Merchandising Operations and Inventory Systems Flashcards
company that buys and sells merchandise
merchandising company
merchandising company that sell directly to consumers
retailers
merchandising company that sell to retailers
wholesalers
primary source of revenue for merchandising companies
sales of merchandise
sales revenue
sales
total cost of merchandise sold during the period
cost of goods sold
enumerate the income measurement process for a merchandising company
sales revenue - cost of goods sold = gross profit - operating expenses = net income/net loss
operating cycle of a service company
perform services -> accounts receivable -> receive cash -> cash
operating cycle of a merchandising company
buy inventory -> inventory (asset) -> sell inventory -> accounts receivable -> receive cash -> cash
enumerate the flow of costs of a merchandising company
beginning inventory + cost of goods purchased = cost of goods available for sale
cost of goods available for sale -> ending inventory, cost of goods sold
define perpetual inventory system
continuously monitored
companies keep detailed records of the cost of each inventory purchase and sale
a company determines the cost of goods sold each time a sale occurs
define periodic inventory system
end of the period physical count
no detailed inventory records of goods on hand throughout the period
steps in determining the cost of goods sold under a periodic inventory system
- add cost of goods on hand to cost of goods purchased
2. subtract cost of goods on hand (after physical inventory count) at the end of the accounting period
advantage of a perpetual inventory system
records are continuously recorded (y)
gross profit equation
sales revenue - cost of goods sold (COGS IS THE EXPENSE)
cost of goods available for sale is made up of what
beginning inventory + cost of goods purchased
how are cash purchases recorded
increase in inventory (ASSET) and a decrease in cash
increase decrease asset
entry on the journal for a purchase made on credit
debit increase in INVENTORY and a credit increase in Accounts Payable (liability)
FOB Shipping Point
BUYER pays for the freight costs
once the goods are placed in the carrier, the goods are already OWNED BY THE BUYER
FOB Destination
SELLER pays for the freight costs
goods are Still owned by the seller until it reaches the destination
freight costs incurred by the buyer are part of the cost of merchandise purchased (fob shipping point)
when buyer incurs transportation costs, these costs are considered PART OF THE COST OF PURCHASING INVENTORY
give the journal entry
debit increase in inventory
credit decrease in cash
increase decrease asset
freight costs incurred by the seller are OPERATING EXPENSES of the seller
increases expense account titled FREIGHT OUT (delivery expense)
give the journal entry
debit increase freight out (delivery expense)
credit decrease cash
define purchase return
dissatisfied customer
return the goods to the seller for credit
cash refund if cash
define purchase allowance
keep the merchandise if the seller is willing to grant an allowance (DEDUCTION) from the purchase price
stereo returned goods costing 300 pesos to audio on may 8. what is the journal entry for stereo when they purchased it on account?
initial: debit increase inventory
credit increase accounts payable
after return:
debit decrease accounts payable
credit decrease inventory
stereo kept the goods after being granted a 50 peso allowance by studio
debit decrease in accounts payable
credit decrease in inventory
cash discount for prompt payment
purchase discount
specifies the amount of the cash discount and time period in which it is offered
credit terms
stereo pays balance due of 3500 on may 14 (last day of discount period) with the terms 2/10 n/30
how much is the cash discount?
3500 x 2% = 70
3500 - 70 = 3430
what is the journal entry of the purchase discount made by stereo? SELLER POV
debit increase in cash
debit increase in expenses
credit decrease in accounts receivable
what if the buyer failed to take the discount of 70 pesos from their 3500 purchase?
debit increase in inventory by 3500
credit increase in accounts payable by 3500
create a t-account summary of stereo’s purchases - INVENTORY
purchase may 4 - 3800
freight in may 6 - 150
purchase return may 8 - 300
purchase discount may 14 - 70
debit increase in inventory - purchase 3800
debit increase in inventory - freight in 150
credit decrease in inventory - purchase return of 300
credit decrease in inventory - discount of 70
debit balance of 3580
recording sales under perpetual inventory system
identify the two entries made under this system
- records of sale
2. records of the cost of merchandise sold
records of the sale entry
debit increase in accounts receivable (if paid on credit) debit increase in cash
credit increase in sales revenue
cost of the merchandise sold entry
debit increase in cost of goods sold (expense)
credit decrease in inventory (nabawasan ang inventory)
illustrate a credit sales transaction of supply records
may 4 sale of 3800 to sauk stereo
merchandise cost of 2400 by supply records
accounts receivable 3800
sales revenue 3800
(to record credit sale to sauk stereo)
cost of goods sold 2400
inventory 2400
(to record cost of merchandise sold to sauk stereo)
transactions where the seller either accepts the goods from the buyer (return) or grants a reduction in the purchase price (allowance) -> the good is kept
SALES RETURNS AND ALLOWANCES
audio supply to record credit for returned good amounting to 300 pesos
sales returns and allowances DI 300
accounts receivable CD 300
(To record credit granted to stereo for returned goods) — or decrease in cash if paid in cash
returning of goods worth 140 (TAKE NOTE: SELLER!!!!!!!! not buyer)
inventory DI 140
cost of goods sold CI 140
(To record cost of goods returned)
Entry: goods or not returned but the seller grants the buyer an allowance by reducing the purchase rpice
debit increase in sales returns and allowances
credit decrease accounts receivable for the allowance
AN ALLOWANCE HAS NO IMPACT ON INVENTORY OF COGS
sales returns and allowances is a contra asset account to sales revenue
debit balance - debit increase, credit decrease for returns and allowances
- EITHER RECEIVABLE OR CASH YUNG PARTNER
sales discounts formul
invoice price - returns and allowances
what is sales discounts
contra revenue account to sales revenue
debit balance
debit increase, credit decrease
what is sales returns and allowances
contra asset account to sales revneue
debit balance
debit increase, credit decrease
enumerate audio supply’s entry to recrod cash receipt with 70-peso discount (3500 price)
cash debit increase 3430
sales discount debit increase 70 (REVENUE ACCOUNT ITO HA)
accounts receivable 3500
(to recrod collection within 2/10, n/30 discount period from sauk stereo)
to record discount collection
summarize the following t-accounts: sales revenue 3800 sales return and allowances 300 sales discounts 70 net sales?
