Accounting Principles

Thirteenth Edition
Weygandt ● Kimmel ● Kieso

Chapter 5, Part 3
Accounting for Merchandising
Operations
1
Multiple-Step and Comprehensive Income
Statements
• Shows several steps in determining net income
• Two steps relate to principal operating activities
• Distinguishes between operating and non-operating
activities
• Highlights intermediate components of income and
shows subgroupings of expenses.

2
Multiple-Step (1 of 2)
2023

3
Multiple-Step (2 of 2)
2023

4
Nonoperating Activities
Various revenues and expenses and gains and losses that are unrelated to
company’s main line of operations.
Other Revenues and Gains
Interest revenue from notes receivable and marketable securities.
Dividend revenue from investments in common stock.
Rent revenue from subleasing a portion of the store.
Gain from the sale of property, plant, and equipment.
Other Expenses and Losses
Interest expense on notes and loans payable.
Casualty losses from recurring causes, such as vandalism and accidents.
Loss from the sale or abandonment of property, plant, and equipment.
Loss from strikes by employees and suppliers.

5
Multiple-Step Income Statement (1 of 2)
(ANSWER IN NEXT SLIDE)

The multiple-step income statement for a merchandiser

shows each of the following features except:
a. gross profit.
b. cost of goods sold.
c. a sales revenue section.
d. investing activities section.

6
Multiple-Step Income Statement (2 of 2)
(ANSWER TO PREVIOUS SLIDE)

The multiple-step income statement for a merchandiser

shows each of the following features except:
a. gross profit.
b. cost of goods sold.
c. a sales revenue section.
d. Answer: investing activities section.

7
Single-Step Income Statement
• Subtract total expenses from total revenues in one step
• Two reasons for using single-step format:
o Company does not realize any profit until total revenues
exceed total expenses
o Format is simpler and easier to read

8
Single-Step
2023

9
Comprehensive Income Statement
Items excluded from net income but included in comprehensive
income are either reported in either:
• Combined statement of net income and comprehensive income
• Separate comprehensive income statement

2023

10
Classified Balance Sheet

2023

11
Exercise 5: Multiple-Step Income Statement
(1 of 3) (ANSWER IN NEXT SLIDE)
The following information is available for Art Center for the year ended
December 31, 2023.
Other revenues and gains $ 8,000 Sales revenue $462,000
Other expenses and losses 3,000 Operating expenses 187,000
Cost of goods sold 147,000 Sales discounts 20,000
Other comprehensive loss 10,000

Prepare a multiple-step income statement and comprehensive income

statement for Art Center.

12
Exercise 5: Multiple-Step Income Statement
(2 of 3) (ANSWER TO PREVIOUS SLIDE)

2023

13
Exercise 5: Multiple-Step Income Statement
(3 of 3) (ANSWER TO PREVIOUS SLIDE)

2023

14
Appendix 5A: Worksheet for a
Merchandising Company (1 of 2)
As indicated in Chapter 4, a worksheet enables companies to
prepare financial statements before they journalize and post
adjusting entries. The steps in preparing a worksheet for a
merchandising company are the same as for a service
company. Illustration 5A.1 shows the worksheet for PW
Audio Supply (excluding nonoperating items). The unique
accounts for a merchandiser using a perpetual inventory
system are in red.

15
Appendix 5A: Worksheet for a Merchandising
Company (2 of 2)
2023

16
Take Home Assignment: (50 pts.)

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END OF PART 3

18
Accounting Principles
Thirteenth Edition
Weygandt ● Kimmel ● Kieso

Chapter 5, Part 4
Accounting for Merchandising
Operations
19
Periodic Inventory System (1 of 2)
Determining Cost of Goods Sold Under a Periodic System
• No running account of changes in inventory
• Ending inventory determined by physical count
• Cost of goods sold not determined until end of period
• Different accounts used for purchases, freight costs, returns, and
discounts

20
Periodic Inventory System (2 of 2)

2023

21
Recording Merchandise Transactions
• Record revenues when sales are made
• Cost of merchandise sold not recorded on date of sale
• Physical inventory count at end of period determines:
o cost of merchandise on hand and
o cost of merchandise sold during the period

• Purchases recorded in Purchases account

• Purchase returns and allowances, Purchase discounts,
and Freight costs are recorded in separate accounts

22
Recording Purchases of Merchandise (1 of 4)

Illustration: On the basis of the sales invoice (Illustration 5.6) and

receipt of the merchandise ordered from PW Audio Supply, Sauk
Stereo records the $3,800 purchase as follows.

May 4 Purchases 3,800

Accounts Payable 3,800
(To record goods purchased on
account from PW Audio Supply)

23
Recording Purchases of Merchandise (2 of 4)
Freight Costs
Illustration: If Sauk Stereo pays Public Carrier Co. $150 for
freight charges on its purchase from P W Audio Supply on
May 6, the entry on Sauk Stereo’s books is:

May 6 Freight-In (Transportation-In) 150

Cash 150
(To record payment of freight on
goods purchased)

24
Recording Purchases of Merchandise (3 of 4)

Purchase Returns and Allowances

Illustration: Sauk Stereo returns goods costing $300 to P W
Audio Supply and prepares the following entry to recognize
the return.

May 8 Accounts Payable 300

Purchase Returns and Allowances 300
(To record return of goods purchased
from PW Audio Supply)

25
Recording Purchases of Merchandise (4 of 4)
Purchase Discounts
Illustration: On May 14, Sauk Stereo pays the balance due
on account to PW Audio Supply, taking the 2% cash discount
allowed by PW Audio Supply for payment within 10 days.
Sauk Stereo records the payment and discount as follows.
May 14 Accounts Payable ($3,800 − $300) 3,500
Purchase Discounts ($3,500 × .02) 70
Cash 3,430
(To record payment within the discount
period)

26
Recording Sales of Merchandise (1 of 3)
Illustration: The seller, PW Audio Supply, records the sale of $3,800
of merchandise to Sauk Stereo on May 4 (sales invoice No. 731,
Illustration 5.6) as follows.

May 4 Accounts Receivable 3,800

Sales Revenue 3,800
(To record credit sales per invoice
#731 to Sauk Stereo)

No entry is recorded for cost of goods sold at time of sale under

a periodic system.

27
Recording Sales of Merchandise (2 of 3)
Sales Returns and Allowances
Illustration: To record the returned goods received from Sauk
Stereo on May 8, PW Audio Supply records the $300 sales
return as follows.

May 8 Sales Returns and Allowance 300

Accounts Receivable 300
(To record credit granted to Sauk
Stereo for returned goods)

28
Recording Sales of Merchandise (3 of 3)
Sales Discounts
Illustration: On May 14, PW Audio Supply receives payment of
$3,430 on account from Sauk Stereo. PW Audio Supply honors the
2% cash discount and records the payment of Sauk Stereo’s account
receivable in full as follows.

May 14 Cash 3,430

Sales Discounts ($3,500 × .02) 70
Accounts Receivable ($3,800 − $300) 3,500
(To record collection within 2/10, n/30
discount period from Sauk Stereo)

29
Closing Entries (1 of 2)
• All accounts that affect the determination of net
income are closed to Income Summary
• In journalizing, all debit column amounts are credited,
and all credit columns amounts are debited
To close the merchandise inventory in a periodic
inventory system:
1. Beginning inventory balance is debited to Income
Summary and credited to Inventory
2. Ending inventory balance is debited to Inventory and
credited to Income Summary
30
Closing Entries (2 of 2)

31
Take
Home
Assignment:
(50 pts.)

32
END OF PART 4

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