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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