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
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.
Perpetual Inventory Method
Accts. Pay
Pur. Disc.
xxx
xxx
Purchases
When
Purchased
xxx
Pur. R&A
xxx
COGS
Inventory
xxx
xxx
xxx
When
Sold
Perpetual Inventory Method
Accts. Rec.
When
Sale is
made
Sales Disc.
xxx
xxx
Sales
xxx
Sales R&A
xxx
Inventory
xxx
COGS
xxx
Match
COGS
ACCT 201
ACCT 201
Additional
Merchandising
Issues
ACCT 201
ACCT 201
Adjusting Entries
ACCT 201
Prepaid Expenses
Depreciation
Unearned Revenue
ACCT 201
Accrued Expenses
Accrued Revenue-
There’s
more!
ACCT 201
Perpetual Systems –
Inventory Shrinkage
ACCT 201
Shrinkage is defined as “the loss
of inventory.”
Usually charged to cost of goods
sold.
ACCT 201
ACCT 201
Inventory Shrinkage –
Text Example
ACCT 201
Suppose that Z-Mart’s Inventory account
at year-end 2002 has a balance of
$21,250, but that a physical count reveals
only $21,000 of inventory on hand.
ACCT 201
GENERAL JOURNAL
Date
Description
Page 49
PR
Dec 31 Cost of Goods Sold
Merchandise Inventory
To a dj ust for $250 i nventory shri nk a ge
revea l ed by physi ca l i nventory count.
Debit
Credit
250
250
ACCT 201
Closing Entries
ACCT 201
Close the Revenue Accounts
Close the Expense Accounts
Close the Income Summary
ACCT 201
Close the Dividends Account
There’s
more!
Bob's Shop for Men
Adjusted Trial Balance
December 31, 2002
Cash
Accounts receivable
Merchandise inventory
Supplies
Equipment
Accum. depr.- Equip.
Accounts payable
Salaries payable
Common stock
Retained earnings
Sales
Sales discounts
Sales returns
Cost of goods sold
Admin. salaries expense
Sales salaries expense
Insurance expense
Rent expense
Supplies expense
Advertising expense
$
7,700
11,200
14,300
1,300
41,200
We have some
new accounts
$
$
4,300
2,000
233,200
18,200
29,600
1,200
8,100
1,000
13,300
386,600
$
7,000
16,400
800
20,000
18,600
323,800
386,600
Close these with
the expense
accounts.
Bob's Shop for Men
Adjusted Trial Balance
December 31, 2002
Cash
Accounts receivable
Merchandise inventory
Supplies
Equipment
Accum. depr.- Equip.
Accounts payable
Salaries payable
Common stock
Retained earnings
Sales
Sales discounts
Sales returns
Cost of goods sold
Admin. salaries expense
Sales salaries expense
Insurance expense
Rent expense
Supplies expense
Advertising expense
$
7,700
11,200
14,300
1,300
41,200
$
$
4,300
2,000
233,200
18,200
29,600
1,200
8,100
1,000
13,300
386,600
$
7,000
16,400
800
20,000
18,600
323,800
386,600
Let’s prepare the
closing entries for
Bob’s Shop for
Men.
Step 1: Close the Revenue Accounts to
Income Summary.
GENERAL JOURNAL
Date
Description
Dec. 31 Sales
Income Summary
PR
Page87
Debit
Credit
323,800
323,800
Income Summary
323,800
Step 2: Close the Expense Accounts to
Income Summary.
GENERAL JOURNAL
Date
Description
Dec. 31 Income Summary
PR
Page 87
Debit
Credit
310,900
Sales Discounts
4,300
Sales Returns
2,000
Cost of Goods Sold
233,200
Adm. Salaries Exp.
18,200
Sales Salaries Exp.
29,600
Insurance Expense
1,200
Rent Expense
8,100
Supplies Expense
1,000
Advertising Expense
13,300
Step 2: Close Debit Balances in Temporary
Accounts to Income Summary.
GENERAL JOURNAL
Date
Description
Dec. 31 Income Summary
PR
Page 87
Debit
Credit
310,900
Sales Discounts
4,300
Sales Returns
2,000
Cost of Goods Sold
233,200
Adm. Salaries Exp.
18,200
Sales Salaries Exp.
29,600
Insurance Expense
1,200
Rent Expense
Income Summary
Supplies Expense
310,900
323,800
Advertising
12,900 Expense
8,100
1,000
13,300
Step 3: Close Income Summary to
Retained Earnings
GENERAL JOURNAL
Date
Description
PR
Dec. 31 Income Summary
Retained Earnings
Income Summary
310,900
323,800
12,900
-0-
Page87
Debit
Credit
12,900
12,900
ACCT 201
Inventory Systems
Beginning
inventory
+
Net cost of
purchases
ACCT 201
Merchandise
available for sale
ACCT 201
Ending
Inventory
+
Cost of
Goods
Sold
Merchandising Cost Accounts
Beginning
inventory
Year 1
Net cost of
purchases
+
= Merchandise
available for sale
Ending Inv.
Year 1
+
Cost of Goods
Sold
Becomes beginning
inventory of Year 2
Income
Statement
Balance
Sheet
ACCT 201
Income Statement Formats
ACCT 201
Multiple-Step
Single-Step
ACCT 201
ACCT 201
Single-Step Income
Statement
ACCT 201
Bob's Shop for Men
Income Statement
For Year Ended December 31, 2002
ACCT 201
Net sales
Cost of goods sold
Operating expenses
Total expense
Net income
$ 317,500
$ 233,200
71,400
304,600
$ 12,900
ACCT 201
Multiple-Step
Income
Bob's Shop for Men
Income Statement
Statement
For
Year Ended December 31, 2002
ACCT 201
ACCT 201
Sales
Less: Sales discounts
Sales returns
Net sales
Cost of Goods Sold
Gross profit
Operating expenses:
Selling expenses:
Salaries expense
$ 29,600
Advertising expense
13,300
General and administrative expenses:
Adm. salaries expense
$ 18,200
Insurance expense
1,200
Rent expense
8,100
Supplies expense
1,000
Total operating expenses
Net income
$ 323,800
$ 4,300
2,000
6,300
$ 317,500
233,200
$ 84,300
$ 42,900
28,500
71,400
$ 12,900
Merchandising Cash Flows
Income Statement Statement of Cash Flows
Net Sales
Cost of Goods Sold
Gross Profit
AccrualBased
Receipts from Customers
Payments to Suppliers
Net Cash Flows from Customers and Suppliers
CashBased
Exhibit 4-19
ACCT 201
Acid-Test Ratio
Acid-Test
=
Ratio
Quick Assets
Current Liabilities
ACCT 201
Acid-Test
Cash + S-T Investments + Receivables
=
Current Liabilities
Ratio
ACCT 201
A common rule of thumb is the acid-test
ratio should have a value of at least 1.0 to
conclude a company is unlikely to face
liquidity problems in the near future.
Gross Margin Ratio
Gross
Net Sales – Cost of Goods Sold
Margin =
Net Sales
Ratio
Percentage of
dollar sales
available to
cover
expenses and
provide a
profit.
32.0%
J.C. Penney's Gross Margin Ratio
31.0%
30.0%
29.0%
28.0%
27.0%
26.0%
2000
1999
1998
1997