1

5-2
COURSE OUTLINE
Two aims of this course (1) Understanding of a general accounting system (2)
Instructor: Nguyễn Thị Thu, PhD, MBA, MA. Introducing the Uniform accounting system in Vietnamese enterprises

ACC5070 PRINCIPLES OF ACCOUNTING Chapter 1

Source
Accounting in Action

Chapter 2: Chapter 5: Accounting for

The Recording Process Merchandising Operations

Chapter 3: Chapter 6:
Adjusting the Accounts Inventories

Chapter 4: Completing the

Accounting Cycle

Chapter 7
The Vietnamese Accounting System

1 2

5-3 5-4
CHAPTER 5 CHAPTER OUTLINE
ACCOUNTING FOR MERCHANDISE OPERATIONS

Chapter Preview
§ Merchandising is one of the largest and most
influential industries in the world. It is likely that a
number of you will work for a merchandiser.
Therefore, understanding the financial statements of
merchandising companies is important. In this
chapter, you will learn the basics about reporting
merchandising transactions. In addition, you will
learn how to prepare and analyze a commonly used
form of the income statement.

3 4
 2

5-5 5-6
LEARNING OBJECTIVE 5.1 INCOME MEASUREMENT
DESCRIBE MERCHANDISING OPERATIONS AND INVENTORY SYSTEMS
q Merchandising Companies
q Cost of goods sold is the lating giatri
q Buy and Sell Goods
total cost of merchandise
sold during the period.
cua'hag da ban
trong ky
Retailer
Gia von IN go
hangban
Chiphi
thee
Wholesaler Consumer IN
q The primary source of revenues is referred to
hatong
as sales revenue or sales.

5 6

5-7 5-8
TRANSACTIONS IN A MERCHANDISING COMPANY
1. Merchandise inventory is purchased 2. Payments are made for
for cash or on credit/On Account purchases on credit
Purchase
OPERATING C YCLES for cash

Merchandise
Cash Payment Accounts Purchase
Inventory
of cash Payable on credit

Sales
for cash
Collection Accounts Sales
of cash Receivable on credit
3. Merchandise is sold for 4. Cash is collected from
cash or on credit credit sales

Goods
Transfer ownership of
goods and money
Money

7 8
 HOATDONG THUONG MAT VAHETHONG HANG TON KHO

Khainiem
- :Ban le'* Ban si
> Doach the ban hang, Gia vonhang hoa
(Sales Revenue) (Costof Goods sold)

VD:Mux 200 chiesas gia 50K/chies, trong ki bar

100 cai
giaban 150k/chie'
Doanhthu 150.000 100 15,000.000
=
x
=

-
Gia
=>

hag
von ban
giaua's chie'skhinhapx stg
= chie mith
ma ban de
50.000 x 100 5,000.000
=
=

=> Loinhan
gop= Doah the
ban
hang-Gia' vonhang ban 15,000,000
=
5,000.000
10.000.000
-

Gross Profit) (Sales Revenue)

=
-
(CostofGoods Sold)
=

=>

Loinhanthan18inhuangoChiPhihoat,aness
&

↳ IC. Phiban hang, C.P

Alydo anh nghip)
CHU KYHOAT ADNG KINH DOANH (Agian:Mua monhang dantier -> ban hetcas
monhong)
Cty dich un # thing
Cty mai

the tien tien the

tien'sTienmina, (Banhet)
-
7

Mail
thic hier
Hangtonish
Mail M
S
dich vie
Phaithe Banhag,
-

Phang e IH
E toi kho
 3

thingI he haiS thngPxuyen.I

nangton
DongFLOWgia
OF COSTS
tri

Gitr:
5-9

Long
The PERPETUAL NVENTORY YSTEM VS ERIODIC NVENTORY

q Perpetual System
SYSTEM
q Periodic System
-> bethong
5-10
the
kit
who sta ma
• Maintain detailed records § Does not keep detailed
of the cost of each records of goods on hand
Kin
inventory purchase and § Cost of goods sold

