Transcription
16Accounting forMerchandisingBusinesses1
2After studying this chapter, you shouldbe able to:1. Distinguish between the activities andfinancial statements of service andmerchandising businesses.2. Describe and illustrate the financialstatements of a merchandisingbusiness.2
3After studying this chapter, you shouldbe able to:3. Describe and illustrate the accounting formerchandise transactions including: sale of merchandise purchase of merchandise transportation costs, sales taxes, trade discounts dual nature of merchandising transactions.4. Describe the adjusting and closing processfor a merchandising business.3
46-1Objective 1Distinguish between theactivities and financialstatements of service andmerchandising businesses.4
56-1Service BusinessFees earnedOperating expensesNet income XXX–XXX XXX5
66-1Merchandising BusinessSalesCost of Merchandise SoldGross ProfitOperating ExpensesNet Income XXX–XXX XXX–XXX XXX6
76-1When merchandise is sold, therevenue is reported as sales, andits cost is recognized as anexpense called cost ofmerchandise sold.7
86-1The cost of merchandise sold issubtracted from sales to arrive atgross profit. This amount iscalled gross profit because it isthe profit before deducting theoperating expenses.8
96-1Merchandise on hand (notsold) at the end of anaccounting period is calledmerchandise inventory.9
101-26-1Example Exercise 6-1On August 25, Gallatin Repair Service extended an offer ofDuringyear,soldatfor 250,000 125,000theforcurrentland thathad merchandisebeen priced forissale 150,000.Oncashand for 975,000on account.The costtheofseller’stheSeptember3, GallatinRepairService acceptedmerchandiseis 735,000.What20,is thethelandamountof thecounteroffer ofsold 137,000.On Octoberwas assessedgrossprofit?at a valueof 98,000 for property tax purposes. On December 4,Gallatin Repair Service was offered 160,000 for the land by aFollowMyretailExample6-1what value should the land be recordednationalchain. Atin Gallatin Repair Service’s records?The gross profit is 490,000 ( 250,000 975,000 – 735,000).FollowMy Example 1-1 137,000. Under the cost concept, the land should be recorded atthe cost to Gallatin Repair Service.1010For Practice: PE 6-1A, PE 6-1B31
116-11111
126-2Objective 2Describe and illustrate thefinancial statements of amerchandising business.12
13Multiple-Step Income Statement6-2The multiple-stepincome statementcontains several sections,subsections, andsubtotals.13
146-2The Sales accountprovides the total amountcharged to customers formerchandise sold,including cash sales andsales on account.14
156-2Sales returns andallowances are granted bythe seller to customers fordamaged or defectivemerchandise.15
166-2Sales discounts are grantedby the seller to customersfor early payment ofamounts owed.16
176-2Net sales is determined bysubtracting sales returnsand allowances and salesdiscounts from sales.17
186-2Multiple-Step Income StatementNetSolutionsIncome StatementFor the Year Ended December 31, 2009Revenue from sales:Sales 720,185Less: Sales returns and allowances 6,140Sales discounts5,79011,930Net sales 708,255Cost of merchandise sold525,305Gross profit 182,950(Continued)1818
19Operating expenses:Selling expenses:Sales salaries expense 53,430Advertising expense10,860Depr. Expense–store equipment3,100Delivery Expense2,800Miscellaneous selling expense630Total selling expensesAdministrative expenses:Office salaries expense 21,020Rent expense8,100Depr. expense–office equipment2,490Insurance expense1,910Office supplies expense610Misc. administrative expense760Total admin. expensesTotal operating expensesIncome from operations(Continued) 70,82034,890105,71019 77,24019
206-2Other income and expenses:Rent revenueInterest expenseNet income(Concluded) 600(2,440)(1,840) 75,4002020
216-2Cost of merchandise soldwas discussed earlier. It isthe cost of the merchandisesold to customers.21
