Merchandising Operations

Merchandising Operations

• Operating Cycles

• Flow of costs

  • Perpetual and periodic inventory systems

Recording Purchasing and Merchandising

• Freight costs

• Purchase returns and allowances

• Purchase discounts

• Summary of purchasing transactions

Recording Sales of Merchandise

• Sales returns and allowances

• Sales discounts

Completing the Accounting Cycle

• Adjusting entries

• Closing entries

• Summary of merchandising entries

Forms of Financial Statement

• Income Statement

• Classified statement of financial position

Income Measurement

Operating Cycle

the days required for a business to receive inventory, sell the inventory, and collect cash from the sale of the inventory.

Perpetual System

Provides a continuous record of merchandise inventory and cost of goods sold.

1. Purchases increase merchandising inventory

2. Freight costs, purchase returns and allowances, and purchasing discounts are included in the merchandise inventory

3. Costs of Goods Sold are increased, and merchandise inventory is decreased for each sale

4. Physical count is done to verify merchandising inventory balance

Periodic System

1. Purchases of merchandise increase purchases

2. Ending inventory determined by physical count

3. Calculation of Cost of Goods Sold

Recording Purchases of Merchandise

• Made using cash or credit on account

• Normally recorded when goods are received

• Purchase invoice should support each credit purchase

Freight costs

The cost of transporting goods from one place to another

Record of Sales Merchandise

• Made for cash or credit on account

• Normally recorded when earned, usually when goods transfer from seller to buyer

• Sales invoice should support each credit sale

Entries to record sale

1. Cash or Accounts Receivable (debit)

2. Costs of Goods Sold and Merchandise Inventory

Sales Return and Allowance

• Also known as “Contra-Revenue”

Income Statement

• Primary source for evaluating a company’s performance

• Format designed to differentiate between the various sources of income and expense

Formula for Net Sales

Sales - Sales Return

Formula for Costs of Goods Sold

Net Sales - Gross Profit

Formula for Gross Profit

Operating expense + Income from operations

Formula for Net Income

Income from operations - other expenses and loses

Income Measurement Formula

Sales Revenue - Cost of Goods Sold = Gross profit - Operating Expenses = Net income