Chapter 3 Fundamental I PPt
Chapter 3 Fundamental I PPt
Accounting for
Merchandising
Operations
LEARNING OBJECTIVES
After studying this chapter, you should be able
to:
1. Identify the differences between service and
merchandising companies.
2. Explain the recording of purchases under a
perpetual inventory system.
3. Explain the recording of sales revenues under a
perpetual inventory system.
4. Explain the steps in the accounting cycle for a
merchandising company.
5. Prepare an income statement for a merchandiser.
What is a Merchandising Company?
Illustration
5-3
Flow of Costs
Illustration
5-4
Illustration 5-6
Sales Invoice Used As
Purchase
Invoice By Sauk Stereo
Cont’d
Illustration
Illustration: Sauk Stereo 5-6
Illustration 5-
Freight costs incurred by the seller are an
7 Shipping operating expense.
Terms
Cont’d
Illustration: Assume upon delivery of the goods on
May 6, Sauk Stereo pays Public Freight Company
€150 for freight charges, the entry on Sauk Stereo’s
books is:
May 6 Inventory 150
Cash
150
Assume the freight terms on the invoice in Illustration
5-6 had required PW Audio Supply to pay the
freight charges, the entry by PW Audio Supply would
have been:
May 4 Freight-Out (Delivery Expense)150
Cash
Purchase Returns and
Allowances
Purchaser may be dissatisfied because goods are
damaged or defective, of inferior quality, or do not
meet specifications.
Advantages:
Purchaser saves money.
Seller shortens the operating cycle by converting
the accounts receivable into cash earlier.
Example: Credit
terms may read
2/10, n/30.
Cont’d
Balance 3,580
> DO IT!
On September 5, Zhu Company buys merchandise on
account from Gao Company. The selling price of the
goods is ¥15,000, and the cost to Gao Company was
¥8,000. On September 8, Zhu returns defective goods
with a selling price of ¥2,000. Record the transactions
on the books of Zhu Company.
Sept. 5 Inventory 15,000
Accounts Payable 15,000
Sept. 8 Accounts Payable 2,000
Inventory 2,000
Recording Sales of
3.
Merchandise
3.
Made using cash or credit (on account). Illustration
5-6
Sales revenue, like
service revenue, is
recorded when the
performance obligation
is satisfied.
Performance obligation
is satisfied when the
goods are transferred
from the seller to the
buyer.
Sales invoice should
Cont’d
8 Inventory 140
Cost of Goods Sold 140
Cont’d
Illustration: Assume the returned goods were
defective and had a scrap value of €50, PW Audio
would make the following entries:
8 Inventory 50
Cost of Goods Sold 50
Cont’d
Question #2
The cost of goods sold is determined and
recorded each time a sale occurs in:
a. periodic inventory system only.
b. a perpetual inventory system only.
c. both a periodic and perpetual inventory
system.
d. neither a periodic nor perpetual inventory
system.
Solution
Sales Discount
Offered to customers to promote prompt
payment of the balance due.
Contra-revenue account (debit) to Sales
Revenue.
Cont’d
Illustration: Assume Sauk Stereo pays the balance
due of €3,500 (gross invoice price of €3,800 less
purchase returns and allowances of €300) on May 14,
the last day of the discount period. Prepare the
journal entry PW Audio Supply makes to record the
receipt on May 14.
May Cash 3,430
14 Sales Discounts 70 *
Accounts Receivable 3,500
Illustration 5B-2
Recording Merchandise
Transactions
Record revenues when sales are made.
Accounts Receivable
300
Cont’d
Sales Discount
Illustration: On May 14, PW Audio Supply receives
payment of €3,430 on account from Sauk Stereo. PW
Audio honors the 2% cash discount and records the
payment of Sauk’s account receivable in full as
follows.
May 14 Cash 3,430
Sales Discounts 70
Accounts Receivable 3,500
Cont’d
Comparison of Entries
Illustration 5B-3: Comparison of Entries for Perpetual Vs Periodic
Inventory Systems
Cont’d
Comparison of Entries
Illustration 5B-3: Comparison of Entries for Perpetual Vs Periodic
Inventory Systems
The End of Chapter
3
Thank You!!!