Chapter 4 – Accounting for Merchandising Businesses

Chapter 4 – Accounting for Merchandising Businesses

Exercises 1 :

Sales Transaction
Cash Sales
 On January 3, Alsaud sold 1000 RS of merchandise for cash. The cost of
merchandise sold was 200 RS

Date Description Debit Credit

Jan. 3

Jan. 3

Sales on Account
 On January 12, Alsaud sold merchandise on account for 5000 RS . The cost of
merchandise sold was 2000 RS .

Date Description Debit Credit

Jan. 12

Jan. 12

Receipts on Account
 On January 17, Alsaud receives the amount due within ten days, so the buyer
deducted (………… ) (15000 x 3 %) from the invoice amount.

Date Description Debit Credit

Jan. 22

Credit Memo
Chapter 4 – Accounting for Merchandising Businesses

 A credit memorandum, often called a creditmemo, authorizes a credit to (decreases) the

buyer’s account receivable.

 On January 13, issued Credit Memo No. 32 to Krier Company for merchandise
returned to Alsaud . Selling price, 5000 RS ; cost to Alsaud , 1500 RS .

Date Description Debit Credit

Jan. 13

Jan. 13

Purchase Transactions

 On January 3, Alsaud s purchased merchandise for cash. 2500 Rs

 On January 4, Alsaud purchased merchandise on account from Thomas Corporation

5000 RS

Date Description Debit Credit

Jan. 3

Jan. 4

2-Purchases Discounts
 ALsaad issues an invoice for 3000 RS to Alsaud dated March 12, with terms
5/10, n/30. Alsaud is trying to determine if it should pay the invoice within the
discount period.

 Based on the calculation in the previous slide, Alsaud pays the amount due, less the
discount, on March 22.

Date Description Debit Credit

Mar. 12
Chapter 4 – Accounting for Merchandising Businesses

Mar. 22

Purchases Returns and Allowances

 A debit memorandum, often called a debit memo, informs the seller of the amount
the buyer proposes to debit to the account payable due the seller.

Debit Memo
 NetSolutions receives a delivery from Maxim Systems and determines that $900 of
the items are not the merchandise ordered. Debit memorandum #18 is issued to
Maxim Systems. NetSolutions records the return of the merchandise as follows:

Date Description Debit Credit

Mar. 7

Merchandise Purchased
 On May 2, Alsaud purchased 5000 RS of merchandise on account from Delta Data
Link, terms 2/10, n/30.
 On May 4 ,Alsaud returned 3000 Rs of the merchandise purchased from Delta Data
Link.

Date Description Debit Credit

May. 2

May. 4

Exercises 2 :
Complete the following table :

Gross profit 50000

- Total operating expenses 15000

= Income from operations

Chapter 4 – Accounting for Merchandising Businesses

- Other expenses and losses 5000

= Net income

Exercises 3 :

1. On March 18, Diamond Store sold $25,000 of merchandise on account. The

merchandise was carried in inventory at a cost of $18,000.

2. On June 8, Diamond. sold merchandise costing $3,500 for $6,000 on account. Credit

terms were 2/10, n/30. Let’s prepare the journal entries.

3. On June 17, Diamond Store . received a check for $5,880 in full payment of the June

8 sale

4. On June 14, merchandise with a sales price of $800 and a cost of $470 was returned

to Diamond Store . The return is related to the June 12 sale

Date Description Debit Credit

Chapter 4 – Accounting for Merchandising Businesses

Exercise 4:

Barton Company
Income Statement
For Year Ended December 31, 2009
Sales $ 323,800
Less: Sales discounts $ 4,300
Sales returns 2,000 6,300
Net sales
Cost of Goods Sold 233,200
Gross profit from sales
Operating expenses:
Selling expenses:
Salaries expense $ 29,600
Advertising expense 13,300
General and administrative expenses:
Adm. salaries expense $ 18,200
Insurance expense 1,200
Rent expense 8,100
Supplies expense 1,000
Total operating expenses
Net income