Merchandise Accounts. Chapter 7 - Unit 14

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1 Merchandise Accounts Chapter 7 - Unit 14

2 Merchandising...

3 Merchandising... There are many types of companies out there

4 Merchandising... There are many types of companies out there Service company - sells services

5 Merchandising... There are many types of companies out there Service company - sells services Manufacturing company - makes products

6 Merchandising... There are many types of companies out there Service company - sells services Manufacturing company - makes products Merchandising company - sells products

7

8 To calculate net income for a service company - simply take revenue - expenses = net income

9 To calculate net income for a service company - simply take revenue - expenses = net income Merchandising is different

10

11 Merchandise are goods bought for resale

12 Merchandise are goods bought for resale Merchandise Inventory account - represents the total dollar value of goods on hand for sale

13 Merchandise are goods bought for resale Merchandise Inventory account - represents the total dollar value of goods on hand for sale Must buy and pay for the merchandise it sells as well as pay for the operation of the business

14 Merchandise are goods bought for resale Merchandise Inventory account - represents the total dollar value of goods on hand for sale Must buy and pay for the merchandise it sells as well as pay for the operation of the business Therefore you must use a two part equation to determine net income

15 Merchandise are goods bought for resale Merchandise Inventory account - represents the total dollar value of goods on hand for sale Must buy and pay for the merchandise it sells as well as pay for the operation of the business Therefore you must use a two part equation to determine net income Revenue - Cost of Goods Sold = Gross Profit

16 Merchandise are goods bought for resale Merchandise Inventory account - represents the total dollar value of goods on hand for sale Must buy and pay for the merchandise it sells as well as pay for the operation of the business Therefore you must use a two part equation to determine net income Revenue - Cost of Goods Sold = Gross Profit Gross Profit - Expenses = Net Income

17 Net Income - when revenue from sales exceeds both the cost of goods sold and the operating expenses Look at Income Statement - page 280 Page Questions 1,2 - Ex 1-3

18 Cost of Goods Sold

19 Cost of Goods Sold Supporting statement providing details of an item on a main statement

20 Cost of Goods Sold Supporting statement providing details of an item on a main statement Steps in preparation - Beginning inventory + purchases of merchandise - ending merchandise inventory = cost of goods sold

21 Cost of Goods Sold - Example MERCHANDISE INVENTORY JANUARY 1 $ ADD: PURCHASES $ LESS: RETURNS AND ALLOWANCES NET PURCHASE COST ADD: TRANSPORTATION IN COST OF GOODS AVAILABLE FOR SALE $ LESS: MERCHANDISE INVENTORY JANUARY COST OF GOODS SOLD $

22

23 Purchase Discounts - cash discounts received off the invoice price - this decreases the cost of the merchandise - it is subtracted from the purchases account

24 Purchase Discounts - cash discounts received off the invoice price - this decreases the cost of the merchandise - it is subtracted from the purchases account Purchase Returns and Allowances - if goods are returned, the cost of the purchases decrease, you use this account to show these decreases

25 Purchase Discounts - cash discounts received off the invoice price - this decreases the cost of the merchandise - it is subtracted from the purchases account Purchase Returns and Allowances - if goods are returned, the cost of the purchases decrease, you use this account to show these decreases Net Purchase Cost - this is the purchase account figure less the purchase returns and allowances account and the purchase discounts account

26 Purchase Discounts - cash discounts received off the invoice price - this decreases the cost of the merchandise - it is subtracted from the purchases account Purchase Returns and Allowances - if goods are returned, the cost of the purchases decrease, you use this account to show these decreases Net Purchase Cost - this is the purchase account figure less the purchase returns and allowances account and the purchase discounts account Transportation on Purchases - the cost of transporting the merchandise to the retailer s place of business

27

28 One of the main focusses of the company is to keep track of the inventory - therefore need a system to keep track of it

29 One of the main focusses of the company is to keep track of the inventory - therefore need a system to keep track of it Perpetual Inventory - a continuous record of all merchandise on hand - records are kept for each individual item the company sells

30 One of the main focusses of the company is to keep track of the inventory - therefore need a system to keep track of it Perpetual Inventory - a continuous record of all merchandise on hand - records are kept for each individual item the company sells Used by a retailer who needs to know exactly how much of each item of merchandise is on hand - a seller who normally sells a low number of high-priced items - i.e. cars

31 One of the main focusses of the company is to keep track of the inventory - therefore need a system to keep track of it Perpetual Inventory - a continuous record of all merchandise on hand - records are kept for each individual item the company sells Used by a retailer who needs to know exactly how much of each item of merchandise is on hand - a seller who normally sells a low number of high-priced items - i.e. cars Continually calculating COGS

32

33 Periodic Inventory - Businesses take a physical inventory count to determine the value of inventory on hand

34 Periodic Inventory - Businesses take a physical inventory count to determine the value of inventory on hand Used when a business sells a large quantity of relatively low priced merchandise - i.e. candy or potato chips

35 Periodic Inventory - Businesses take a physical inventory count to determine the value of inventory on hand Used when a business sells a large quantity of relatively low priced merchandise - i.e. candy or potato chips Total value on hand is recorded in the merchandise inventory account and is used on both the schedule of cost of goods sold and on the balance sheet

36 Periodic Inventory - Businesses take a physical inventory count to determine the value of inventory on hand Used when a business sells a large quantity of relatively low priced merchandise - i.e. candy or potato chips Total value on hand is recorded in the merchandise inventory account and is used on both the schedule of cost of goods sold and on the balance sheet Have to calculate COGS at the end of the period

37 Work Page 306 Q 4-6 Page 308 EX 4-6

2. A service company earns net income by buying and selling merchandise. Ans: False

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