Chapter 5/6/7/9 Flashcards
Merchandising Companies
Retailers, Wholesalers, Manufacturers
Inventory is classified into 3 categories by manufacturing companies
- Raw materials
- Work in process
- Finished goods
Operating Cycle
Period from cash is spent to buy inventory/provide service to cash is collected
Net Income
Sales - (CoGS & Expenses) - Income Tax
淨利
Gross profit
Sales - Cost of Goods Sold
毛利
=Gross Margin
=Merchandising Profit
Profit Margin
Net Income / Sales (%)
淨利率
(=Sales-Expenses/Sales)
Gross Profit Margin
Gross Profit / Sales (%)
毛利率
=[Sales-CoGS]/Sales
Profitability Measures
Gross Profit Margin & Profit Margin
Generally low-turnover businesses have higher profitability
Steps to determine Cost of Goods Sold in Periodic Inventory System
- Determine Beginning Inventory
- Determine Cost of Goods Available for Sale
(= Beginning Inventory + CoG Purchased) - Determine Cost of Ending Inventory
(Physical count) - Determine Cost of Goods Sold
(= CoGAfS - Ending Inventory)
CoGS is a residual number
Cost of Goods Available for Sale
Cost of Goods Purchased
+ Beginning Inventory
= Cost of Goods Sold
+ Ending Inventory
Record entries of Sales in perpetual inventory
Return Rate = 5%
Sales
Dr Cash or A/R (100%)
Cr Sales (95%)
Cr Refund Liability (5%)
CoGS
Dr CoGS (95%)
Dr Est. Inv. Returns (5%)
Cr Inventory (100%)
Record entries of Returns in perpetual inventory
Sales
Dr Refund Liability
Cr Cash or A/R
CoGS
Dr Inventory
or CoGS (if not resalable)
Cr Est. Inv. Returns
Accounts of Refund Liability / Estimated Inventory Returns
Liability / Asset
(both current)
Explain Purchase Discount
2/10 n/30
2% Discount (Cr Inv.) =
if payment made in 10 days
Due in 30 days anyway
FOB Shipping Point
Title transferred when leaving the seller. (Inventory +/-)
Buyer pays freight costs, record as Inventory.
Buyer is responsible for loss/damage in shipping.
FOB Destination
Title transferred when reaching the Buyer. (Inventory +/-)
Seller pays freight costs, record as Operating Expense (Freight Out).
Seller is responsible for loss/damage in shipping.
Perpetual / Periodic Inventory
Entries for every sale / Entries for every period
(IFRS) Expenses are classified by
-
Nature
E.g. Salaries, Depreciation, Advertising, etc. -
Function
E.g. CoGS, Admin Expenses, Selling Expenses, etc.
Entries of outflow payment of
$1500 in 10 days under 2/10 net 30
Dr Accounts Payable 1500
Cr Inventory 30
Cr Cash 1470
Categories of Inventory Expenses
- Cost of Goods Sold
- Operating Expenses
When costs rising,
compare FIFO & WAC
in CoGS / Inventory & N.I.
CoGS
FIFO < WAC
Inventory & N.I.
FIFO > WAC
If Inventory is Understated
(Inventory Errors)
Effects of
CoGS / Gross Profit / Net Income / Retained Earnings
CoGS Overstated /
G. Profit Understated /
Net Inc. Understated /
R/E Understated
4 Steps of Multiple-Step Statement of Income
-
Gross Profit 毛利
= Sales - CoGS -
Income from Operations 營業利益
= Gross Profit - Operating Exp -
Income before Income Tax 稅前淨利
= Income from Operations + Non-Operating (Rev - Exp) -
Net Income (稅後)淨利
= Income before I/T - I/T Exp
Non-Operating Activities
Rev / Exp not related to company’s main operations
Non-recurring, not sustainable, less predictive value
E.g. Interest income & expense / Rent income / Investment income / Foreign exchange gain or loss
