Ch 5.1 Merchandising Operations Flashcards
What is merchandising
buying products (inventory) to resell to customers
what are the two charactersitics of inventory/ merchandise inventory
the company owns them
they are in a form ready for sale to customers
3 types of merchandising companies
retailers, wholesalers, and manufacturers
retailers
sell merch inventory directly to consumers
wholesalers
sell merch to retailers
manufacuteres
produce foods for sale to wholesalers or direct to relatiers
how is a manufacturing company slighlty different from a merchandising company
not all of its invetory may be ready for sale yet
what are the 3 categories of inventory
1) raw materials: have not been used in production prcoess
2) work in progress: inventory in the production process that is yet to be completed
3) finished goods: production has been completed, ready for sale
operating cycle
period from when cash is spent to buy inventory/provide a service to the time when cash is collected from customers
is operating cycle longer for merchandising or a serviece company
longer for a merchandising company!!!!
what does the operating cycle for a service company look like
performing services for cash or on account!
1) PERFORM SERVCIES FOR CUSTMOERS FOR CASH OR ON ACCOUNT
2) PAY CASH TO EMPLOYEES PERFORMING SERVICES
3) RECEIVE CASH FROM CUSTOMERS WHO PURCHASED ON ACC
what does operating cycle look like for merchandising companies
merchandise must be purchased for cash or on account before it can be sold to customers for cash or on account
1) purchase merch for cash or on acc
2) hold merchandise in stores or warehouses
3) pay for merch purchased on account
4) sell merch to customers for cash or on acc
5) recieve cash from customers that purchased on acc
REPEAT FROM 1
As merchandise is normally held in stores or warehouses for some time before being sold, the operating cycle includes the time between buying the inventory on account from suppliers and collecting the cash from its customers that purchase the inventory. Illustration 5.1 compares the operating cycles for service and merchandising companies. (Note that the timing of the receipt and payment of cash may vary from that shown for illustrative purposes.)
As merchandise is normally held in stores or warehouses for some time before being sold, the operating cycle includes the time between buying the inventory on account from suppliers and collecting the cash from its customers that purchase the inventory. Illustration 5.1 compares the operating cycles for service and merchandising companies. (Note that the timing of the receipt and payment of cash may vary from that shown for illustrative purposes.)
what does a long operating cycle mean
company has more money tied up in accounts receiveable or inventory; less liquidity
The longer the operating cycle, the longer a company must finance its inventory and accounts receivable.
The longer the operating cycle, the longer a company must finance its inventory and accounts receivable.
main source of revenue for merch companies
sales/sales revenue
two categories of expenses for merchandising companies
1) cogs: total ocst of merchandise that was sold during the period-> directly related to the revenue that is recognized from sale of those goods
2) operating expenses: incurred in the prcoess of earning sales (salaries, insurance, depreciation)
Why do we report cogs separate from other expenses
management and users can monitor these costs relative to sales revenue