Chapter 5: Merchandising Operations Flashcards
Merchandising Company
Buys and Sells Goods
What is the primary source of revenues referred to as
Sales revenue or Sales
COGS
Cost of Goods Sold
Is the total cost of merchandise sold during the period
Which Operating Cycle is longer
- Service Company or
- Merchandising Company
Merchandising Companys
Flow of Cost:
Perpetual System
- Maintain detailed record of the cost of each inventory purchase and sale
- Records CONTINUOUSLY show inventory that should be on hand
- Determines cost of goods sold EACH TIME a sale occurs
Flow of Cost:
Periodic System
- Do NOT keep detailed records of the goods on hand
- Cost of Goods Sold determined by count at the end of the accounting period
Formula for Cost of Goods Sold
Beginning Inventory
+ Purchases, Net Goods available for sale
- Ending inventory
= COGS
FOB Shipping Point
- Seller places goods Free On Board the carrier, and buyer pays freight costs
- Ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller
FOB Destination
- Seller paces good Free on Board to the buyer’s place of business, and seller pays freight cost
- Ownership pf the goods remains with the seller until the goods reach the buyer
Freight Cost
Freight Cost incurred by the seller are an Operating Expense (Delivery Expense)
- Delivery expense XXX to Cash XXXXX
Freight Cost incurred by the buyer increases inventory
- Perpetual Inventroy System: Inventory XXXX to Cash XXXXX
- Periodic Inventory system: Freight-In XXX to Cash XXX
Purchase Returns
Buyer may return the goods for credit if the sale was made on credit, or for cash if the purchase was for cash
Purchase Allowance
Buyer may choose to keep the merchandise in the case of damages - if the seller will grant an allowance (deduction) from the purchase price
Purchase Discounts
and Advantes for Buyer and Seller
Credit terms may permit buyer to claim a cash discount for prompt payment
Advantages:
- Purchaser saves money
- Seller shortens the operating cycle
Purchase Discounts:
2/10, n/30
2% discounts if paid within 10 days, otherwise net amount due within 30 days
Purchase Discounts:
1/10 EOM
1% discount if paid within first 10 days of next month
Purchase Discounts:
n/10 EOM
Net amount due within the first 10 days of the next month
Account for “Sale Retuns and Allowances”
- “Flipside” of purchase retuns and allowances
- Contra-Revenue account (DEBIT)
- Sales Account is not reduced (debited)
Periodic Inventory System:
Sale Return and Allowance XXX
Account Receivables XXX
-> No CHANGE in Inventory and COGS !!!
Perpetual Inventory System:
(siehe Foto)
Account for “Sales Discounts”
- Flipside of purchase discount
- Contra-Revenue account (DEBITED
Formular for Net Sales
Sales Revenue
- Sale Returns and allowances
- Sale Discounts
= Net Sales
Formular Gross Profit
Sales Revenue
- COGS
= Gross Profit
Gross Profit rate
Gross Profit / Net Sales
Other Income and expenses
Consists of various revenues and gains and expenses and losses that are UNRELATED to the company’s main line of operations
Comprehensive Income
- Reported in a combined statement of net income and comprehensive income or in a seperate schedule that reports only comprehensive income
- Includes certain adjustments to pension plan assets,
- gains/losses on foreign currency translations,
- and unrealized gains/losses on certain types of investments
Name the two categories of expenses of a Merchandising Company
- COGS
- Operating Expense
Cost of Goods Available for sale
Beginning Inventory
+ Cost of Goods Purchased
= Cost of Goods available for sale
Record the Sale of Merchandise under a perpetual System
Account Receivables XXXX
Sales Revenue XXXX
und
Cost of Goods Sold ZZZ
Inventory ZZZZ
Determining COGS under a Periodic System
- Is determined at the end of ther Period. NOT each time a sale is made
Beginning Inventory
+ Purchases
- Pruchase returns and Allowance
- Purchase Discounts
+ Freight In
- Ending Inventory
Cost of Goods Purchased
Purchases
- Purchase Retuns and Allowances
- Purchase Discounts
= Net Purchases
+ Freight-In
= Cost of Goods Purchased
Recording in a Periodic Inventory System
-
Purchases:
- “Purchase” Account
- not Inventory Account
-
Freight Cost:
- “Freight-In” Account
- not added to Inventory !!!!!!!
-
Purchase Retuns and Allowance:
- “Purchase Retrurn and Allowance” Account or “Purchase Discount” Account
- not substract from Inventory!!!
-
Sales:
- NO COGS !!!!
-
Sales Return and Allowance
- NO increase of Inventory like under a perpetural Inventory System
Freight-In Account
- Part of COGPurchased
- ADDED not Substracted
- Only in Periodic Inventory System
- Im Perpetual Inventory System werden die Freight-In Kosten direkt dem Inventory zugerechnet
- Is a temporary account
- Debit Balance (increases on the debit side)
- Part of Cost of goods purchased
- FREIGHT COST ARE NOT SUBJECT TO A PURCHASE DISCOUNT. Purchase discounts apply only to the invoice cost of the merchandise !!!
“Purchase Retuns and Allowance” Account
- Only in a Periodic Inventory System
- Temporary Account
- Normal Balance is Credit (increases on the credit side)
“Puchase Discounts” Account
- ONLY in a Periodic Inventory System
- Temporary Account
- Normal Balance is credit
Purchase Account
- Temporary Account
- Normal Balance is a Debit
Purchase XXX
Account Payable XXX
Operating Expense
FREIGHT OUT: ????
Depreciation Expense: ???
COGS: ???
Salarie and Wage expenses
- FREIGHT OUT: JA
Depreciation Expense: JA
COGS: NEIN
Salarie and Wage expenses: JA