Fiatcut de
sale determined by count
e
bin • Records continuously
§ Calculation of Cost of
show inventory that
Goods Sold:
should be on hand for
Gia von doing toi every item
hangban who co,ky • Company determines
Beginning inventory
Add: Purchases, net
€100,000
800,000
cost of goods sold each
time a sale occurs Goods available for sale 900,000
q Companies use either aperpetual inventory system or a periodic
Less: Ending inventory 125,000
inventory system to account for inventory.
Cost of goods sold €775,000

9 10

PERPETUAL INVENTORY SYSTEM VS PERIODIC INVENTORY 5-11 5-12

SYSTEM ADVANTAGES OF THE PERPETUAL SYSTEM
§ Traditionally used for merchandise with high unit values
§ Shows quantity & cost of inventory on hand at any time
§ Provides better control over inventories than a periodic system

I
aic o
T
(Sale revenue
-

T -
COGS Gross
=

Profit)
F (Beginning inventory Cost of Goods Purchased)
-

cost of Goods available for sale

-

11 12
Dong gia tr.
san de ban (CostofGoods sold)
available for sale

na
Giatri so
hong

00
=

Giai toidan+ sean

L

Purchasea
taki
Hang tin who coi
ki (Ending Inventory)
Giatriton AK+
-

spa, ky-Giavon
Got a hang ban
(BeginningInventory) ofGoods sold ( 1 Cost

HOAT LONG THUONG MATVAHE THONG HANGTON

KHO
IE KHATHYONG XUYEN KIEM KE AINH KY
PERPETUAL SYSTEM PERIODIC SYSTEM

Lum
gi so'sach who
on chitiet
who
vi
gian wa Khonglin
ginso sach who diriet
to
do and thus
hang ha
mos lamua vo ban
hang on -

trong kij. (chi ghithan

Lien
=>
tuc chi ra de HTK cuami loci. ↳_ ghi when sting dil
xnat
Gia von GVHB (COGS):cuiky nottirh
hang ban-finh
ngay saw mitlan' ban

GVHB/COGS):tinh
the FIFO, birch quan GUHB(COGS) Toi dan
-

ky+Giatri mua-Toicur:Ky
Munhng (ghil-Ban hang (ghidoah the
Muahang (ghi) ->
Banhang/ghidoah that
vi
gia won) ->
wo,k(khng ghi) -> wo; ky/ gli giavon)

theningsundungislongmat
the

hang gitre
coquetma things
dungenen Loaisawplan

Iding phai men)

Un die:Tietkiem chiphi
die:Kiem
In so attot
HTK
 4

5-13 5-14
LEARNING OBJECTIVE 5.2
RECORD PURCHASES UNDER A PERPETUAL SYSTEM PURCHASE
INVOICE –
• Made using cash or credit (on account)
JOURNAL ENTRIES
• Normally record when goods are received from the seller
• Purchase invoice should support each credit purchase
Illustration: Sauk Stereo
(the buyer) uses as a
purchase invoice the sales
invoice prepared by PW
Audio Supply, Inc. (the
seller). Prepare the
journal entry for Sauk
Stereo for the invoice from
PW Audio Supply.
Journal entry:

13 14

5-15 5-16
FREIGHT COSTS FREIGHT COSTS - ILLUSTRATION

Assume upon delivery of the goods on May 6, Sauk Stereo pays

Secre
Public Freight Company €150 for freight charges, the entry on
Sauk Stereo’s books is:

q Ownership of the goods q Ownership of the

passes to the buyer when goods remains with the

Gab
Assume the freight terms on the invoice on slide number 13 had
the public carrier accepts seller until the goods

rea
required PW Audio Supply to pay the freight charges, the entry
the goods from the seller. reach the buyer. by PW Audio Supply would be: are

q Freight costs incurred by the seller are an operating expense.