credit increase sales revenue 3800
debit increase sales return and allowances 300
debit increase sales discounts 70
= 3430 credit balance net sales
adjusting entries
enter the adjusting entry when audio supply has an adjusted balance of 40,500 in the inventory through a physical count, audio supply determined that the actual merchandise inventory at december 31 is 40,000
cost of goods sold debit increase 500
inventory (40500-40000) credit decrease 500
(to ADJUST INVENTORY to physical count)
CLOSING ENTRY
Dr. SR, Cr. IS
Dr. IS, Cr. E
Dr. IS, Cr. OC / Dr. OC, Cr. IS
Dr. OC, Cr. OD
how do you get the gross profit + percentage
gross profit = net sales - cost of goods sold
gross profit / net sales = gross profit rate
(net sales - cost of goods sold) / net sales = gross profit rate
DETERMINING COST OF GOODS SOLD UNDER A PERIODIC SYSTEM
Define periodic system again
does not determine the cost of goods sold until the end of the period
- at the end of the period, the company performs a count to determine the ending balance of inventory
how is COGS calculated at a periodic inventory?
COGS = Cost of Goods Available for Sale - Ending Inventory
The perpetual system directly adjusts the inventory account for any transaction that affects inventory (freight costs, returns, & discounts)
What does periodic do?
It creates a different account for purchases, costs, returns, and discounts
does periodic inventory record revenue from the sale of merchandise when sales are made like perpetual inventory system?
YES. SALES REVENUE ARE RECORDED WHEN IT’S MADE.
However, it DOES NOT RECORD THE COST OF MERCHANDISE SOLD (only at the end of the period when they do physical count)
to which account does periodic inventory record its purchases?
PURCHASES ACCOUNT
perpetual inventory records their purchases in the inventory account (asset)
RECORDING PURCHASES OF MERCHANDISE SCENARIO TYPE QUESTIONS XOXO PERIODIC INVENTORY!!!!!!!!!!!!!!!!!
take a breather u can do this bitch
Sauk stereo purchases 3800 on account
purchases 3800
accounts payable 3800
(To record GOODS PURCHASED ON ACCOUNT)
sauk stereo pays freight company 150 for freight charges when it purchased its audio supply in cash
Freight-IN 150
cash 150
(to record payment of freight on goods purchased)
what is freight in a part of? is it part of cost of goods sold?
NO. Freight in is part of COST OF GOODS PURCHASED. freight costs are not subject to a purchase discount.
sauk stereo returns goods costing 300 to PW Audio Supply. Record entry for sauk stereo
accounts payable 300 (debit decrease)
Inventory 300 credit decrease
(to record return of goods purchased)
on may 14, sauk stereo pays the balance due on account to PW Audio Supply worth 3500, taking the 2% cash discount allowed by Audio Supply for payment within 10 days. Record stereo’s transaction
Accounts payable (3800 - 500) 3500 debit decrease
purchase discounts (3500 x 0.02) 70 credit increase
cash 3430 credit decrease
(to record payment within the discount period)
RECORDING SALES OF MERCHANDISE
PW Audio Supply’s POV
refer to the previous cards
PW Audio Supply records the sale of 3800 merchandise to sauk stereo
accounts receivable 3800
sales revenue 3800
(to record credit sales to sauk stereo)
to record the returned goods received from sauk stereo on may 8
300 sales return
sales returns and allowances 300 (contra asset)
accounts receivable 300 - credit decrease
(to record credit granted to sauk stereo for returned goods)
3500 price
audio supplu receives payment of 3,430 on account from sauk stereo. pw audio supply honors 2% cash discount and records the payment of sauk stereo
cash 3430 (debit increase) sales discounts (3500 x 0.02) 70 debit increase [contra asset] -> discounts are a credit accounts receivable (3800-300) 3500 (to record collection within 2/10, n/30 discount period from sauk stereo)
steps in journalizing and posting closing entries
- beginning inventoryis DEBITED to income summary and CREDITED to inventory
- ending inventory is DEBITED to INVENTORY and credited to INCOME summary
income summary (debit) inventory (credit) to close beginning invenotry
iventory (debit)
income summary (credit)
to close ending inventory
