Scribd
Upload
62 views

A Presentation On: Accounting For Merchandising Operation

This document provides an overview of accounting for merchandising operations. It discusses the differences between service companies and merchandising companies, and explains the perpetual and periodic inventory systems. The key steps in the accounting cycle for a merchandising company are also summarized, including adjusting entries, closing entries, and the multiple-step income statement. Examples of recording purchases and sales transactions under the periodic inventory system are also provided.

Uploaded by

KayesCj
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
62 views

A Presentation On: Accounting For Merchandising Operation

This document provides an overview of accounting for merchandising operations. It discusses the differences between service companies and merchandising companies, and explains the perpetual and periodic inventory systems. The key steps in the accounting cycle for a merchandising company are also summarized, including adjusting entries, closing entries, and the multiple-step income statement. Examples of recording purchases and sales transactions under the periodic inventory system are also provided.

Uploaded by

KayesCj
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 26

A Presentation on Accounting for Merchandising Operation

GROUP B
MD. NIAZ ISLAM ID: 091800004 S. M. ZUBAER HOSSAIN ID: 091800066

Objectives:
To identify the differences between service enterprise and merchandising company
To explain the recording of purchases under a perpetual inventory system To explain the recording of purchases under a periodic inventory system To explain the steps in the accounting cycle for a merchandising company

Merchandising Structure
promoting and sustaining certain categories called Merchandising purchasing and selling directly called retailing selling to retailers called wholesaling

Merchandising Operation

Operating Cycles
The operating cycle of a merchandising company ordinarily is longer than that of a service company. We see_

Flow of Costs
The cost flow system of merchandising company follows :

Perpetual System
Company keeps detailed records of the cost of each inventory purchase and sale.
Records continuously perpetually shows the inventory that should be on hand for every item.

Periodic System
Company does not keep detailed records of the inventory.

To determine the cost of goods sold:


First, the cost of goods on hand at the beginning of the period. Add to that the cost of goods purchased. A third, less cost of goods on hand at the end of the period.

Recording System of purchasing under a perpetual inventory system


Companies purchase inventory using cash or credit

Invoice include the terms:


1. Seller Information 2. Invoice date 3. Purchaser Information 4. Salesperson Information 5. Credit terms 6.Freight terms 7. Goods sold: Catalog number, description, quantity, price per unit 8. Total invoice amount

Purchase Returns and Allowances


When goods are damaged or defective The purchaser may return the goods to the seller for credit through refundable cash.

Freight Costs
It involves FOB shipping point or FOB destination

Purchase Discounts
Purchasing in on account may permit the buyer to claim a cash discount for prompt payment.

Final Purchasing Transactions

Sales revenues under a perpetual inventory system


Selling revenues when the goods transfer from the seller to the buyer. Sales may be made on credit or for cash. Business document should support every sales transaction.

Sales Returns and Allowances


Client returns goods because they are damaged or defective. Merchandising Inventory and Cost of Goods sold should be for the estimated value of the returned goods, rather than their cost. It is a debit account.

Sales Discounts
The seller may offer the customer a cash discount called by the seller a sales discount.

The seller increases (debits) the Sales Discounts account for discounts that are taken.

Steps in the accounting cycle for a merchandising company

Adjusting Entries
An additional adjustment to make the records agree. The perpetual inventory records may be incorrect due to recording errors. Thus, the company needs to adjust the perpetual records to make the recorded inventory amount agree.

Closing Entries
When a merchandising company, like a service company, closes to Income Summary all accounts that affect net income.
The company, credits all temporary accounts with debit balances, and debits all temporary accounts with credit balances.

Multiple step Income statement


Shows the steps in determining net income or net loss Help to determine net profit Distinguish between operating and non-operating activities Highlights intermediate components of income and sub grouping of expenses

Terms to be used in multiple step Income statement

Gross Profit:
Gross profit = Net sales Cost of goods sold.

Gross Profit rate:


Gross Profit rate =

Operating Expense and Net income:


Net income = Gross Profit Operating Expense

Non operating Activities


Revenue and expenses from auxiliary operations. Gains and losses that are unrelated to the company operation .

Single step income statement


Only one step. All data are classified under two categories: (i) revenues (ii) expenses. The revenue category includes operating revenue, other revenue and gains. The expenses include costs of goods sold, operating expense, other expense and losses.

Some Important formulas to be used in calculation of financial statement:


Net sales = Sales Sales discount.

Cost of goods purchased = Purchases Purchase return Purchase discount + Freight-in. Cost of goods sold = Beginning inventory + Cost of goods purchase Ending inventory.
Gross profit = Net sales Cost of goods sold. Net income = Gross profit Operating expense.

Recording Transaction under a Periodic Inventory system


(i) On April 05, purchased on account merchandise from Allman Company for $20,000 term2/10, net/30, FOB shipping point. (Merchandise Purchase)

(ii) On April 08, returned damaged merchandise to Allman Company and was granted a $4,000 allowance for returned merchandise. (Purchase returns and allowances)

(iii) On April 10, paid freight costs of $900 on merchandise purchased from Allman. (Freight costs)

(iv) On April 14, merchandiser pays the balance due (i, ii) account to Allman Company, takes the 3% cash discount for payment within 10 days. (Purchase discount)

Recording sales of merchandise


(i) On November 03, the sale of $4,800 to Allman Company is recorded by seller. (Merchandise sales)

(ii) On November 06, a return of goods for $500 sales from Allman Company (Sales returns & allowances)

(iii) On November 09, merchandiser receives a payment of $ 4,500 on account from Allman Company. Sellers honor the 3% cash discount. (Sales discount)

Thanks

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy