BAF3M Accounting

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Transcript BAF3M Accounting

BAF3M Accounting
Chapter 11 – Accounting for a
Merchandising Business
• Merchandising Video
• So far, we’ve only studied service
businesses, now we move on to
merchandising businesses
– Major difference is inventory “stuff to sell”
– Two major categories
• Wholesaler – buys from manufacturers and sells to
retailers
• Retailers – buys from wholesalers and sells to final
consumers
11.1 Merchandise Inventory
• Merchandise is the name given to items
bought by a business in order to be sold to
consumers
• Merchandising businesses have the extra
cost of inventory compared to service
businesses
– This is an I/S amount called “Cost of Goods
Sold” aka “COGS”
A SIMPLIFIED PARTIAL BALANCE SHEET
SHOWING MERCHANDINSE INVENTORY
AS A CURRENT ASSET
EASTPORT HARDWARE
BALANCE SHEET
30-Jun-08
CURRENT ASSETS
Bank
$1 2 0 5
Account Receivable
18 3 0 5
Merchandise Inventory
42 5 8 2
Supplies
Prepaid Insurance
5 2 6
3 5 6 4
$69 1 8 2
PLANT AND EQUIPMENT
Store Equipment
Delivery Equipment
$25 6 5 8
18 3 5 0
44 0 0 8
$113 1 9 0
11.1 Merchandise Inventory
INVENTORY CYCLE
•
The goal is to sell inventory quickly thus inventory
moves in and out of the business frequently
SO…
1) There is inventory to begin the accounting period with.
2) Merchandise is sold and moves out throughout the
inventory period.
3) Merchandise is replaced by the purchase of new stock
from time to time.
4) The ending inventory should be more or less the same
as the beginning inventory.
11.1 Merchandise Inventory
• COGS on the I/S p.
formula to calculate the COGS figure
Cost of Beg. Inv
+ Cost of Merch Purchases
- Cost of Ending inventory
= Cost of Merch sold
A SIMPLE INCOME STATEMENT
FOR A MERCHANDISING
BUSINESS
EASTPORT HARDWARE
INCOME STATEMENT
30-Jun-08
REVENUE
Sales
COST OF GOODS SOLD
Inventory, January 1
Purchases
Cost of Goods Available for Sale
Less Inventory, December 31
Cost of Goods Sold
GROSS PROFIT
OPERATING EXPENSES
Bank Charges Expense
Building Maintenance Expense
Car Expense
Depreciation Expense
Miscellaneous Expense
Rent Expense
Telephone Expense
Utilities Expense
Wages Expense
TOTAL OPERATING EXPSES
NET INCOME
$231
$55
120
$175
57
3
4
7
3
2
0
2
5
9 6 7
5
2
7
0
118 3 7 7
$113 5 9 0
$
2
1
12
1
36
3
8
5
0
2
0
9
8
5
7
7
0
7
7
0
5
5
8
5
5
7
5
5
0
7
0
7
56 5 0 1
$57
0 8 9
OBSERVE THE FOLLOWING ABOUT
THE PRECEEDING INCOME
STATMENT
1)
The C.O.G.S. is considered to be so significant that the
statement is prepared in 2 stages.
2)
The first stage determines the gross profit. Gross
profit is the difference between the selling price and
the cost price of the goods sold. It can also been seen
as the profit figure before deducting expenses.
3)
The C.O.G.S. is shown on the income statement.
4)
The expense section is now called OPERATING
EXPENSES.
CLOSING ENTRIES FOR A
MERCHANDISING COMPANY
•
•
The process is the exact same as in a service
company
The steps go:
1)
2)
3)
4)
•
Close revenue/sales to income summary
Close expenses to income summary
Close income summary to capital
Close drawings to capital
The process neatly cancels out the old
inventory figure and sets up the new one, so
that you will have the correct opening balances
SOME NEW TERMS
PURCHASE RETURNS & ALLOWANCES – used to record
the value of merchandise returned (damaged goods,
mistaken deliveries, etc.) to the supplier
PURCHASE DISCOUNTS – used to record discounts
given for early payment
SALES DISCOUNTS – the seller may give discounts to
credit customers if they pay within a specified time
period
FREIGHT IN VS. DELIVERY
EXPENSE
FREIGHT IN - the cost incurred to ship the
merchandise to the store or warehouse
DELIVERY EXPENSE – this account is
used to record the cost of shipping the
sold merchandise to the customer
JOURNAL ENTRIES
•The merchandise purchased during the fiscal period
is collected in the Purchases account.
•This account if found in the expense section of the
ledger.
HMV purchased 600 CD’s for resale at a cost of
$10/cd.
Date
Particulars
Purchases
GST Recoverable
Bank
P.R.
Debit
Credit
6 0 0 03 0 06 3 0 0-
JOURNAL ENTRIES
•If a customer returns a good because it is damaged,
not what they expected etc. The entry is as follows.
A customer returned 20 CDs to HMV that were
purchased for $20 each.
Date
Particulars
Sales Returns and Allowances
P.R.
Debit
4 0 0-
PST Payable
3 2-
GST Payable
2 0-
Cash
Credit
4 5 2-