Uploaded by Mary Rose Baid

CHAPTERS 9 AND 11

advertisement
CHAPTER 9: PROCESSING TRANSACTIONS FOR A MERCHANDISER
Merchandising entity purchases inventory sells the inventory and uses the cash to purchase more inventory and the cycle continues.
Merchandiser uses the title Sales Revenue for receipts coming from goods sold to customers. Merchandisers
must maintain a stock of goods held for sale called Merchandise Inventory. Once these goods are delivered to
the customer, it is recognized in the income statement as Cost of Goods Sold or Cost of Sales.
Sales Revenue
Less: Cost of Sales
Gross Profit
Less: Operating Expenses
Operating Profit
Add: Other Revenues and Gains
Less: Other Expenses and Losses
Net Profit
Elements Income Statement
●
●
●
Gross Profit - Gross profit or mark-up indicates the adequacy of margin of profit set up by the
merchandiser.
Operating Profit - Expenses such as salaries, rent, utilities, freight, and advertising are necessary to
support the operation of the business.
Non-Operating Activities - Non-operating activities are considered to arrive at net profit. They are
minor income and expenses not recurring and not part of regular operation. These are classified
in two:
1. Other Revenues and Gains such as rent income, interest income, and gain from the sale of
land.
2. Other expenses and Losses such as interest expense and loss from the sale of equipment.
INVENTORY SYSTEM
●
Merchandise Inventory refers to goods purchased for resale in the normal course of business.
➔ Cost of Goods Sold (Income Statement)
➔ Cost of the Merchandise Inventory (SFP)
Is determined using either Perpetual Method or Periodic Method.
Perpetual Method This method records continuously or perpetually the movement of merchandise and shows
the balance of inventory at any point in time. This method is usually adopted by a business that sells high-priced
- low-volume goods such as cars and appliances.
Periodic Method under this method there is no detailed recording hence no inventory balance can be
determined at any point in time. The cost of goods sold is determined only at the end of the accounting period.
INVENTORY COST
● Internal control requires that a physical count be made to determine the veracity of the closing
inventory. A list of closing stock is contained in a source document called Inventory Sheet.
Cost of Sales
Purchase (No. of Items x Price)
Less: Merchandise Inventory, Dec 31 (No. of
Items x Price
Cost of Goods Sold
Gross Profit
Sales (No. of Items x Selling Price)
Less: Cost of Sales
Gross Income on Sales
SALES REVENUE
● Gross Sales - sales revenue is earned when the merchandiser transfers the goods to the
customer. The sale is supported by a source document called an Invoice.
●
Gross Invoice Price - In accounting for merchandising operations, we always record the Gross
Invoice Price in the books. Merchandises are always quoted in the original price, called List Price.
Download