Transcript Reporting and Analyzing Merchandising Activities

Chapter
ACCT 201
ACCT 201
4
Reporting and
Analyzing Merchandising
Activities
ACCT 201
UAA – ACCT 201
Principles of Financial Accounting
Dr. Fred Barbee
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Service Organizations
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Service organizations sell time to
earn revenue.
Examples: accounting firms, law
firms, and plumbing services.
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Service Organizations
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Income Statement
Service Firm
Fees Earned
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Operating Expenses
Net Income
$50,000
36,000
$14,000
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Merchandising Companies
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Merchandising companies sell
products to earn revenue.
Examples: sporting goods,
clothing, and auto parts stores
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Merchandising Companies
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Income Statement
Merchandising Firm
Sales
$150,000
Cost of Goods Sold
90,000
Gross Profit (Margin)
$60,000
Operating Expenses
35,000
Net Income
$25,000
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Merchandising Activities
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Merchandising Companies
Manufacturer
Wholesaler
Retailer
Customer
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Merchandising Companies
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Merchandising Company
Balance Sheet
December 31, 2002
Assets
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Cash
Merchandise Inventory
Equipment
$
10,200
1,200
16,000
Total assets
$
27,400
Liabilities
Accounts payable
$
Notes payable
Total liabilities
$
Equity
Total liabilities and
equity
$
1,200
4,000
5,200
22,200
27,400
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Classified Balance Sheet
Toys-For-Kids, Inc.
Balance Sheet
December 31, 2002
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Assets
Current assets
Cash
Accounts receivable
Merchandise inventory
Supplies
Prepaid insurance
Total current assets
Plant assets
Land
Building
Less: accumulated depreciation
Equipment
Less: accumulated depreciation
Furniture and fixtures
Less: accumulated depreciation
Total plant assets
Total assets
Liabilities
Current liabilities
Accounts payable
Wages payable
Short-term bank note
Total current liabilities
Long-term notes payable
Equity
Common stock
Retained earnings
Total liabilities and equity
$ 24,580
98,400
125,090
4,700
6,800
$ 259,570
75,000
$ 421,500
117,200
114,720
41,900
62,800
21,000
304,300
72,820
41,800
493,920
$ 753,490
$ 187,600
15,875
25,000
$ 228,475
275,000
200,000
50,015
$ 753,490
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Operating Cycle
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Begins with the purchase of
merchandise and ends with the
collection of cash from the sale
of merchandise.
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Operating Cycle – Cash Sale
Sale
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Purchases
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Inventory
Operating Cycle – Credit Sale
Sale
Accounts
Receivable
Inventory
Collection
Purchases
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Inventory Systems
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Beginning
inventory
+
Net cost of
purchases
Merchandise
available for sale
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Ending
Inventory
+
Cost of
Goods
Sold
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Periodic
Inventory
Systems
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Periodic Inventory System
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Physically count inventory, usually at
end of accounting period.
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No detailed records of the actual
inventory are maintained during the
accounting period.
Less costly than perpetual inventory
method, but provides less
information.
Periodic Inventory Method
When
Inventory is
Accts. Payable Purchased
xxx
Purchases
Pur. Disc.
xxx
xxx
Pur. R&A
xxx
Inventory
BI xxx
The Inventory Account is not
updated when inventory is
purchased.
Cost of Goods Sold
Component
Amount
Beginning Inventory
$52,800
Net Purchases
126,860
Goods Available for Sale
179,660
Less: Ending Inventory
Cost of Goods Sold
48,300
$131,660
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Perpetual
Inventory
Systems
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Perpetual Inventory System
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Continuous records are kept of the
quantity and, usually, the cost of
individual items as they are bought
and sold.
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More effective for providing
information about quantities and
ensuring optimal customer service.
Perpetual Inventory Method
Accts. Pay
Pur. Disc.
xxx
xxx
Purchases
When
Purchased
xxx
Pur. R&A
xxx
COGS
Inventory
xxx
xxx
xxx
When
Sold
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Perpetual Inventory System
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In a perpetual inventory system, each
purchase and sale of merchandise is
recorded in an inventory account.
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In this way, the inventory records
always (perpetually) disclose the
amount of inventory on hand the the
amount sold.
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Merchandise Purchases
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On June, 20, Melton Company
purchased $14,000 of merchandise
inventory paying cash.
GENERAL JOURNAL
Date
Description
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Jun 20 Merchandise Inventory
Cash
Page 55
PR
Debit
Credit
14,000
14,000
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
Main Source, Inc.
614 Tech Avenue
Nashville, TN 37651
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
P.O. 167
Item
AC417
S
o
l
d
T
o
Invoice


Name: Barbee, Inc.
Attn: Tom Bell
Address: One Willow Plaza
Cookeville, Tennessee
38501

Sales: 25 Terms 2/10,n/30
Description
250 Backup System

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We appreciate your business!
Date
5/4/02
Number
358-BI
Seller Invoice date Purchaser
Order number Credit terms
Freight terms Goods Invoice amount

Ship: FedEx Prepaid
Quanity
Price
Amount
500 $ 54.00 $ 27,000
Sub Total
Ship Chg.
Tax
Total
$
27,000
27,000

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Trade Discounts
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Used by manufacturers and
wholesalers to change selling prices
without republishing their catalogs.
Example
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JenCo, Inc. offers a 30% trade
discount on orders of 1,000
units or more of their popular
product Racer. Each
Racer has a list price of $5.25.
Quantity sold
1,000
Price per unit
$ 5.25
Total
5,250
Less 30% discount (1,575)
Invoice price
$ 3,675
Purchase Discounts
A deduction from the invoice
price granted to induce early
payment of the amount due.
Terms
Discount Period
Credit Period
Full amount
less discount
Full amount due
Time
Due
Purchase or Sale
Exhibit 4-7
Purchase Discounts
2/10,n/30
Discount
Percent
Number of
Days
Discount Is
Available
Otherwise,
Net (or All)
Is Due
Credit
Period
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Purchase Discounts
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On May 7, Martin, Inc. purchased
$27,000 of Merchandise Inventory
on account, credit terms are 2/10,
n/30.
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GENERAL JOURNAL
Date
May
Description
7 Merchandise Inventory
Accounts Payable
Page 49
PR
Debit
Credit
27,000
27,000
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Purchase Discounts
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On May 15, Martin, Inc. paid the
amount due on the purchase of May 7.
GENERAL JOURNAL
Date
Description
May 15 Accounts payable
Page 55
PR
Debit
Credit
27,000
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Cash
Merchandise inventory
$27,000 × 2% = $540 discount
26,460
540
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Purchase Discounts
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After we post these entries, the
accounts involved look like this:
Merchandise Inventory
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5/7
27,000 5/15
Bal. 26,460
540
Accounts Payable
5/15 27,000 5/7 27,000
Bal.
0
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Managing Discounts
Annual
Rate
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If we fail to take a 2/10, n/30
discount, is it really expensive?
365 / 20
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Days in
Year
X
2% = 36.5%
Percent paid to keep
money
Number of additional days
before payment
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Purchase Returns and
Allowances
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Purchase Return . . .
Merchandise returned by the
purchaser to the supplier.
Purchase Allowance . . .
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A reduction in the cost of
defective merchandise received by
a purchaser from a supplier.
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Purchase Returns and
Allowances
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On May 9, Barbee, Inc. purchased
$20,000 of Merchandise Inventory
on account, credit terms are 2/10,
n/30.
GENERAL JOURNAL
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Date
May
Description
9 Merchandise Inventory
Accounts Payable
Page 34
PR
Debit
Credit
20,000
20,000
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Purchase Returns and
Allowances
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On May 10, Barbee, Inc. returned
$500 of defective merchandise to
the supplier.
GENERAL JOURNAL
JOURNAL
Date
Description
Description
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May 10 Accounts payable
Merchandise Inventory
Page
Page 37
37
PR
PR Debit
Debit Credit
Credit
500
500
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Purchase Returns and
Allowances
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On May 18, Barbee, Inc. paid the
amount owed for the May 9 purchase.
GENERAL JOURNAL
Date
Description
May 18 Accounts payable
Page 61
PR
Debit
19,500
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Merchandise inventory
Cash
Purchase
Return
Amount Due
Discount
Cash Paid
Credit
390
$ 20,000
(500)
19,500
(390)
$ 19,110
19,110
Transportation Costs
Buyer
Seller
FOB shipping point
(buyer pays)
Terms
FOB shipping point
FOB destination
Merchandise
FOB destination
(seller pays)
Ownership transfers
to buyer when goods
are passed to
Transportation
costs paid by
Carrier
Buyer
Buyer
Seller
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Transportation Costs
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On May 12, Barbee, Inc. purchased
$8,000 of Merchandise for cash and
also paid $100 transportation costs.
GENERAL JOURNAL
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Date
Description
May 12 Merchandise Inventory
Cash
Page 39
PR Debit Credit
8,100
8,100
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Recording Purchases
Information
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Matrix, Inc.
Total Cost of Merchandise Purchases
For Year Ended December 31, 2002
Invoice cost of merchandise purchases
$ 692,500
Less:
Purchase discounts received
(10,388)
Purchase returns and allowances
(4,275)
Add:
Cost of transportation-in
4,895
Total cost of merchandise purchases
$ 682,732
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Sales Transactions
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On March 18, TwoCom sold $25,000
of merchandise on account. The
merchandise was carried in
inventory at a cost of $18,000.
GENERAL JOURNAL
Date
Description
Mar. 18 Accounts Receivable
Page 3
PR
Debit
25,000
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Sales
Cost of Goods Sold
Merchandise Inventory
Credit
25,000
18,000
18,000
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Sales Discounts
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On June 8, Borey Co. sold
merchandise costing $3,500 for
$6,000 on account. Credit terms
were 2/10, n/30.
GENERAL JOURNAL
Date
Jun
Description
8 Accounts Receivable
Page 3
PR Debit Credit
6,000
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Sales
Cost of Goods Sold
Merchandise Inventory
6,000
3,500
3,500
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Sales Discounts
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On June 17, Borey Co. received a
check for $5,880 in full payment of
the June 8 sale.
GENERAL JOURNAL
Date
Description
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Jun. 17 Cash
Sales Discounts
Accounts Receivable
Page 5
PR Debit Credit
5,880
120
6,000
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Sales Returns and Allowances
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On June 12, Borey Co. sold merchandise
costing $4,000 for $7,500 on account
The credit terms were 2/10, n/30.
GENERAL JOURNAL
Date
Description
Jun 12 Accounts Receivable
Page 4
PR Debit Credit
7,500
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Sales
Cost of Goods Sold
Merchandise Inventory
7,500
4,000
4,000
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Sales Returns and Allowances
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On June 14, merchandise with a sales
price of $800 and a cost of $470 was
returned to Borey. The return is
related to the June 12 sale.
GENERAL JOURNAL
Date
Description
Jun 14 Sales Returns and Allowances
Page 3
PR Debit Credit
800
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Accounts Receivable
Merchandise Inventory
Cost of Goods Sold
800
470
470
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Sales Returns and Allowances
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On June 20, Borey received the
amount owed to it from the sale of
June 12.
GENERAL JOURNAL
Date
Description
Page 6
PR Debit Credit
Jun 20 Cash
6,566
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Sales Discounts
134
Account Receivable
Sale
Return
Amount Due
Discount
Cash Received
6,700
$ 7,500
(800)
$ 6,700
(134)
$ 6,566
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Exh.
6-11
Recording Sales Information
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Matrix, Inc.
Computation of Gross Profit
For Year Ended December 31, 2002
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Sales
Less:
Sales discounts
Sales returns and allowances
Net sales
Cost of goods sold
Gross profit
$ 2,451,000
$ 29,412
18,500
Sales discounts and returns
and allowances are
Contra Revenue accounts.
47,912
$ 2,403,088
(1,928,600)
$ 474,488