Professional Documents
Culture Documents
5-1
Merchandising Operations
and the Multiple-Step
Income Statement
Chapter
5-2 Financial Accounting, Fifth Edition
Study
Study Objectives
Objectives
Operating Freight costs Sales returns Sales revenues Gross profit rate
cycles Purchase and allowances Gross profit Profit margin
Flow of costs- returns and Sales discounts Operating ratio
perpetual and allowances expenses
periodic Purchase Nonoperating
inventory discounts activities
systems.
Summary of Determining
purchasing cost of goods
transactions sold-periodic
system
Chapter
5-4
Merchandising
Merchandising Operations
Operations
Merchandising Companies
Buy and Sell Goods
Income Measurement
Not used in a
Sales Less
Service business. Illustration 5-1
Revenue Income measurement process
for a merchandising company
Chapter
5-6 SO 1 Identify the differences between service and merchandising companies.
Merchandising
Merchandising Operations
Operations
Illustration 5-2
Operating
Cycles
Chapter
5-7 SO 1 Identify the differences between service and merchandising companies.
Merchandising
Merchandising Operations
Operations
Flow of Costs
Illustration 5-3
Flow of Costs
Perpetual System
Maintain detailed records of the cost of each
inventory purchase and sale.
Records continuously show inventory that should be
on hand.
Company determines cost of goods sold each time a
sale occurs.
Chapter
5-9 SO 1 Identify the differences between service and merchandising companies.
Merchandising
Merchandising Operations
Operations
Flow of Costs
Periodic System
Do not keep detailed records of the goods on hand.
Determine cost of goods sold only at end of accounting period.
Physical inventory count to determine cost of goods on hand.
Calculation of Cost of Goods Sold:
Beginning inventory
$ 100,000
Add: Purchases, net
800,000
Chapter
5-10
Goods the
SO 1 Identify available for sale
differences between service and merchandising companies.
Merchandising
Merchandising Operations
Operations
Flow of Costs
Additional Consideration
Perpetual System:
Traditionally used for merchandise with high unit values.
Chapter
5-11 SO 1 Identify the differences between service and merchandising companies.
Chapter
5-12
Recording
Recording Purchases
Purchases of
of Merchandise
Merchandise
Chapter
5-13 SO 2 Explain the recording of purchases under a perpetual inventory system.
Recording
Recording Purchases
Purchases of
of Merchandise
Merchandise
Illustration 5-5
Chapter
5-14 SO 2 Explain the recording of purchases under a perpetual inventory system.
Recording
Recording Purchases
Purchases of
of Merchandise
Merchandise
Chapter
5-15
Freight costs incurred by the seller are an operating expense.
Recording
Recording Purchases
Purchases of
of Merchandise
Merchandise
Chapter
5-17 SO 2 Explain the recording of purchases under a perpetual inventory system.
Recording
Recording Purchases
Purchases of
of Merchandise
Merchandise
Question
In a perpetual inventory system, a return of
defective merchandise by a purchaser is recorded by
crediting:
a. Purchases
b. Purchase Returns
c. Purchase Allowance
d. Merchandise Inventory
Chapter
5-18 SO 2 Explain the recording of purchases under a perpetual inventory system.
Recording
Recording Purchases
Purchases of
of Merchandise
Merchandise
Chapter
5-19 SO 2 Explain the recording of purchases under a perpetual inventory system.
Recording
Recording Purchases
Purchases of
of Merchandise
Merchandise
Purchase Discounts
Credit terms may permit buyer to claim a cash
discount for prompt payment.
Advantages:
Purchaser saves money.
Seller shortens the operating cycle.
Chapter
5-20 SO 2 Explain the recording of purchases under a perpetual inventory system.
Recording
Recording Purchases
Purchases of
of Merchandise
Merchandise
Chapter
5-21 SO 2 Explain the recording of purchases under a perpetual inventory system.
Recording
Recording Purchases
Purchases of
of Merchandise
Merchandise
Chapter
5-23 SO 2 Explain the recording of purchases under a perpetual inventory system.
Recording
Recording Purchases
Purchases of
of Merchandise
Merchandise
Purchase Discounts
Should discounts be taken when offered?
Discount of 2% on $3,500 $ 70.00
$3,500 invested at 10% for 20 days 19.18
Savings by taking the discount $ 50.82
Balance $3,580
Chapter
5-25 SO 2 Explain the recording of purchases under a perpetual inventory system.
Recording
Recording Purchases
Purchases of
of Merchandise
Merchandise
On September 5, De La Hoya Company buys merchandise on
account from Junot Diaz Company. The selling price of the goods is
$1,500. On September 8, De La Hoya returns defective goods with
a selling price of $200. Record the transactions on the books of De
La Hoya Company.
