Accounting for merchandising business ppt

apparel merchandising ppt presentation and importance of visual merchandising ppt
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Dr.DouglasPatton,United States,Teacher
Published Date:26-07-2017
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CHAPTER 5 ACCOUNTING FOR MERCHANDISING OPERATIONS www.ThesisScientist.comMERCHANDISING COMPANY • 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, whereas a service company’s primary source of revenue is service revenue. www.ThesisScientist.comOPERATING CYCLES FOR A SERVICE COMPANY AND A MERCHANDISING COMPANY Service Company Receive Perform Cash Cash Services Accounts Receivable Merchandising Company Buy Receive Inventory Cash Cash Sell Inventory Accounts Merchandise Receivable Inventory www.ThesisScientist.comILLUSTRATION 5-1 INCOME MEASUREMENT PROCESS FOR A MERCHANDISING COMPANY Less Sales Revenue Equals Less Cost of Gross Goods Sold Profit Equals Net Operating Income Expenses (Loss) www.ThesisScientist.comINVENTORY SYSTEMS Merchandising entities may use either (or both) of the following inventory systems: 1. Perpetual – where detailed records of each inventory purchase and sale are maintained. Cost of goods sold is calculated at the time of each sale. 2. Periodic – detailed records are not maintained. Cost of goods sold is calculated only at the end of the accounting period. This chapter covers the perpetual method. www.ThesisScientist.comRECORDING COST OF GOODS PURCHASED • When merchandise is purchased for resale to customers, the account, Merchandise Inventory, is debited for the cost of the goods. • Purchases may be made for cash or on account (credit). • The purchase is normally recorded by the purchaser when the goods are received from the seller. www.ThesisScientist.comPURCHASES OF MERCHANDISE General Journal J1 Date Account Title and Explanation Ref Debit Credit May 4 Merchandise Inventory 3,800 Accounts Payable 3,800 To record goods purchased on account, terms n/30. For purchases on account, Merchandise Inventory is debited and Accounts Payable is credited. For cash purchases, Merchandise Inventory is debited and Cash is credited. www.ThesisScientist.comFREIGHT COSTS • The sales agreement should indicate whether the seller or the buyer is to pay the cost of transporting the goods to the buyer’s place of business. • FOB Shipping Point 1. Goods delivered to shipping point by seller 2. Buyer pays freight costs from shipping point to destination • FOB Destination 1. Goods delivered to destination by seller 2. Seller pays freight costs www.ThesisScientist.comACCOUNTING FOR FREIGHT COSTS • Merchandise Inventory is debited by the buyer, if the buyer pays the freight bill (FOB shipping point). • Freight Out (or Delivery Expense) is debited by the seller, if the seller pays the freight bill (FOB destination). www.ThesisScientist.comACCOUNTING FOR FREIGHT COSTS General Journal J1 Date Account Title and Explanation Ref Debit Credit May 4 Merchandise Inventory 150 Cash 150 To record payment of freight. When the purchaser directly incurs the freight costs, the account Merchandise Inventory is debited and Cash is credited. www.ThesisScientist.comPURCHASE RETURNS AND ALLOWANCES • A purchaser may be dissatisfied with merchandise received because the goods 1. are damaged or defective, 2. are of inferior quality, or 3. are not in accord with the purchaser’s specifications. www.ThesisScientist.comPURCHASE RETURNS AND ALLOWANCES General Journal J1 Date Account Title and Explanation Ref Debit Credit May 8 Accounts Payable 300 Merchandise Inventory 300 To record return of goods. For purchases returns and allowances that were originally made on account, Accounts Payable is debited and Merchandise Inventory is credited. For cash returns and allowances, Cash is debited and Merchandise Inventory is credited. www.ThesisScientist.comQUANTITY DISCOUNTS • Volume purchase terms may permit the buyer to claim a quantity discount. • The merchandise inventory is simply recorded at the discounted cost. www.ThesisScientist.comPURCHASE DISCOUNTS • Credit terms may permit the buyer to claim a cash discount for the prompt payment of a balance due. • The buyer calls this discount a purchase discount. • A purchase discount is based on the invoice cost less any returns and allowances granted. www.ThesisScientist.comSALES TRANSACTIONS • Revenues are reported when earned in accordance with the revenue recognition principle. In a merchandising company. revenues are earned when the goods are transferred from seller to buyer. www.ThesisScientist.comSALES TRANSACTIONS General Journal J1 Date Account Title and Explanation Ref Debit Credit May 4 Accounts Receivable 3,800 Sales 3,800 To record credit sale. May 4 Cost of Goods Sold 2,400 Merchandise Inventory 2,400 To record cost of merchandise sold. 1. The first entry records the sale of goods to a customer at the retail (selling) price. 2. The second entry releases the goods from inventory at cost and charges the goods to cost of goods sold. www.ThesisScientist.comSALES TAXES • Sales tax is expressed as a percentage of the sales price on selected goods sold to customers by a retailer. They are collected on most revenues, and paid on many costs. • Sales taxes may include the federal goods and services tax (GST) and the provincial sales tax (PST), if any. These two taxes have been combined into one harmonized sales tax (HST) in some Atlantic Provinces. www.ThesisScientist.comSALES TAXES ON REVENUES • The retailer collects the tax from the customer when the sale occurs, and periodically (usually monthly) remits the collections to the Receiver General. • Sales taxes are not revenue but are a current liability until remitted. www.ThesisScientist.comSALES RETURNS AND ALLOWANCES • Sales Returns occur when customers are dissatisfied with merchandise and are allowed to return the goods to the seller for credit or a refund. • Sales Allowances occur when customers are dissatisfied, and the seller allows a deduction from the selling price. www.ThesisScientist.comSALES RETURNS AND ALLOWANCES • The normal balance of Sales Returns and Allowances is a debit. • Sales Returns and Allowances is a contra revenue account to the Sales account. www.ThesisScientist.com

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