Ch05 Text

Procedural
P3：Prepare adjustments and close
accounts for a merchandising company.
P4：Define and prepare multiple-step
and single-step income statements.
P5：Appendix 5A— Record and
Procedural
P1：Analyze and record transactions
for merchandise purchases using a perpetual system.
P2：Analyze and record transactions
for merchandise sales using a perpetual system.
C1：Describe merchandising
C2：Identify and explain the
C3Describe both perpetual and
and operating activities of a merchandising company.
C4Analyze and interpret cost flows
compare merchandising transactions using both periodic and perpetual inventory systems. (p. 198) C1
Chapter Preview
Buyers of merchandise expect many products, discount prices, inventory on demand, and high quality. This chapter introduces the accounting practices used by companies engaged in merchandising. We show how financial statements reflect merchandising activities and explain the new financial statement items created by merchandising activities. We also analyze and record merchandise purchases and sales, and explain the adjustments and the closing process for these companies.
Ch05 Text
Accounting for Merchandising Operations
Merchandising Activities Accounting for Merchandise Purchases Accounting for Merchandise Sales Completing the Accounting Cycle Financial Statement Formats
EXHIBIT 5.2 Merchandiser's Income Statement
Reporting Inventory for a Merchandiser
A merchandiser's balance sheet includes a current asset called merchandise inventory, an item not on a service company's balance sheet. Merchandise inventory, or simply inventory, refers to products that a company owns and intends to sell. The cost of this asset includes the cost incurred to buy the goods, ship them to the store, and make them ready for sale.
EXHIBIT 5.1 Computing Income for a Merchandising Company versus a Service Company
The usual accounting term for revenues from selling merchandise is sales, and the term used for the expense of buying and preparing the merchandise is cost of goods sold. (Some service companies use the term sales instead of revenues; and cost of goods sold is also called cost of sales.) The income statement for Z-Mart in Exhibit 5.2 illustrates these key components of a merchandiser's net income. The first two lines show that products are acquired at a cost of $230,400 and sold for $314,700. The third line shows an $84,300 gross profit, also called gross margin, which equals net sales less cost of goods sold. Additional expenses of $71,400 are reported, which leaves $12,900 in net income.
Reporting Incomeห้องสมุดไป่ตู้for A Merchandiser
Net income for a merchandiser equals revenues from selling merchandise minus both the cost of merchandise sold to customers and the cost of other expenses for the period, see Exhibit 5.1.
A Look at This Chapter
This chapter emphasizes merchandising activities. We explain how reporting merchandising activities differs from reporting service activities. We also analyze and record merchandise purchases and sales transactions, and explain the adjustments and closing process for merchandisers.
Operating Cycle for a Merchandiser
A merchandising company's operating cycle begins by purchasing merchandise and ends by collecting cash from selling the merchandise. The length of an operating cycle differs across the types of businesses. Department stores often have operating cycles of two to five months. Operating cycles for grocery merchants usually range from two to eight weeks.
Merchandising Activities
Previous chapters emphasized the accounting and reporting activities of service companies. A merchandising company's activities differ from those of a service company. Merchandise consists of products, also called goods, that a company acquires to resell to customers. A merchandiser earns net income by buying and selling merchandise. Merchandisers are often identified as either wholesalers or retailers. A wholesaler is an intermediary that buys products from manufacturers or other wholesalers and sells them to retailers or other wholesalers. A retailer is an intermediary that buys products from manufacturers or wholesalers and sells them to consumers. Many retailers sell both products and services.
EXHIBIT 5.3 Merchandiser's Operating Cycle
Inventory Systems
Cost of goods sold is the cost of merchandise sold to customers during a period. It is often the largest single expense on a merchandiser's income statement. Inventory refers to products a company owns and expects to sell in its normal operations. Exhibit 5.4 shows that a company's merchandise available for sale consists of what it begins with (beginning inventory) and what it purchases (net purchases). The merchandise available is either sold (cost of goods sold) or kept for future sales (ending inventory).
Operating Cycle for a Merchandiser
Exhibit 5.3 illustrates an operating cycle for a merchandiser with credit sales. The cycle moves from (a) cash purchases of merchandise to (b) inventory for sale to (c) credit sales to (d) accounts receivable to (e) cash. Companies try to keep their operating cycles short because assets tied up in inventory and receivables are not productive. Cash sales shorten operating cycles.
Learning Objectives
CAP
Conceptual
Analytical
Procedural
C1
P1
C2
P2
C3
P3
C4
P4
P5
Conceptual
activities and identify income components for a merchandising company. inventory asset of a merchandising company. periodic inventory systems.