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Topic 5

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Hanie Sayang
Hanie Sayang

The document discusses accounting concepts for merchandising businesses, including transactions like purchases, sales, discounts, and returns. It covers the periodic and perpetual inventory systems and how cost of goods sold is calculated under each. The periodic system calculates cost of goods sold at the end of each period while the perpetual system calculates it at the time of each sale. The document also discusses the different forms financial statements can take for merchandising businesses, like single-step and multiple-step income statements.

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Chapter Five ACCOUNTING FOR MERCHANDISING BUSINESSES KAL1013 Chapter Five
Outline Merchandising Business Environment Transaction for: Purchases Sales Discounts Returns Transportation Cost Accounting For Inventory Periodic Inventory System Perpetual Inventory System Forms of Financial Statements KAL1013 Chapter Five
Merchandising Businesses KAL1013 Chapter Five A merchandising company is an enterprise that buys and sells goods to earn a profit. 1) Wholesalers sell to retailers 2) Retailers sell to consumers A merchandiser¡¯s primary source of revenue is sales.
Merchandising Businesses KAL1013 Chapter Five Expenses Cost of Goods Sold Operating Expenses Total cost of merchandise sold during the period. Expenses incurred in the process of earning sales revenue
Merchandising Businesses KAL1013 Chapter Five Sales Revenue Less Cost of Goods Sold Gross Profit Less Operating Expenses Net Income / Loss Equals Equals
Merchandising Businesses Transactions Purchases Sales Discounts Returns Transportation Cost KAL1013 Chapter Five
Purchases KAL1013 Chapter Five Purchase goods for resale purposes Cash Purchase Credit Purchase
Sales KAL1013 Chapter Five Sales of inventories Cash Sales Credit Sales
Discounts KAL1013 Chapter Five Incentive offers on purchases / sales Trade Discount Cash Discount Purchase Discount Sales Discount
Trade Discount KAL1013 Chapter Five Discounts offered for purchase in bulk Example Buy 100-200 unit = 10% Buy 201-300 unit = 20% No journal entries recorded.
Cash Discount KAL1013 Chapter Five Discounts offered for a prompt payment made within the discount period. It is stated in credit terms. Credit Term: 5/10, n/30 n/30 3/15, n/eom The amount is recorded in related accounts
Purchase Returns & Allowances KAL1013 Chapter Five Purchase Returns Purchase Allowances When merchandise is returned to the seller. When price adjustment is needed due to the quality / quantity of the merchandise.
Sales Returns & Allowances KAL1013 Chapter Five Sales Returns Sales Allowance When merchandise is returned by customer. When price adjustment is needed by customer due to the quality / quantity of the merchandise.
Transportation Cost KAL1013 Chapter Five The sales agreement would indicate whether the buyer or the seller is to pay the cost of transporting the goods to the buyer¡¯s place. Freight terms: FOB Shipping Point FOB Destination
FOB Shipping Point KAL1013 Chapter Five Seller Transport Company Buyer Transportation cost to be borne / paid by the buyer. Ownership changed to buyer
FOB Destination KAL1013 Chapter Five Seller Transport Company Buyer Cost to be borne / paid by the seller. Ownership transferred
Accounting For Inventory KAL1013 Chapter Five Periodic Inventory System Perpetual Inventory System Detailed records of the cost of each item are maintained, and the cost of each item sold is determined from records when the sale occurs. Cost of goods sold is determined only at the end of an accounting period.
Cost of Goods Sold KAL1013 Chapter Five The cost of goods sold may be determined each time a sale occurs or at the end of an accounting period. To make the determination when the sale occurs, a company uses a perpetual inventory system. When the cost of goods sold is determined only at the end of an accounting period, a company is said to be using a periodic inventory system.
Determination Cost of Goods Sold Under Periodic Inventory System KAL1013 Chapter Five Less: cost of goods on hand at the end of the accounting period (xxxx) Cost of goods on hand at the beginning of the accounting period. xxx Add: cost of goods purchased xxxxx xxxxx Cost of Goods Sold xxxxx
Entries Under Perpertual Inventory System KAL1013 Chapter Five Purchases Purchase Return Purchase Discount Transportation Cost Sales Sales Return Sales Discount Transportation Cost
Purchases KAL1013 Chapter Five Cash Purchase: Credit Purchase: Dr. Inventory Dr. Inventory Cr. Cash Cr. Account Payable
Purchase Returns & Allowances KAL1013 Chapter Five Dr. Account Payable Cr. Inventory Cash Purchase: Credit Purchase: Dr. Cash Cr. Inventory
Purchase Discount KAL1013 Chapter Five Dr. Account Payable Cr. Cash Cr. Inventory
Transportation Cost KAL1013 Chapter Five Dr. Inventory Cr. Cash / Account Payable
Sales KAL1013 Chapter Five Cash Sale: Dr. Cash Dr. Cost of Goods Sold Cr. Sales Cr. Inventory ( to record sales at selling price ) ( to record cost of goods sold )
Sales KAL1013 Chapter Five Credit Sale: Dr. Account Receivable Dr. Cost of Goods Sold Cr. Sales Cr. Inventory ( to record sales at selling price ) ( to record cost of goods sold )
Sales Returns & Allowances KAL1013 Chapter Five Cash Sale: Dr. Sales Returns & Allowances Dr. Inventory Cr. Cash Cr. Cost of Goods Sold ( to record sales returns & allowances at selling price ) ( to record sales returns & allowances at cost )
Sales Returns & Allowances KAL1013 Chapter Five Credit Sale: Dr. Sales Returns & Allowances Dr. Inventory Cr. Account Receivable Cr. Cost of Goods Sold ( to record sales returns & allowances at selling price ) ( to record sales returns & allowances at cost )
Sales Discounts KAL1013 Chapter Five Dr. Sales Discount Dr. Cash Cr. Account Receivable
Transportation Cost KAL1013 Chapter Five Dr. Carriage Outwards Cr. Cash / Accounts Payables
Forms of Financial Statements KAL1013 Chapter Five Single-Step Income Statement Multiple-Step Income Statement
Multiple-Step Income Statement KAL1013 Chapter Five Involves 2 steps in determining net income / loss. Step 1: Net Sales xxxxx Less : Cost of Goods Sold (xxx) Gross Profit xxxx Step 2: Less: Operating Expenses Net Income / Loss xxx Selling Expenses Administrative Expenses xxxx
Multiple-Step Income Statement KAL1013 Chapter Five It also distinguishes between operating and non-operating activities. Operating activities Non-operating activities Revenues and expenses from normal operations (merchandising) Revenues and expenses from auxiliary operations. 2. Gains and losses that are unrelated to the company¡¯s operations.
Multiple-Step Income Statement KAL1013 Chapter Five Sales Revenue xxxx Less: Cost of Goods Sold (xxx) Gross Profit xxxx Less: Operating Expenses Selling Expenses Administrative Expenses xxxx Income From Operations xxxx Other Revenues and gains xxx Less: Other Expenses and losses (xx) Net Income xxx xxx
Single-Step Income Statement KAL1013 Chapter Five Involves only one step in determining net income / loss. Total Revenues (operating & non-operating) xxxx Less: Total Expenses (Operating & non-operating) xxxx Net Income xxxx
KAL1013 Chapter Five Thank You

