchandise Transactions
Scully Company (Seller) Burton Co. (Buyer)
Description Debit Credit Description Debit Credit
C6 - 25
NetSolutions
Merchandising Chart of Accounts
Income Statement Accounts
C6 - 26
NetSolutions
Income Statement (Multiple-Step)
For the Year Ended December 31, 2002
Continued
C6 - 27
Operating expenses:
Selling expenses:
Sales salaries expense $60,030
Advertising expense 10,860
Depr. expense–store equip. 3,100
Miscellaneous selling expense 630
Total selling expenses $ 74,620
Administrative expenses:
Office salaries expense $21,020
Rent expense 8,100
Depr. expense–office equip. 2,490
Insurance expense 1,910
Office supplies expense 610
Misc. admin. expenses 760
Total admin. expenses 34,890
Total operating expenses 109,510
Income from operations $ 73,440
Continued C6 - 28
Other income:
Interest revenue $ 3,800
Rent revenue 600
Total other income $ 4,400
Other expense:
Interest expense 2,440 1,960
Net income $75,400
C6 - 29
NetSolutions
Income Statement (Single-Step)
For the Year Ended December 31, 2002
Revenues:
Net sales $708,255
Interest revenue 3,800
Rent revenue 600
Total revenues $712,655
Expenses:
Cost of merchandise sold $525,305
Selling expenses 74,620
Administrative expenses 34,890
Interest expense 2,440
Total expenses 637,255
Net income $ 75,400
C6 - 30
NetSolutions
Balance Sheet
December 31, 2002
Assets
Current assets:
Cash $ 52,950
Notes receivable 40,000
Accounts receivable 60,880
Interest receivable 200
Merchandise inventory 62,150
Office supplies 480
Prepaid insurance 2,650
Total current assets $219,310
Continued
C6 - 31
NetSolutions
Balance Sheet
December 31, 2002
Continued
C6 - 32
NetSolutions
Balance Sheet
December 31, 2002
Liabilities
Current liabilities:
Accounts payable $ 22,420
Note payable (current portion) 5,000
Salaries payable 1,140
Unearned rent 1,800
Total current liabilities $30,360
Long-term liabilities:
Note payable (due 2004) 20,000
Total liabilities $ 50,360
Owner’s Equity
Chris Clark, capital 211,200
Total liabilities and owner’s equity $261,560
C6 - 33
Profitability Analysis
C6 - 34
Profitability Measures — Effective Use of Assets
C6 - 35
Profitability Measures — Effective use of Assets
C6 - 36
Chapter 6 Power Notes
Accounting for Merchandising Businesses
C6 - 37