Chapter
5-26 SO 2 Explain the recording of purchases under a perpetual inventory system.
Recording
Recording Purchases
Purchases of
of Merchandise
Merchandise
On September 5, De La Hoya Company buys merchandise on
account from Junot Diaz Company. The selling price of the goods is
$1,500. On September 8, De La Hoya returns defective goods with
a selling price of $200. Record the transactions on the books of De
La Hoya Company.
Chapter
5-27 SO 2 Explain the recording of purchases under a perpetual inventory system.
Recording
Recording Sales
Sales of
of Merchandise
Merchandise
8 Merchandise inventory 50
Cost of goods sold 50
Review Question
The cost of goods sold is determined and recorded
each time a sale occurs in:
a. periodic inventory system only.
b. a perpetual inventory system only.
c. both a periodic and perpetual inventory system.
d. neither a periodic nor perpetual inventory
system.
Sales Discount
Offered to customers to promote prompt payment.
“Flipside” of purchase discount.
Contra-revenue account (debit).
Chapter
5-39 SO 4 Distinguish between a single-step and a multiple-step income statement.
Income
Income Statement
Statement Presentation
Presentation
Illustration 5-7
Single-
Step
Chapter
5-40 SO 4 Distinguish between a single-step and a multiple-step income statement.
Income
Income Statement
Statement Presentation
Presentation
Chapter
5-41 SO 4 Distinguish between a single-step and a multiple-step income statement.
Income
Income Statement
Statement Presentation
Presentation
Illustration 5-8
Multiple-
Step
Key Line
Items
Chapter
5-42 SO 4 Distinguish between a single-step and a multiple-step income statement.
Income
Income Statement
Statement Presentation
Presentation
Review Question
The multiple-step income statement for a
merchandiser shows each of the following features
except:
a. gross profit.
b. cost of goods sold.
c. a sales revenue section.
d. investing activities section.
Chapter
5-43 SO 4 Distinguish between a single-step and a multiple-step income statement.
Income
Income Statement
Statement Presentation
Presentation
Sales Revenues
Illustration 5-9
Chapter
5-44 SO 4 Distinguish between a single-step and a multiple-step income statement.
Income
Income Statement
Statement Presentation
Presentation
Comparisons with past amounts and rates and with those in the industry
indicate the effectiveness of a company’s purchasing and pricing policies.
Chapter
5-45 SO 4 Distinguish between a single-step and a multiple-step income statement.
Income
Income Statement
Statement Presentation
Presentation
Operating Expenses Illustration 5-11
Chapter
5-46
Income
Income Statement
Statement Presentation
Presentation
Nonoperating Activities
Various revenues and expenses and gains and losses that
are unrelated to the company’s main line of operations.
Illustration 5-10
Chapter
5-47 SO 4 Distinguish between a single-step and a multiple-step income statement.
Illustration 5-11
Income
Income
Statement
Statement
Presentation
Presentation
Chapter
5-48
Chapter
5-49
The following information is available for Art Center Corp. for the year
ended December 31, 2010.
Chapter
5-50
Income
Income Statement
Statement Presentation
Presentation
Chapter
5-51 SO 5 Determine cost of goods sold under a periodic system.
Income
Income Statement
Statement Presentation
Presentation
Chapter
5-52 SO 5 Determine cost of goods sold under a periodic system.
Income
Income Statement
Statement Presentation
Presentation
Aerosmith Company’s accounting records show the following at the
yearend December 31, 2010.
Chapter
5-53 SO 5 Determine cost of goods sold under a periodic system.
Evaluating
Evaluating Profitability
Profitability
Chapter
5-54 SO 6 Explain the factors affecting profitability.
Evaluating
Evaluating Profitability
Profitability
Chapter
5-56 SO 6 Explain the factors affecting profitability.
Evaluating
Evaluating Profitability
Profitability
Chapter
5-57 SO 6 Explain the factors affecting profitability.
Evaluating
Evaluating Profitability
Profitability
Freight Costs
Illustration: If Sauk pays Haul-It Freight Company $150
for freight charges on its purchase from PW Audio Supply on
May 6, the entry on Sauk’s books is:
Purchase Discounts
Illustration: On May 14 Sauk Stereo pays the balance due on
account to PW Audio Supply, taking the 2% cash discount
allowed by PW Audio for payment within 10 days. Sauk
Stereo records the payment and discount as follows.
Sales Discounts
Illustration: On May 14, PW Audio Supply receives payment of
$3,430 on account from Sauk Stereo. PW Audio honors the 2%
cash discount and records the payment of Sauk’s account
receivable in full as follows.
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Chapter
5-73