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Topic 5

  • 1. Chapter Five ACCOUNTING FOR MERCHANDISING BUSINESSES KAL1013 Chapter Five
  • 2. Outline Merchandising Business Environment Transaction for: Purchases Sales Discounts Returns Transportation Cost Accounting For Inventory Periodic Inventory System Perpetual Inventory System Forms of Financial Statements KAL1013 Chapter Five
  • 3. Merchandising Businesses KAL1013 Chapter Five A merchandising company is an enterprise that buys and sells goods to earn a profit. 1) Wholesalers sell to retailers 2) Retailers sell to consumers A merchandiser¡¯s primary source of revenue is sales.
  • 4. Merchandising Businesses KAL1013 Chapter Five Expenses Cost of Goods Sold Operating Expenses Total cost of merchandise sold during the period. Expenses incurred in the process of earning sales revenue
  • 5. Merchandising Businesses KAL1013 Chapter Five Sales Revenue Less Cost of Goods Sold Gross Profit Less Operating Expenses Net Income / Loss Equals Equals
  • 6. Merchandising Businesses Transactions Purchases Sales Discounts Returns Transportation Cost KAL1013 Chapter Five
  • 7. Purchases KAL1013 Chapter Five Purchase goods for resale purposes Cash Purchase Credit Purchase
  • 8. Sales KAL1013 Chapter Five Sales of inventories Cash Sales Credit Sales
  • 9. Discounts KAL1013 Chapter Five Incentive offers on purchases / sales Trade Discount Cash Discount Purchase Discount Sales Discount
  • 10. Trade Discount KAL1013 Chapter Five Discounts offered for purchase in bulk Example Buy 100-200 unit = 10% Buy 201-300 unit = 20% No journal entries recorded.
  • 11. Cash Discount KAL1013 Chapter Five Discounts offered for a prompt payment made within the discount period. It is stated in credit terms. Credit Term: 5/10, n/30 n/30 3/15, n/eom The amount is recorded in related accounts
  • 12. Purchase Returns & Allowances KAL1013 Chapter Five Purchase Returns Purchase Allowances When merchandise is returned to the seller. When price adjustment is needed due to the quality / quantity of the merchandise.
  • 13. Sales Returns & Allowances KAL1013 Chapter Five Sales Returns Sales Allowance When merchandise is returned by customer. When price adjustment is needed by customer due to the quality / quantity of the merchandise.
  • 14. Transportation Cost KAL1013 Chapter Five The sales agreement would indicate whether the buyer or the seller is to pay the cost of transporting the goods to the buyer¡¯s place. Freight terms: FOB Shipping Point FOB Destination
  • 15. FOB Shipping Point KAL1013 Chapter Five Seller Transport Company Buyer Transportation cost to be borne / paid by the buyer. Ownership changed to buyer
  • 16. FOB Destination KAL1013 Chapter Five Seller Transport Company Buyer Cost to be borne / paid by the seller. Ownership transferred
  • 17. Accounting For Inventory KAL1013 Chapter Five Periodic Inventory System Perpetual Inventory System Detailed records of the cost of each item are maintained, and the cost of each item sold is determined from records when the sale occurs. Cost of goods sold is determined only at the end of an accounting period.
  • 18. Cost of Goods Sold KAL1013 Chapter Five The cost of goods sold may be determined each time a sale occurs or at the end of an accounting period. To make the determination when the sale occurs, a company uses a perpetual inventory system. When the cost of goods sold is determined only at the end of an accounting period, a company is said to be using a periodic inventory system.
