Chapter 5 – Merchandising Operations Name ______College Accounting Reading on Pages 253 - 274
Chapter Intro
Inventory is defined as ______
What are Merchandising Operations?
Merchandising consists of buying and selling ______rather than services.
BALANCE SHEET INCOME STATEMENT * *
*
The Operating Cycle of a Merchandising Business Draw a diagram below
Inventory Systems: Perpetual and Periodic
Compare the two systems
PERPETUAL INVENTORY SYSTEM PERIODIC INVENTORY SYSTEM ACCOUNTING FOR INVENTORY IN THE PERPETUAL SYSTEM
What is an invoice? ______
Purchase of Inventory (page 257)
Show the journal entry for recording a purchase on account
Purchase Discounts
What does 3/15, n/30 mean in your own words?______
Show the journal entry for recording the payment within the discount period
Why is the discount credited to Inventory? ______
If the payment is NOT paid within the discount period, how would the journal entry look?
Purchase Returns and Allowances
What is a return? ______Also found on page 260
What is an allowance? ______Also found on page 260
Show the journal entry for a return of $100 Transportation Costs
Freight in is ______
Freight out is ______
Who pays FOB shipping point? ______
Who pays FOB destination? ______
Journalize a $5,000 purchase of goods with $400 freight charges
If the buyer pays within the discount period, what is the discount computed on? ______
Summary of Purchase Returns and Allowances, Discounts, and Transportation Costs
Purchase of Net Cost of Inventory Inventory
Sale of Inventory Define: Sales revenue ______
Cost of goods sold ______
Cash Sale is recorded with two entries:
Why is there a second entry? ______Sale on Account Most sales in the US are made on account (on credit). Record a $5,000 sale on account:
These goods cost the seller $2,900, so the related cost of goods sold entry is:
When the cash comes in, the seller records the cash receipt on account as follows:
Sales Discounts and Sales Returns and Allowances
What is the formula? (page 262)
Sales Return Assume that the buyer returns $600 of the goods. Record the sale return as follows:
Why is accounts receivable decreased? ______
Update the inventory record: Sales Allowances Record a sales allowance for damaged goods:
Why is there no inventory entry for a sales allowance? ______
Sales Discounts Record a sample journal of a cash receipt with a 2% discount
Sales Revenue, Cost of Goods Sold, and Gross Profit
Define: Gross profit, or gross margin ______Chapter 5 – Objective 3 & 4 Name ______College Accounting Pages 267-271 Adjusting and Closing the Accounts of a Merchandiser
Adjusting Inventory Based on a Physical Count
How often is inventory counted? At least ______.
What are some reasons inventory could be different than what’s on the books?
1.
2.
3.
Show the formula for the Adjusting Entry to Inventory:
Is that amount debited or credited to Inventory? ______
Show the journal entry for a $300 adjusting entry:
Closing the Accounts of a Merchandiser
The first closing entry:
1.
2.
The second closing entry:
1.
2.
The last two closing entries:
1.
2. Objective 4 – Preparing a Merchandiser’s Financial Statements
INCOME STATEMENT
What are operating expenses? ______
SELLING EXPENSES GENERAL EXPENSES
DEFINE:
EXAMPLES:
Operating income = ______
Another term for Operating Income is ______
What does the category “Other Revenue and Expense” represent? ______
The bottom line of the income statement is net income: (show the formula)
What is the difference on the Statement of Owner’s Equity? ______
What is the difference on the Balance Sheet? ______
Income Statement Formats MULTI-STEP SINGLE-STEP
FORMAT OF STATEMENT:
It also reports:
Which format do many service entities use? ______
Why does it work well for service entities? ______
Why would the multi-step income statement work better for merchandising entities? Chapter 5 – Objective 5 & 6 Name ______College Accounting Pages 271 (bottom) - 274 Objective 5 -- The Gross Profit Percentage
What is another term for gross profit? ______
What is gross profit percentage? ______
Show the formula for calculating Gross profit percentage:
Why is gross profit percentage important? ______
The Rate of Inventory Turnover
What is Inventory turnover? ______
Show how it is computed:
Class Tip: An inventory turnover of 2.3 means that on average you would have to replace your inventory 2.3 times per year. Another way to understand this is to calculate the number of months your inventory is on hand: 12 / 2.3 = 5.2 months.
A ______turnover is desirable, and an ______in the turnover rate usually means ______.
Calculate the rate of inventory turnover for Target, the discount chain (amount in millions): Beginning inventory $4,531 Ending inventory $5,384 Cost of goods sold 31,445
Answer: Objective 6 – Cost of Goods Sold in a Periodic Inventory System
Draw exhibit 5-11:
Class Tip: A computation for cost of goods sold must be made under the periodic system because no entry is made to record the cost of each unit as it is sold, unlike the perpetual system.