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Accounting Applications - Part 10 - Lecture 7

The document provides a summary of basic accounting concepts for merchandising operations. It discusses the three types of business operations, defines key terms like inventory and cost of goods sold, and describes the operating cycle and alternative inventory accounting systems. It also outlines the components of a merchandiser's net income calculation.

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Ahmed Mostafa Elmowafy
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40 views

Accounting Applications - Part 10 - Lecture 7

The document provides a summary of basic accounting concepts for merchandising operations. It discusses the three types of business operations, defines key terms like inventory and cost of goods sold, and describes the operating cycle and alternative inventory accounting systems. It also outlines the components of a merchandiser's net income calculation.

Uploaded by

Ahmed Mostafa Elmowafy
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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QUICK SUMMARY FOR BASIC CONCEPTS OF

ACCOUNTING FOR MERCHANDISING OPERATIONS

- 3 basic types of company operations;


Services-Merchandisers-Manufacturers
- Merchandising Companies buy Products for resale to earn revenue (called net sales).
- Products purchased for resalse are called inventory (also can be called merchandise
inventory or merchnadise).
- Merchandising companies can sell inventory in the wholesale market or to consumers
in the retail market.
- Operating Cycle for a Merchandiser

- The flow of costs in an inventory system


Beg. Inventroy + Net Purchases = Merchandise Available for Sale = Ending Inventory + COGS
- Two alternative inventory accounting systems can be used to collect information about
cost of goods sold and cost of inventory:
1- perpetual system or
2- periodic system.
- The perpetual inventory system continually updates accounting records for merchandising
transactions.
- The periodic inventory system updates the accounting records for merchandise transactions
only at the end of a period.
- The key components of a merchandiser’s net income.
Sales – Sales Discount – Sales Returns and Allowances – Net Sales – COGS – Gross Profit –
Operating Expenses – Selling Expenses – General and Adminitstrative Expenses – Operating
Income (Income from Operations) – Other Revenues and Gains or Expenses and Losses
(Non-Operating Activities) – Net income.

All of the above represent basic concepts of Accounting for merchandising businesses, that
can be part of MCQs or similar questions in the Final Exam.

1
Accounting Applications_Part 10

Problem (5-1): From the adjusted trial balance given below for the Mirror Company, prepare a multiple-step
income statement in a good form. Salaries expense and depreciation expense on the building are equally
divided between selling activities and the general and administrative activities.

    

2
Answers

PROBLEM (5-1) A IS TO BE SOLVED JOINTLY BY THE INSTRUCTOR AND THE STUDENTS

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