226-2As we discussed in Slide 16,sellers may offer customerssales discounts for earlypayment of their bills. Fromthe buyer’s perspective, suchdiscounts are referred to aspurchase discounts.22
236-2The buyer may return merchandiseto the seller (a purchase return),or the buyer may receive areduction in the initial price atwhich the merchandise waspurchased (a purchase allowance).23
24Cost of MerchandiseSold6-22424
25Single-Step Income Statement6-2An alternative form of incomestatement is the single-stepincome statement. As shown inthe next slide, the incomestatement for NetSolutionsdeducts the total of all expensesin one step from the total of allrevenues.25
266-2Exhibit 3: Single-Step Income StatementNetSolutionsIncome StatementFor the Year Ended December 31, 2009Revenues:Net salesRent revenueTotal revenuesExpenses:Cost of merchandise soldSelling expensesAdministrative expensesInterest expenseTotal expensesNet income 708,255600 708,855 525,30570,82034,8902,440633,455 75,4002626
276-2Exhibit 4: Statement of Owner’s EquityNetSolutionsStatement of Owner’s EquityFor the Year Ended December 31, 2009Chris Clark, capital, 1/1/09Net income for yearLess withdrawalsIncrease in owner’s equityChris Clark, capital, 12/31/09 153,800 75,40018,00057,400 211,2002727
286-2Exhibit 5: Report Form of Balance SheetNetSolutionsBalance SheetDecember 31, 2009AssetsCurrent assets:CashAccounts receivableMerchandise inventoryOffice suppliesPrepaid insuranceTotal current assets 52,95091,08062,1504802,650(Continued) 209,3102828
296-2Exhibit 5: Report Form of Balance SheetProperty, plant, and equip.:LandStore equipmentLess accumulateddepreciationOffice equipmentLess accumulateddepreciationTotal property, plant,and equipmentTotal assets 20,000 27,1005,700 15,57021,4004,72010,850(Continued)52,250 261,5602929
30Exhibit 5: Report Form of Balance Sheet6-2LiabilitiesCurrent liabilities:Accounts payable 22,420Note payable (current portion)5,000Salaries payable1,140Unearned rent1,800Total current liabilities 30,360Long-term liabilities:Note payable (final pmt. due 2017)20,000Total liabilities 50,360Owner’s EquityChris Clark, capital211,200Total liabilities and owner’s equity 261,560(Concluded)3030
316-2Example Exercise 6-2Based upon the following data, determine the cost ofmerchandise sold for May. Use the format seen inExhibit 2.Merchandise Inventory, May 1Merchandise Inventory, May 31PurchasesPurchases Returns and AllowancesPurchases DiscountsTransportation In 121,200142,000985,00023,50021,00011,3003131
326-2Follow My Example 6-2Merchandise Inventory, May 1PurchasesLess: Purchases returns and allowancesPurchases discountsNet purchasesAdd transportation inCost of merchandise purchasedMerchandise available for saleLess merchandise inventory, May 31Cost of merchandise soldFor Practice: PE 6-2A, PE 6-2B 121,200 985,000 23,50021,00044,500 940,50011,300951,800 1,073,000142,000 931,0003232
336-3Objective 3Describe and illustrate the accountingfor merchandise transactions including:sale of merchandise; purchase ofmerchandise; transportation costs, salestaxes, trade discounts; dual nature ofmerchandise transactions.33
34Cash Sales6-3On January 3, NetSolutions sold 1,800 of merchandise for cash.3434
35Cash Sales (continued)6-3Using a perpetual inventory, the 1,200cost of the inventory must be recorded.3535
36Credit Card Sales6-3At the end of the month, 48 wassent to pay the service charge oncredit card sales.3636
376-3Sales on Account Using a PerpetualInventoryJan. 12 Accounts Receivable—Sims Co.Sales510 00510 00Invoice No. 717212 Cost of Merchandise SoldMerchandise InventoryCost of merchandise sold onInvoice No. 7172.280 00280 00On January 12, NetSolutions sold Sims Companymerchandise on account, 510. The cost of the3737merchandise to the seller was 280.
