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Merchandising Lecture MRFD
Merchandising Lecture MRFD
Merchandising Businesses
1
Objectives
1. Distinguish the activities of a service business from those
of a merchandising business.
2. Describe and illustrate the financial statements of a
merchandising business.
3. Describe the accounting for the sale of merchandise.
4. Describe the accounting for the purchase of merchandise.
5. Describe the accounting for transportation costs, sales
taxes, and trade discounts.
6. Illustrate the dual nature of merchandising transactions.
7. Prepare a chart of accounts for a merchandising business.
8. Describe the accounting cycle for a merchandising
business.
2
Nature of Businesses
Service Business
Fees earned PXXX
Operating expenses –XXX
Net income PXXX
Merchandising Business
Sales PXXX
Cost of Goods Sold –XXX
Gross Profit PXXX
Operating Expenses –XXX
Net Income PXXX 3
Collection Purchasing
Activity Activity
Cash
Accounts
Receivable
Finished Goods
Products
Distribution Sales
Activity Activity
4
Multiple-Step Income Statement
NetSolutions
Income Statement
For the Year Ended December 31, 2019
Continued
5
Operating expenses:
Selling expenses:
Sales salaries expense P56,230
Advertising expense 10,860
Depr. Expense–store equipment 3,100
Miscellaneous selling expense 630
Total selling expenses P70,820
Administrative expenses:
Office salaries expense P21,020
Rent expense 8,100
Depr. expense–office equipment 2,490
Insurance expense 1,910
Office supplies expense 610
Misc. administrative expense 760
Total admin. expenses 34,890
Total operating expenses 105,710
Income from operations P 77,240
Other income and expenses:
Rent revenue P 600
Interest expense (2,440) (1,840)
Net income Continued P75,400
6
Periodic vs. Perpetual Methods of Accounting
Periodic Method
• A method of determining the cost of merchandise sold and the
amount of merchandise on hand
• Under this method, the inventory records do not show the
amount available for sale or the amount sold during the period
Perpetual Method
• Under this method, each purchase and sale of merchandise is
recorded in the inventory and the cost of merchandise sold
accounts.
• The amount of merchandise available for sale and the amount
sold are continuously disclosed in the inventory records. 7
Cost of Goods Purchased
Purchases P521,980
Less: Purchase returns and
allowances P9,100
Purchase discounts 2,525 11,625
Net purchases P510,355
Add transportation-in (freight in) 17,400
Cost of goods purchased P527,755
Cost of Goods Sold
Merchandise inventory, 1/1/19 P 59,700
Purchases P521,980
Less: Purchase returns and
allowances P9,100
Purchase discounts 2,525 11,625
Net purchases P510,355
Add transportation-in (freight in) 17,400
Cost of merchandise purchased 527,755
Goods available for sale P587,455
Less merchandise inventory, 12/31/19 62,150
Cost of goods sold P525,305
9
Single-Step Income Statement for a
Merchandising Business
NetSolutions
Income Statement
For the Year Ended December 31, 2019
Revenues:
Net sales P708,255
Rent revenue 600
Total revenues P708,855
Expenses:
Cost of merchandise sold P525,305
Selling expenses 70,820
Administrative expenses 34,890
Interest expense 2,440
Total expenses 633,455
Net income P 75,400
10
Capital Statement
NetSolutions
Capital Statement
For the Year Ended December 31, 2019
11
NetSolutions - Balance Sheet- December 31, 2007
Assets
Current assets:
Cash P52,950
Accounts receivable 91,080
Merchandise inventory 62,150
Office supplies 480
Prepaid insurance 2,650
Total current assets P209,310
Property, plant, and equipment:
Land P20,000
Store equipment P27,100
Less accumulated
depreciation 5,700 21,400
Office equipment P15,570
Less accumulated
depreciation 4,720 10,850
Total property, plant, and
equipment 52,250
Total assets P261,560 12
Liabilities
Current liabilities:
Accounts payable P22,420
Note payable (current portion) 5,000
Salaries payable 1,140
Unearned rent 1,800
Total current liabilities P 30,360
Long-term liabilities:
Note payable (due 2017) 20,000
Total liabilities P 50,360
Owner’s Equity
Mr. Bean ,Capital 211,200
Total liab. and owner’s equity P261,560
13
Sales Transactions
14
Cash Sales
JOURNAL PAGE 26
Post.
Date Description Ref. Dr Cr.
2007
1 Jan. 3 Cash 1 800 00
2 Sales 1 800 00
3 To record cash sales.
4
5
16
Cash Sales
JOURNAL PAGE 28
Post.
Date Description Ref. Dr Cr.
2007
1 Jan. 31 Credit Card Expense 48 00
2 Cash 48 00
3 To record service charges
4 on credit card sales for the
5 month.
At
Credit
the end
cardofsales
the month,
(MasterCard
P48 was
or
sent
Visa)toare
cover
recorded
this service
as cashcharge.
sales.
17
Sales on Account
Jan. 12 Accounts Receivable—Sims Co. 510 00
Sales 510 00
Invoice No. 7172.
If buyer is allowed an
amount of time to pay, it is
known as the credit period.
19
Sales Discounts
Credit Terms
If invoice is If invoice is
paid within Invoice for
P1,500 NOT paid
10 days of within 10
Terms:
invoice date 2/10, n/30 days of
invoice date
P1,470 paid (less
2% as a cash
discount) P1,500 PAID
20
Sales Discounts
22
Sales Returns and Allowances
Jan. 13 Sales Returns and Allowances 225 00
Accounts Receivable—Krier Co. 225 00
Credit Memo No. 32.
24
Purchase Transactions
Post.
Date Description Ref. Dr Cr.
2007
1 Jan. 3 Merchandise Inventory 2 510 00
2 Cash 2 510 00
3 Purchased inventory from
4 Bowen Co.
5
Invoice period 30
Days in March 31
Date of invoice 12
Remaining days 19
April 11
27
Purchase Discounts
We can borrow at an annual interest rate of
6%. Should we borrow the to pay the
invoice within the discount period?
P60 discount
(2% x
P3,000)?
28
Purchase Discounts
Let’s see… Interest on the
amount due of P3,000 less
the 2 percent…
Discount P60.00
Interest for 20 days
at the rate of 6%
on P2,940 –9.80
Savings from
borrowing P50.20
29
Purchase Discounts
Looks like we should take
advantage of the discount even if we
have to borrow the money.
Discount P60.00
Interest for 20 days
at the rate of 6%
on P –9.80
Savings from
borrowing P50.20
30
Purchase Discounts
JOURNAL PAGE 27
Post.
Date Description Ref. Dr Cr.
2007
1 Mar. 12 Merchandise Inventory 3 000 00
2 Accounts Payable—Alpha
3 Technologies 3 000 00
4
5
36
Purchases Returns and Allowances
37
Purchases Returns and Allowances
38
Purchases Returns and Allowances
On May 12, NetSolutions pays the amount due.
39
Transportation Costs
FOB Shipping Point
Buyer pays freight costs and debits
Merchandise Inventory
Fruit Express
10 Merchandise Inventory 50 00
Cash 50 00
Paid shipping cost on
merchandise purchased.
Fruit Express
56
NetSolutions
Chart of Accounts
Income Statement Accounts
57
Merchandise Inventory
Shrinkage
NetSolutions inventory
records indicate that
P63,950 of merchandise
should be available for sale
on December 31, 2007.
The physical count reveals
that only P62,150 is
actually available.
58
Merchandise Inventory
Shrinkage
Adjusting Entry
Dec. 31 Cost of Merchandise Sold 1 800 00
Merchandise Inventory 1 800 00