  • 19. Determination Cost of Goods Sold Under Periodic Inventory System KAL1013 Chapter Five Less: cost of goods on hand at the end of the accounting period (xxxx) Cost of goods on hand at the beginning of the accounting period. xxx Add: cost of goods purchased xxxxx xxxxx Cost of Goods Sold xxxxx
  • 20. Entries Under Perpertual Inventory System KAL1013 Chapter Five Purchases Purchase Return Purchase Discount Transportation Cost Sales Sales Return Sales Discount Transportation Cost
  • 21. Purchases KAL1013 Chapter Five Cash Purchase: Credit Purchase: Dr. Inventory Dr. Inventory Cr. Cash Cr. Account Payable
  • 22. Purchase Returns & Allowances KAL1013 Chapter Five Dr. Account Payable Cr. Inventory Cash Purchase: Credit Purchase: Dr. Cash Cr. Inventory
  • 23. Purchase Discount KAL1013 Chapter Five Dr. Account Payable Cr. Cash Cr. Inventory
  • 24. Transportation Cost KAL1013 Chapter Five Dr. Inventory Cr. Cash / Account Payable
  • 25. Sales KAL1013 Chapter Five Cash Sale: Dr. Cash Dr. Cost of Goods Sold Cr. Sales Cr. Inventory ( to record sales at selling price ) ( to record cost of goods sold )
  • 26. Sales KAL1013 Chapter Five Credit Sale: Dr. Account Receivable Dr. Cost of Goods Sold Cr. Sales Cr. Inventory ( to record sales at selling price ) ( to record cost of goods sold )
  • 27. Sales Returns & Allowances KAL1013 Chapter Five Cash Sale: Dr. Sales Returns & Allowances Dr. Inventory Cr. Cash Cr. Cost of Goods Sold ( to record sales returns & allowances at selling price ) ( to record sales returns & allowances at cost )
  • 28. Sales Returns & Allowances KAL1013 Chapter Five Credit Sale: Dr. Sales Returns & Allowances Dr. Inventory Cr. Account Receivable Cr. Cost of Goods Sold ( to record sales returns & allowances at selling price ) ( to record sales returns & allowances at cost )
  • 29. Sales Discounts KAL1013 Chapter Five Dr. Sales Discount Dr. Cash Cr. Account Receivable
  • 30. Transportation Cost KAL1013 Chapter Five Dr. Carriage Outwards Cr. Cash / Accounts Payables
  • 31. Forms of Financial Statements KAL1013 Chapter Five Single-Step Income Statement Multiple-Step Income Statement
  • 32. Multiple-Step Income Statement KAL1013 Chapter Five Involves 2 steps in determining net income / loss. Step 1: Net Sales xxxxx Less : Cost of Goods Sold (xxx) Gross Profit xxxx Step 2: Less: Operating Expenses Net Income / Loss xxx Selling Expenses Administrative Expenses xxxx
  • 33. Multiple-Step Income Statement KAL1013 Chapter Five It also distinguishes between operating and non-operating activities. Operating activities Non-operating activities Revenues and expenses from normal operations (merchandising) Revenues and expenses from auxiliary operations. 2. Gains and losses that are unrelated to the company¡¯s operations.
  • 34. Multiple-Step Income Statement KAL1013 Chapter Five Sales Revenue xxxx Less: Cost of Goods Sold (xxx) Gross Profit xxxx Less: Operating Expenses Selling Expenses Administrative Expenses xxxx Income From Operations xxxx Other Revenues and gains xxx Less: Other Expenses and losses (xx) Net Income xxx xxx
  • 35. Single-Step Income Statement KAL1013 Chapter Five Involves only one step in determining net income / loss. Total Revenues (operating & non-operating) xxxx Less: Total Expenses (Operating & non-operating) xxxx Net Income xxxx
  • 36. KAL1013 Chapter Five Thank You