38Sales Discounts6-3The terms for when payments formerchandise are to be made, agreedon by the buyer and the seller, arecalled credit terms. If buyer isallowed an amount of time to pay, itis known as the credit period.38
396-3Credit TermsIf invoice ispaid within10 days ofinvoice date 1,470 paid( 1,500 less a2% discount)Invoice for 1,500Terms:2/10, n/303939
406-3Invoice for 1,500Terms:2/10, n/30If invoice isNOT paidwithin 10days ofinvoice dateFull amount ( 1,500)is due within 30 daysof invoice date4040
416-3Sales DiscountsJan. 22 CashSales Discounts1 470 0030 00Accounts Receivable–Omega Tech.Collection of Invoice No.106-8, less 2% discount.1 500 00On January 22, NetSolutions receives theamount due, less the 2 percent discount.4141
426-3Jan. 13 Sales Returns and AllowancesAccounts Receivable—Krier Co.225 00225 00Credit Memo No. 3213 Merchandise Inventory140 00Cost of Goods SoldCost of merchandise returned.Credit Memo No. 32.On January 13, issued Credit Memo 32 to KrierCompany for merchandise returned toNetSolutions. Selling price, 225; cost toNetSolutions, 140.140 004242
431-26-3Example Exercise 6-3Journalize the following merchandise transactions:a. Sold merchandise on account, 7,500 with terms of2/10, n/30. The cost of the merchandise sold was 5,625.b. Received payment less the discount.4343
446-3Follow My Example 6-3a.b.Accounts ReceivableSalesCost of Merchandise SoldMerchandise InventoryCashSales DiscountsAccounts ReceivableFor Practice: PE 6-3A, PE 6-3B7,5007,5005,6255,6257,3501507,5004444
456-3Purchase Transactions (PerpetualInventory)JOURNALDescriptionJan. 3 Merchandise InventoryCashPurchased inventory fromBowen Co.Date2009PAGE 24Post.Ref.DrCr.2 510 002 510 00On January 3, NetSolutions purchased merchandisefor cash from Alden Company, 2,510.4545
466-3Jan. 4 Merchandise Inventory9 250 00Accounts Payable—Thomas Corp.Purchased inventory onaccount.On January 4, NetSolutions purchasedmerchandise on account from ThomasCorporation, 9,250.9 250 004646
47Purchases Discounts6-3Alpha Technologies issuesan invoice for 3,000 toNetSolutions dated March12, with terms 2/10, n/30.47
486-3NetSolutions borrows cash at an annual interestrate of 6%. Should the firm borrow cash to paythe invoice within the discount period?YESDiscount of 2% on 3,000Interest for 20 days at the rateof 6% on 2,940Savings from borrowing 60.00– 9.80 50.2048
496-3Purchase Transactions (PerpetualInventory)Mar. 12 Merchandise Inventory3 000 00Accounts Payable—Alpha Tech.3 000 00Purchased inventory onaccount.On March 12, NetSolutions purchasedmerchandise on account from AlphaTechnologies, 3,000.4949
506-3Mar. 22 Accounts Payable—Alpha Technol.CashMerchandise InventoryPaid Alpha Technologies forMarch 12 purchase.3 000 002 940 0060 00If payment is made by March 22, NetSolutionsrecords the discount as a reduction in cost. Noticethat Merchandise Inventory is credited becauseNetSolutions maintains a perpetual inventory.5050
516-3Apr. 11 Accounts Payable—Alpha Technol.CashPaid Alpha Technologies forMarch 12 purchase.3 000 003 000 00If NetSolutions does not pay the invoice untilApril 11, it would pay the full amount.5151
52Purchases Return6-3A purchases return involves actuallyreturning merchandise that isdamaged or does not meet thespecifications of the order.52
53Purchases Allowance6-3When the defective or incorrectmerchandise is kept by thebuyer and the vendor makes aprice adjustment, this is apurchases allowance.53
546-3NetSolutions receives the deliveryfrom Maxim Systems anddetermines that 900 of the itemsare not the merchandise ordered.Debit memorandum #18 (alsocalled a debit memo) is issued toMaxim Systems.54
556-3Mar. 7 Accounts Payable—Maxim Systems900 00Merchandise InventoryDebit Memo No. 18900 00On March 7, NetSolutions records thereturn of the merchandise indicated inDebit Memorandum No. 18.5555
