Accounting for Merchandising Businesses
LO 2a – Preparing an
Income Statement for a
Merchandising Business
@ 2012, Cengage Learning
LO 2
Multiple-Step Income Statement
The multiple-step income statement contains
several sections, subsections, and subtotals.
LO 2
Revenue from Sales
LO 2
Revenue from Sales
Sales is the total amount charged customers
for merchandise sold, including cash sales
and sales on account.
LO 2
Revenue from Sales
Sales returns and allowances are granted by
the seller to customers for damaged or
defective merchandise.
LO 2
Revenue from Sales
Sales discounts are granted by the seller to
customers for early payment of amounts
owed.
LO 2
Revenue from Sales
Net sales is determined by subtracting sales
returns and allowances and sales discounts
from sales.
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Cost of Merchandise Sold
The cost of merchandise sold is the cost of the
merchandise sold to customers. Merchandise
costs consist of all the costs of acquiring the
merchandise and readying it for sale, such as
purchase and freight costs.
LO 2
Cost of Merchandise Sold
If merchandise inventory at the end of the
period is determined by taking a physical
count of inventory on hand, a periodic
inventory system is being used.
LO 2
Cost of Merchandise Sold
Under the perpetual inventory system, the
amounts of inventory purchased, available for
sale, and sold are continuously (perpetually)
updated in the inventory records.
LO 2
Gross Profit
 Gross profit is computed by subtracting the cost of
merchandise sold from net sales.
Gross
Profit
LO 2
Multiple-Step Income Statement
LO 2
Income from Operations
 Selling expenses are
incurred directly in the
selling of merchandise.
 Sales salaries
 Store supplies used
 Depreciation of store
equipment
 Delivery expense
 Advertising expense
LO 2
Income from Operations
 Administrative
expenses, sometimes
called general
expenses, are incurred
in the administration or
general operations of
the business.
 Office salaries
 Depreciation of office
equipment
 Office supplies used
LO 2
Multiple-Step Income Statement
LO 2
Multiple-Step Income Statement
LO 2
Single-Step Income Statement
An alternative form of income statement is the
single-step income statement. As shown in the
next slide, the income statement for
NetSolutions deducts the total of all expenses
in one step from the total of all revenues.
LO 2
Single-Step Income Statement