Akaun Chapter 5

KE1013 Chapter Five 1

Chapter Five

ACCOUNTING FOR

MERCHANDISING BUSINESSES


OutlineMerchandising Business Environment

Transaction for:PurchasesSalesDiscountsReturnsTransportation Cost

Accounting For InventoryPeriodic Inventory SystemPerpetual Inventory System

Forms of Financial Statements


Merchandising Businesses

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.



Expenses

Cost of Goods Sold Operating Expenses

Total cost of

merchandise sold

during the period.

Expenses incurred inthe process of earning

sales revenue



SalesRevenue

LessCost of Goods Sold

GrossProfit

LessOperating Expenses

Net Income/ Loss

Equals

Equals


Merchandising Businesses Transactions

Purchases

Sales

Discounts

Returns

Transportation Cost


Purchases

Purchase goods for resale purposes

Cash Purchase Credit Purchase


Sales

Sales of inventories

Cash Sales Credit Sales


Discounts

Incentive offers on purchases / sales

Trade DiscountTrade Discount Cash DiscountCash Discount

Purchase Discount Sales Discount


Trade Discount

Discounts offered for purchase

in bulk

Example

Buy 100-200 unit = 10%

Buy 201-300 unit = 20%

No journal entries recorded.


Cash Discount

Discounts offeredfor a prompt

payment madewithin the discountperiod. It is stated

in credit terms.

Discounts offeredfor a prompt

payment madewithin the discountperiod. 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

PurchaseReturnsPurchaseReturns

PurchaseAllowancesPurchase

Allowances

When merchandiseis returned to

the seller.

When price adjustmentis needed due to the quality / quantity of

the merchandise.


Sales Returns & Allowances

SalesReturns

SalesReturns

SalesAllowance

SalesAllowance

When merchandiseis returned by

customer.

When price adjustmentis needed by customer due

to the quality / quantity of the merchandise.


Transportation Cost

The sales agreementwould indicate

whether the buyeror the seller is

to pay the cost oftransporting the goods

to the buyer’s place.

Freight terms:

FOB Shipping Point

FOB Destination


FOB Shipping Point

SellerTransportCompany Buyer

Transportation cost to be borne / paid by the buyer.

Ownership changed to buyer


FOB Destination

SellerTransportCompany Buyer

Cost to be borne / paidby the seller.

Ownership transferred


Accounting For Inventory

PeriodicInventory

System

PerpetualInventory

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

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

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

Purchases

Purchase ReturnPurchase Discount

Transportation Cost

Sales

Sales ReturnSales Discount

Transportation Cost


Purchases

Cash Purchase:

Credit Purchase:

Dr. Inventory

Dr. Inventory

Cr. Cash

Cr. Account Payable


Purchase Returns & Allowances

Dr. Account Payable

Cr. Inventory

Cash Purchase:

Credit Purchase:

Dr. Cash

Cr. Inventory


Purchase Discount

Dr. Account Payable

Cr. Cash

Cr. Inventory


Transportation Cost

Dr. Inventory

Cr. Cash / Account Payable


Sales

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

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 )



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 )



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

Dr. Sales Discount

Dr. Cash

Cr. Account Receivable


Transportation Cost

Dr. Carriage Outwards

Cr. Cash / Accounts Payables


Forms of Financial Statements

Single-Step Income Statement

Multiple-Step Income Statement



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 ExpensesAdministrative Expenses xxxx



It also distinguishes between operating and non-operating activities.

Operatingactivities

Non-operatingactivities

Revenues and expenses fromnormal operations (merchandising)

1. Revenues and expenses fromauxiliary operations.

2. Gains and losses that areunrelated to the company’soperations.



Sales Revenue xxxxLess: Cost of Goods Sold (xxx)

Gross Profit xxxx

Less: Operating ExpensesSelling 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

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


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Akaun Chapter 5