566-3On May 2, NetSolutions purchased 5,000 of merchandise from Delta DataLink, subject to terms 2/10, n/30.May 2 Merchandise InventoryAccounts Payable—Delta DataPurchased merchandise.5 000 005 000 005656
576-3On May 4, NetSolutions returns 3,000 of the merchandise.4 Accounts Payable—Delta Data LinkMerchandise Inventory3 000 003 000 00Returned portion of themerchandise purchased.5757
586-3On May 12, NetSolutions pays the amount due, 1,960 [ 2,000 – ( 5,000 – 3,000) x 2%)].12 Accounts Payable—Delta Data LinksCashMerchandise InventoryPaid invoice [( 5,000 – 3,000) x 2% 40; 2,000 – 40 1,960]2 000 001 960 0040 005858
596-3Example Exercise 6-4Rofles Company purchased merchandise on account from asupplier for 11,500, terms 2/10, n/30. Rofles Companyreturned 3,000 of the merchandise and received full credit.a.If Rofles Company pays the invoice within thediscount period, what is the amount of cash requiredfor the payment?b.Under a perpetual inventory system, what account iscredited by Rofles Company to record the return?5959
606-3Follow My Example 6-4a. 8,330. Purchase of 11,500 less the return of 3,000 less the discount of 170 [( 11,500 – 3,000) x 2%].b.Merchandise Inventory.For Practice: PE 6-4A, PE 6-4B6060
61Transportation Costs6-3If ownership of the merchandisepasses to the buyer when the sellerdelivers the merchandise to thefreight carrier, it is said to be FOB(free on board) shipping point.61
626-3June 10 Merchandise InventoryAccounts Payable—Magna DataPurchased merchandise,terms FOB shipping point.10 Merchandise InventoryCashPaid shipping cost .900 00900 0050 0050 00On June 10, NetSolutions buys merchandise fromMagna Data on account, 900, terms FOB shipping62point and pays the transportation cost of 50. 62
63Transportation Costs6-3If ownership of the merchandisepasses to the buyer when thebuyer receives the merchandise,the terms are said to be FOB(free on board) destination.63
64FOB Destination6-3On June 15, NetSolutions sellsmerchandise to Kranz Company onaccount, 700, terms FOBdestination. The cost of themerchandise sold is 480.64
656-3June 15 Accounts Receivable—Kranz Co.SalesSold merchandise, termsFOB destination.15 Cost of Merchandise SoldMerchandise InventoryRecord cost of merchandisesold to Kranz Company.700 00700 00480 00480 006565
666-3June 15 Delivery Expense40 00CashPaid shipping cost onmerchandise sold.40 00On June 15, NetSolutions pays thetransportation cost of 40.6666
67FOB Shipping Point6-3On June 20, NetSolutions sellsmerchandise to Planter Companyon account, 800, terms FOBshipping point. The cost of themerchandise sold is 360.67
686-3June 20 Accounts Receivable—Planter Co.SalesSold merchandise, terms800 00800 00FOB shipping point.20 Cost of Merchandise SoldMerchandise InventoryRecord cost of merchandise360 00360 00sold to Planter Company.6868
696-3June 20 Accounts Receivable—Planter Co.CashPrepaid shipping cost onmerchandise sold.45 0045 00NetSolutions pays the transportationcost of 45 and adds it to the invoice.6969
706-3Example Exercise 6-5Determine the amount to be paid in full settlement of eachof invoices (a) and (b), assuming that credit for returns andallowances was received prior to payment and that allinvoices were paid within the discount period.Merchandisea. 4,500b. 5,000TransportationReturns andPaid by Seller Transportation Terms Allowances 200FOB shipping point, 8001/10, n/30 60FOB destination, 2,5002/10, n/307070
716-3Follow My Example 6-5a. 3,863. Purchase of 4,500 less return of 800less the discount of 37 [( 4,500 – 800) x 1%]plus 200 of shipping.b. 2,450. Purchase of 5,000 less return of 2,500 less the discount of 50 [( 5,000 – 2,500) x 2%].For Practice: PE 6-5A, PE 6-5B7171
726-3727218
