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Merchandising Operations and the Accounting Cycle

Service Co. Income Statement Year ended June 30, 20xxService revenue$xxxExpenses:Salary expense xDepreciation expense xIncome tax expense xNet income$ xx. Merchandising Co. Income StatementYear ended June 30, 20xxSales revenue

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Merchandising Operations and the Accounting Cycle

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    1. Merchandising Operations and the Accounting Cycle Chapter 5

    2. Income Statements

    3. Account for the purchase of inventory. Objective 1

    4. Purchase of Inventory

    5. Purchase of Inventory Example On May 1, the Sporting Store acquired on account $2,000 of various items for resale. The supplier sent the merchandise along with a bill stating the quantity, price, and terms of sale. What is the journal entry?

    6. May 1 Inventory $2,000 Accounts Payable $2,000 Purchased inventory on account Inventory Accounts Payable 2,000 2,000 Purchase of Inventory Example

    7. Recording Purchase Returns and Allowances Example Assume that on May 4 a $100 item was returned prior to payment of the invoice. What is the journal entry?

    8. Recording Purchase Returns and Allowances Example Assume that one of the items of merchandise is slightly damaged, and the store was given a $10 allowance. What is the journal entry?

    9. Recording Purchase Returns and Allowances Example

    10. Purchase Discounts Credit terms are stated in expressions such as: 2/10, N/30, meaning that a discount of 2% is allowed if the invoice is paid within 10 days; otherwise the full (net) amount is due within 30 days.

    11. Purchase Discounts Example Assume the Sporting Store purchased merchandise for $1,000 with terms of 2/10, N/30. The store paid within the discount period. The 2% discount ($20) is deducted from the amount due ($1,000) and $980 is remitted.

    12. Purchase Discounts Example What is the journal entry?

    13. Recording Transportation Costs Transportation costs are the cost of moving inventory from seller to buyer. FOB stands for Free on Board and governs the passing of title of the goods. Selling/buying agreements usually specify FOB terms.

    14. Recording Transportation Costs

    15. Freight Charges Example Assume that on May 9 the Sporting Store paid $60 for freight. What is the journal entry?

    16. Objective 2

    17. Sale of inventory The amount a business earns from selling merchandise is called sales revenue Inventory that has been sold to customers is called cost of goods sold

    18. Sporting Store Example Assume that on May 11 the store sold merchandise costing $1,800 for $2,600 in cash. What are the journal entries?

    19. Sporting Store Example

    20. Sporting Store Example On May 15, the store sold to Maria Gym $5,000 worth of merchandise with a cost of $3,000. Terms are 2/10, N/30.

    21. Sales Discounts and Sales Returns and Allowances Example On May 17, Maria Gym returned $1,500 worth of goods that cost $900. In addition, a credit of $100 was allowed for merchandise that was damaged. What are the journal entries?

    22. Sales Discounts and Sales Returns and Allowances Example

    23. Sales Discounts and Sales Returns and Allowances Example There is no entry required for inventory since the goods were not returned.

    24. Sales Discounts and Sales Returns and Allowances Example On May 20, the store received a check from Maria Gym for the balance due. What is the balance due?

    25. Sales Discounts and Sales Returns and Allowances Example Maria took advantage of the sales terms 2/10, N/30.

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    31. Adjust and close the accounts of a merchandising business. Objective 4

    32. Adjustments to Inventory Example

    33. Adjustments to Inventory Example What is the journal entry?

    34. Closing Entries for a Merchandising Business

    35. Prepare a merchandisers financial statements. Objective 5

    36. Income Statement Formats There are two basic formats for the income statement: Multi-step Single-step

    37. Multi-Step Format

    38. Multi-Step Format

    39. Multi-Step Format

    40. Single-Step Format

    41. Single-Step Format

    42. Use the gross margin percentage and the inventory turnover ratio to evaluate a business. Objective 6

    43. Using the Financial Statements for Decision Making

    44. Gross Profit on $1 for Three Merchandisers

    45. Rate of Inventory Turnover for Three Merchandisers

    46. End of Chapter 5

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