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