Accounting 1 Chap 5: Merchandising Operations

The primary source of revenue is referred to as…

Sales revenue or sales

Cost of goods sold is…

The total cost of merchandise sold during the period

Sales revenue - COGS = ?

Gross Profit

Gross profit - Operating Expenses = ?

Net Income or Net Loss

Sales Revenue - Gross Profit = ?

COGS

COGS + Gross Profit = ?

Sales Revenue

Net Income ( or Loss ) + Operating Expenses = ?

Gross Profit

Gross Profit - Net Income ( or Loss ) = ?

Operating Expenses

Service Company Operating Cycle includes:

Cash Mailed → Receive Cash → Preform Services → Accounts Receivable → Repeat

Merchandising Company Operating Cycle includes:

Cash Mailed → Cash Received → Buy inventory → Sell Inventory → Accounts Receivable → Repeat

Begin Inv. + Purchase = ?

COG Available

COG Available = ?

COGS + Ending Inv.

Perpetual Inventory System

Maintains detailed records of cost of each inventory purchase and sale using bar codes. Continuously updated, determines the COGS each time a sale occurs.

Periodic Inventory System

Determines COGS by count of ending inventory and usually determines by COGA - Ending Inv. at the end of the period.

Advantages of Perpetual System

Used for merchandise with high unit values. Shows quantity and cost of inventory that should be on hand at anytime. Better control over inventory.

FOB Shipping Point

Ownership and legal title pass to the buyer as soon as the goods leave the seller's facility or dock.

FOB Destination

Ownership and legal title remain with the seller until the goods physically arrive and are unloaded at the buyer's location

Freight In

Buyer pays for the delivery of goods, debit inventory and credit cash or account payable in buyer's book

Freight Out

Seller pays for goods to be delivered, freight out expense debited and cash credited in seller’s book.

Purchase return

Return goods for credit if sale was made on credit or for a cash refund if purchase was made with cash

Purchase allowance

Buyer keeps the merchandise and seller grants a reduction of the purchase price

What does 2/10, n/30 mean?

2% discount if paid within 10 days, otherwise net amount due within 30 days

1/10 EOM

1% discount if paid within the first 10 days of the next month

n/10 EOM

Net amount due within the first 10 days of the next month

How do purchase discounts effect inventory?

Inventory should be credited for discounted amount