Note: FOB = Free on Board

15 16
 FOB diei den:

ma
/

Niban
Vanchayen,
-

↓ Rice
E
dabao goin (PVC
↳do saisan'E
a ban
quyensohim
cen
⑪

TS mot
do enkchiveich macty
+

↓ ↓ ban of cty)
him
N ↓
cna
this queenso

T
-> tha thank toan ->cia gli
D 0

W -> cp dung 2/15, n/30

FOB diein di thank to dig
↓
an han
a mua
a ban

- Dr 3850-300
AccountPayable + 3500
vanchuyen, who
=

lagI i Cr Inventory &2%.3500 70

=

- CPUC do a mua tra Cr Cash ↓ 3500 -

70 3450
=

-Rugen Echo a
 5

5-17 5-18
PURCHASE RETURNS AND ALLOWANCES PURCHASE RETURNS AND ALLOWANCES
qPurchaser may be dissatisfied because goods are damaged
or defective, of inferior quality, or do not meet specifications.
qPurchase Return Review Question
qReturn goods for credit if the sale was made on credit, or for a
In a perpetual inventory system, a return of defective
cash refund if the purchase was for cash.
qPurchase Allowance
merchandise by a purchaser is recorded by crediting:
qMay choose to keep the merchandise if the seller will grant a a. Purchases
reduction of the purchase price.
b. Purchase Returns
c. Purchase Allowance
Illustration: Assume Sauk Stereo returned goods costing
€300 to PW Audio Supply on May 8. O
d. Inventory
Cr
May 8 Accounts Payable 300
Inventory 300

17 18

5-19 5-20
PURCHASE DISCOUNTS PURCHASE DISCOUNTS - ILLUSTRATION
q Credit terms may permit buyer to claim a cash Assume Sauk Stereo pays the balance due of €3,500 (gross invoice price of
discount for prompt payment. €3,800 less purchase returns and allowances of €300) on May 14, the last day
q Advantages:
of the discount period. Prepare the journal entry Sauk Stereo makes on May 14
to record the payment.
• Purchaser saves money
• Seller shortens the operating cycle by converting the (3,800 – 300 = 3,500)
(3,500*98% = 3,430)
accounts receivable into cash earlier
(3,500*2% = 70)
Example: Credit terms may read 2/10, n/30.

moste
2/10, n/30: 2% discount if paid within 10 days,
of otherwise net amount due within 30 days.
end 1/10 EOM: 1% discount if paid within first 10 days of
next month.
n/10 EOM: Net amount due within the first 10 days of
the next month.
EOM = End of Month

19 20
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5-21 5-22
EXAMPLE OF TRADING TERMS SUMMARY OF PURCHASING TRANSACTIONS

Catalog price 100 Not

100 Not in
in bookeeping
bookeeping

28 I
Notin
Trade
Trade discount
discount 20%
20% 20 system
system
20 bookeeping Seller
Seller Buyer
Buyer
Sales price 80
80 Sales
sales Purchases
Purchases
10
system Sales
Returns 10 SalesReturns Purchases Returns
Returns Purchases Returns

70
70
70
Credit Discount
Credit Discount 1.4
1.4
1.4 Sales Discounts Purchases
sales Purchases
2%
2% Discounts Discounts
Discounts
Cash
Cash 68.6
68.6
68.6
Cash
CashReceipts
Receipts Cash
CashPayments
Payments

Net sales
-

Sales-Sales returns, allowances and discounts.

Purchases
Net purchases: - Purchase Returns, allowances
and discounts

21 22
21

5-23 5-24
LEARNING OBJECTIVE 5.3
RECORD SALE UNDER A PERPETUAL SYSTEM
JOURNAL
• Sales may be made on credit or for cash ENTRIES TO
• Sales revenue, like service revenue, is recorded when RECORD A
the performance obligation is satisfied SALE

Loan
• Performance obligation is satisfied when goods are
transferred from seller to buyer Illustration: PW
Audio Supply
• Sales invoice should support each credit sale records its May
Output voucher Cash 4 sale of
Warehouse €3,800 to Sauk
Invoice Accounts Stereo (see
Receivable Illustration 5.6)
Transfer ownership of
goods for money as follows
(assume the
merchandise
Costs of Sales Revenues
cost PW Audio
goods sold Supply
Revenue deduction
€2,400).