736-3Sales TaxesAug. 12 Accounts Receivable—Lemon Co.106 00SalesSales Taxes PayableInvoice No. 339100 006 00On August 12, merchandise is soldon account to Lemon Company, 100. The state has a 6% sales tax.737318
746-3Sept. 15 Sales Tax Payable2 900 00CashPayment for sales taxescollected during August.2 900 00On September 15, the seller sends in apayment of 2,900 to the taxing unit forthe August taxes collected.747418
75Trade Discounts6-3When wholesalers offer specialdiscounts to certain classes of buyersthat order large quantities, thesediscounts are called trade discounts.75
76Dual Nature of MerchandiseTransactions6-3Each merchandising transaction affects a buyerand a seller. In the following illustrations, weshow how the same transactions would berecorded by both the seller and the buyer.July 1. Scully Company sold merchandise onaccount to Burton Co., 7,500, termsFOB shipping point, n/45. The cost ofthe merchandise sold was 4,500.76
776-3Scully Company (Seller)Accounts Receivable—Burton Co. 7,500Sales7,500Cost of Merchandise SoldMerchandise Inventory4,5004,500Burton Company (Buyer)Merchandise Inventory.Accounts Payable—Scully Co.7,5007,500777718
786-3July 2 Burton Company paidtransportation charges of 150 onJuly 1 purchase from ScullyCompany.78
796-3Scully Company (Seller)No entry.Burton Company (Buyer)Merchandise InventoryCash150150797918
806-3July 5 Scully Company sold merchandiseon account to Burton Co., 5,000,terms FOB destination, n/30. Thecost of the merchandise sold was 3,500.80
816-3Scully Company (Seller)Accounts Receivable—Burton Co. 5,000Sales5,000Cost of Merchandise SoldMerchandise Inventory3,5003,500Burton Company (Buyer)Merchandise Inventory.Accounts Payable—Scully Co.5,0005,000818118
826-3July 7. Scully Company paidtransportation costs of 250 fordelivery of merchandise sold toBurton Company on July 5.82
836-3Scully Company (Seller)Delivery ExpenseCash250250Burton Company (Buyer)No entry.838318
846-3July 13. Scully Company issued BurtonCompany a credit memorandumfor 1,000 of merchandisereturned from a July 5 purchaseon account. The cost of themerchandise was 700.84
856-3Scully Company (Seller)Sales Returns and Allowances1,000Accounts Receivable—Burton Co.1,000Merchandise InventoryCost of Merchandise Sold700700Burton Company (Buyer)Accounts Payable—Scully Co.Merchandise Inventory1,0001,000858518
866-3July 15. Scully Company receivedpayment from Burton Companyfor purchase of July 5.86
876-3Scully Company (Seller)Cash4,000Accounts Receivable—Burton Co.4,000Burton Company (Buyer)Accounts Payable—Scully Co.Cash4,0004,000878718
886-3July 18. Scully Company soldmerchandise on account toBurton Company, 12,000, termsFOB shipping point, 2/10, n/eom.Scully prepaid transportationcosts of 500, which were addedto the invoice. The cost of themerchandise sold was 7,200.88
896-3Scully Company (Seller)Accounts Receivable—Burton Co. 12,000Sales12,000Accounts Receivable—Burton Co.500Cash500Cost of Merchandise Sold7,200Merchandise Inventory7,200Burton Company (Buyer)Merchandise Inventory12,500Accounts Payable—Scully Co.12,500898918
906-3July 28. Scully Company received paymentfrom Burton Company for purchaseof July 18, less discount (2% x 12,000).90
916-3Scully Company (Seller)Cash12,260Sales Discounts240Accounts Receivable—Burton Co.12,500Burton Company (Buyer)Accounts Payable—Scully Co.Merchandise InventoryCash12,50024012,260919118
926-31-2Example Exercise 6-6Sievert Co. sold merchandise to Bray Co. on account, 11,500, terms 2/15, n/30. The cost of the merchandise soldis 6,900. Sievert Co. issued a credit memorandum for 900 for merchandise returned and later received theamount due within the discount period. The cost of themerchandise returned was 540. Journalize Sievert Co.’sand Bray Co.’s entries for the receipt of the check for theamount due from Bray Co.9292
