P3
Adjusting Entries for
Merchandisers
A merchandiser using a perpetual inventory system is
usually required to make an adjustment to update the
Merchandise Inventory account to reflect any loss of
merchandise, including theft and deterioration.
Z-Mart’s Merchandise Inventory account at the end of
year 2013 has a balance of $21,250, but a physical
count reveals that only $21,000 of inventory exists.
5- 1
5- 2
Inventory Control
The continuous tracking of transactions in a perpetual inventory
system allows companies to keep just the right quantity of products
on the shelves for just the right amount of time. New microchip
technology allows the transmitting of data automatically from every
inventory item that enters, moves within, and exits a store.
Managers can estimate inventory theft, fraud, and error like this:
 Determine inventory on hand at the beginning of the period. Oct. 1
 Monitor every piece of inventory that enters and exits inventory.
Add any purchases:
+
For
October
Subtract any goods that are sold:
Quantity per accounting records
 Count inventory to determine what is actually there (on hand).
Shrinkage (theft, fraud, error)
5- 3
P3
Closing Entries for Merchandisers
5- 4
P4
A multiple-step
income
statement
format shows
detailed
computations
of net sales
and other
costs and
expenses, and
reports
subtotals for
various
classes of
items.
5- 6
Classified Balance Sheet
Highly
Liquid
Less
Liquid
5- 8
A1
Acid-Test Ratio
Acid-Test
Ratio
Acid-Test
=
Ratio
=
Quick Assets
Current Liabilities
Cash + S-T Investments + Receivables
Current Liabilities
A common rule of thumb is the acid-test ratio should have a
value of at least 1.0 to conclude a company is unlikely to
face liquidity problems in the near future.
5- 9
A2
Gross Margin Ratio
Gross
Margin =
Ratio
Net Sales - Cost of Goods Sold
Net Sales
Percentage of dollar
sales available to
cover expenses and
provide a profit.
5- 13
P5
Appendix 5B:
Worksheet—Perpetual System