23 24
 Juguic

ne
11

He
Nol
-> Khan, no egian,
-IT No,
costice
is an
↓Co', dieNS
IP 60', NNO,
die Col

W
-
chia thank
-
toan -> cha ghi
1

I
->c' + ghi
 1
Buttoan Buttoan 2

ABanhang Dr AccountReceivable 3800

+
Dr COGST 2400
Cr Sales revenue -3800 Cr
Inventory 2400

A Giain gia Dr Sales Returns and Allowance +

300
Cr AccountReceivable 1300

A ChiefchanDr Cash +(3500 -

70 3430)
=

ban
hang Sales Discounts (2%.3500 707
+
=

Cr Accounts Receivable x 3800 300 3500

-

(2/15,u/307
=
 7

5-25 5-26
JOURNAL ENTRIES TO RECORD A SALE SALES RETURNS AND ALLOWANCES
• “Flip side” of purchase returns and allowances
Goods => Costs of goods sold
Transfer ownership • Contra revenue account to Sales Revenue (debit)
of goods for money Sales Revenue is not reduced (debited) because:
Money => Sales Revenues •
§ Would obscure importance of sales returns and
allowances as a percentage of sales
§ Could distort comparisons

25 26

5-27 5-28
SALES RETURNS AND ALLOWANCES SALES DISCOUNTS
Illustration: Prepare the entry PW Audio Supply would make to record •Offered to customers to promote prompt payment of balance due
the credit for returned goods that had a €300 selling price (assume a •Contra-revenue account (debit) to Sales Revenue
€140 cost). Assume the goods were not defective.
May 8 Sales Returns and Allowance 300 Assume Sauk Stereo pays the balance due of €3,500 (gross invoice price of
Accounts Receivable 300 €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
May 8 Inventory 140 record the receipt on May 14.
Cost of Goods Sold 140 May 14 Cash 3,430
Sales Discounts*[(€3,800 − €300) × 2%] 70*
Accounts Receivable 3,500
Illustration: Assume the returned goods were defective and had a
scrap value of €50, PW Audio would make the following entries:

May 8 Sales Returns and Allowance 300

Accounts Receivable 300
May 8 Inventory 50
Cost of Goods Sold 50
27 28
 their (trog (ho):4000 kg8 tai
ctykiedeXso: [3900kg o

Cao:
ky
4100kg &
Ghibi itdi
5-29 5-30
LEARNING OBJECTIVE 5.4 ADJUSTING ENTRIES ①-
APPLY THE STEPS IN THE ACCOUNTING CYCLE TO A
• Generally same as a service company
• One additional adjustment to make records agree with actual
Ixly: ghirithem
MERCHANDISING COMPANY
Hagton who
inventory on hand
Dr
• Involves adjusting Inventory and Cost of Goods Sold

• Each of the required steps described in Chapter 4 for Illustration: Suppose that PW Audio Supply has an unadjusted Cr GUAB N
service companies apply to merchandising companies. balance of €40,500 in Inventory. Through a physical count, PW Audio
Supply determines that its actual merchandise inventory at December ② -
ghibi cao

Ixily:ghigiam di
31 is €40,000. The company would make an adjusting entry as follows.
• A merchandising company generally has the same types
of adjusting entries as a service company. Dec. 31 Cost of Goods Sold 500
Inventory (€40,500 − €40,000) 500 Dr GUABT
• However, a merchandiser using a perpetual system will
require one additional adjustment to make the records
agree with the actual inventory on hand. Unadj. Bal.
Inventory
40,500
Cost of Goods Sold Cr Ragten schol
Adjustment 500 Adjustment 500
Adjusted Bal. 40,000 Adjusted Bal. xxx

29 30
Gingusty dun
& CLOSING ENTRIES
5-31
CLOSING ENTRIES
5-32

Close R/E accounts having Cr Bal.