936-3Follow My Example 6-6Sievert Company Journal Entries:Cash ( 11,500 – 900 – 212)Sales Discounts [( 11,500 – 900) x 2%]Accounts Receivable—Bray Co.( 11,500 – 900)10,388212Bray Company Journal Entries:Accounts Payable—Sievert Co. ( 11,500 – 900)10,600Merchandise Inventory [( 11,500 – 900)x 2%]Cash ( 11,500 – 900 – 212)10,60021210,3889393For Practice: PE 6-6A, PE 6-6B
946-4Objective 4Describe the adjusting andclosing process for amerchandising business.94
95Inventory Shrinkage6-4Merchandising businesses may experiencesome loss of inventory due to shoplifting,employee theft, or errors in recording orcounting inventory. If the balance of theMerchandise Inventory account is larger thanthe total amount of merchandise count, thedifference is often called inventory shrinkageor inventory shortage.95
966-4NetSolutions inventory recordsindicate that 63,950 ofmerchandise should beavailable for sale on December31, 2009. The physical countreveals that only 62,150 isactually available.96
976-4Adjusting EntryDec. 31 Cost of Merchandise SoldMerchandise InventoryInventory shrinkage (63,950– 62,150).Inventory recordsInventory countInventory shortage1 800 001 800 00 63,95062,150 1,800979718
98Step 1: Closing Entries6-4Close the temporary accounts with creditbalances to Income Summary.DateItemClosing Entries2009Dec. 31 SalesRent RevenueIncome SummaryPRDebitCredit410 720 185 00610600 00312720 785 009898
99Step 2: Closing Entries6-4Close the temporary accountswith debit balances toIncome Summary.9999
100Step 2: Closing Entries31 Income SummarySales Returns and Allow.Sales DiscountsCost of Merchandise SoldSales Salaries ExpenseAdvertising ExpenseDepr. Exp.—Store Equip.Delivery ExpenseMisc. Selling ExpenseOffice Salaries ExpenseRent ExpenseDepr. Exp.—Office Equip.Insurance ExpenseOffice Supplies ExpenseMisc. Administrative Exp.Interest 34539710645 385 006 140 005 790 00525 305 0053 430 0010 860 003 100 002 800 00630 0021 020 008 100 002 490 001 910 00610 00760 002 440 00100100
101Step 3: Closing Entries6-4Close Income Summary (the balance representsa 75,400 profit for NetSolutions in 2009) toChris Clark, Capital.31 Income SummaryChris Clark, Capital31231075 400 0075 400 00101101
102Step 4: Closing Entries6-4Close Chris Clark, Drawing to ChrisClark, Capital.31 Chris Clark, CapitalChris Clark, Drawing31031118 000 0018 000 00102102
1036-41-2Example Exercise 6-7Pulmonary Company’s perpetual inventory records indicatethat 382,800 of merchandise should be on hand on March31, 2008. The physical inventory indicates that 371,250 ofmerchandise is actually on hand. Journalize the adjustingentry for the inventory shrinkage for Pulmonary Companyfor the year ended March 31, 2008.Follow My Example 6-7Mar. 31 Cost of Merchandise Sold ( 382,800 –( 371,250)Merchandise InventoryFor Practice: PE 6-7A, PE 6-7B11,55011,550103103
1046-4Financial AnalysisThe ratio of net sales to assetsmeasures how effectively a business isusing its assets to generate sales.Ratio of NetSales to Assets Net salesAverage total assets104
1056-4Ratio of Net Sales to AssetsTotal revenue (net sales)Total assets:Beginning of yearEnd of yearAverageRatio of net sales to assets*in millionsSears 19,701*J. C. Penney 18,424* 6,074 8,651 7,362.5 18,300 14,127 16,213.52.68 to 11.14 to 1105
106Interpretation6-4Based on these ratios, Searsappears better than J. C.Penney in utilizing its assets togenerate sales.106
Describe and illustrate the accounting for merchandise transactions including: sale of merchandise After studying this chapter, you should be able to: 3 purchase of merchandise transportation costs, sales taxes, trade discounts dual nature of merchandising transactions. 4. Describe the adjusting and closing process for a merchandising business.