Nel => NoLNGL

Dec. 31 Sales Revenue 480,000
->
Income Summary 480,000
Income Summary
Co'KUKD
30,000
(Close credit balance accounts) Dec. 31
Retained Earnings 30,000 480,000 -
450,000
31 Income Summary 450,000
(To close net income to retained
Cost of Goods Sold 316,000
earnings)
Salaries and Wages Expense 64,000
Utilities Expense 17,000 31 Retained Earnings 15,000
Advertising Expense 16,000 Dividends 15,000
Sales Returns and Allowances 12,000 (To close dividends to
Sales Discounts 8,000 retained earnings)
Depreciation Expense 8,000
Freight-Out 7,000
Insurance Expense 2,000
(Close debit balance accounts)

31 32
 9

5-33 5-34
CLOSING ENTRIES SUMMARY OF MERCHANDISING ENTRIES

& thi

33 34

5-35 5-36
SUMMARY OF MERCHANDISING ENTRIES LEARNING OBJECTIVE 5.5
PREPARE FINANCIAL STATEMENTS FOR A
MERCHANDISING COMPANY

Income Statement Presentation of Sales

The income statement begins by presenting sales revenue.
It then deducts contra revenue accounts—sales returns and
E allowances and sales discounts—from sales revenue to
arrive at net sales.

To close net income to retained Income Summary X

earnings) Retained Earnings X

(To close dividends to retained Retained Earnings X

earnings) Dividends X

35 36
 10

5-37 5-38
INCOME STATEMENT INCOME STATEMENT
Gross Profit
Operating Expenses Incurred in the process of earning
On the basis of the sales data for PW Audio Supply (net sales sales revenue. Operating expense for PW Audio Supply
of €460,000) and cost of goods sold under the perpetual include the following. Selling Expense
inventory system (assume €316,000), PW Audio Supply’s
gross profit is €144,000, computed as shown. Operating expenses
Administrative Expense

Salaries and wages expense € 64,000

Utilities expense 17,000
Advertising expense 16,000
Depreciation expense 8,000
We also can express a company’s gross profit as a percentage, Freight-out 7,000
called the gross profit rate. Insurance expense 2,000
Gross Profit ÷ Net Sales = Gross Profit Rate Total operating expenses €114,000
€144,000 ÷ €460,000 = 31.3%
Analysts generally consider the gross profit rate to be more useful
than the gross profit amount.

37 38

Net sales: Sales revenue

-
(Sales returns and allowances sales discounts) -

5-39 5-40
INCOME STATEMENT
Operating Income and Expense
Various revenues and gains and expenses and losses that are unrelated
to the company’s main line of operations. I amchothe
bhaga the blogin

Other Income

INCOME STATEMENT
• Interest revenue from notes receivable and marketable securities Net
=
sales-COGS
• Dividend revenue from investments in capital stock
• Rent revenue from subleasing a portion of the store
• Gain from the sale of property, plant, and equipment

Other Expense
• Casualty losses from such causes as vandalism and accidents
• Loss from sale or abandonment of property, plant, and equipment = Gross Profit - Total operating expenses
• Loss from strikes by employees and suppliers
I I
Interest expense, if material, must be disclosed on the face of the -
1600
-

income statement.

->
39 40
30088 3408
+ -
1888
 - 11

5-41 5-42
COMPREHENSIVE INCOME STATEMENT CLASSIFIED STATEMENT OF FINANCIAL POSITION

q Presents items not included in the determination of net income.

q Items included in comprehensive income are either reported in
a combined statement of net income and comprehensive
income, or in a separate comprehensive income statement.

41 42

5-43 5-44
DO IT! 5 FINANCIAL STATEMENT CLASSIFICATIONS DO IT! 5 FINANCIAL STATEMENT CLASSIFICATIONS

43 44
 12

5-45
DO IT! 5 FINANCIAL STATEMENT CLASSIFICATIONS

45