Chapter 4 T.Haya Alajaji. Nature of Businesses. Special terms of Merchandising businesses. ...
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Transcript of Chapter 4 T.Haya Alajaji. Nature of Businesses. Special terms of Merchandising businesses. ...
Nature of Businesses .
Special terms of Merchandising businesses .
Analysis of merchandising transactions.
Multiple-Step Income Statement
Objectives :
Ch4
Merchandising businesses
Service businesses
compute Net income
Selas Revenues Cost of goods Sold
Gross Profit
Merchandising Inventory
Analyze Merchandising
transactions
Nature of Businesses :
1. Service Businesses provide services rather
than products to customers.
2. Merchandising businesses sell products they
purchase from other business to customers.
: Objective 1 . Nature of Businesses
Service Business
Fees earned $XXX
Operating expenses –XXX
Net income $XXX
: Objective 1 . Nature of Businesses
Merchandising Business
Sales $XXXCost of Merchandise Sold –XXXGross Profit $XXXOperating Expenses –XXXNet Income $XXX
: Objective 1 . Nature of Businesses
Service business:
Fees earned – operating expenses = net
income
Merchandise business:
Sales – cost of merchandise sold = gross
profit
Gross profit – operating expenses = net
income
Compute the net income
Income Statement Comparison
Fees earned$150,000Operating expenses(-)120,000
Net income$ 30,000
Service Business
Sales revenue$600,000Cost of mdse. Sold - 450,000
Gross profit$150,000Operating expenses - 120,000
Net income$ 30,000
Merchandising Business
Objective 2 . Special terms of Merchandising businesses
sales revenue or sales :
the amount that a business earns from selling merchandise
inventory is called sales revenue, or sales.
cost of merchandise sold :
the major expense of a merchandiser is cost of goods sold.
Gross margin or Gross profit :
The excess of sales over cost of sales is called gross margin.
Merchandise inventory
Merchandise on hand at the end of an account period
1 -Sales TransactionsEvery merchandise sale has two components, each of which requires an entry in a perpetual inventory system.
Selling Price
Cost6-12
1 -Sales Transactions•On January 3, NetSolutions sold $1,800 of merchandise for cash.
Using the perpetual inventory system, the cost of merchandise
sold and the decrease in merchandise inventory are also recorded.
The cost of merchandise sold on January 3 is $1,200
Date Description Debit Credit
Jan. 3 CashSales
1,8001,800
Jan. 3 Cost of merchandise soldMerchandise inventory
1,2001,200
1 -Sales Transactions
•On January 12, NetSolutions sold merchandise on account for $510.
The cost of merchandise sold was $280.
Date Description Debit Credit
Jan. 12 Account receivableSales
510510
Jan. 12 Cost of merchandise soldMerchandise inventory
280280
2 -Sales Returns and Allowances
When goods sold to a customer arrive in damaged condition or are otherwise
unsatisfactory, the customer can (1) return them for a full refund or
(2) keep them and ask for a reduction in the selling price, called an
allowance.
2 -Sales Returns and Allowances
•On January 13, issued Credit Memo No. 32 to Alsaud Company for
merchandise returned to NetSolutions. Selling price, $225; cost to
NetSolutions, $140.
Date Description Debit Credit
Jan. 13 Sales returns and allowancesAccount receivable – Krier Co.
225225
Jan. 13 Merchandise inventoryCost of merchandise sold
140140
3 -Sales on Account and Sales Discounts
A sales discount is a sales price reduction given to customers for prompt payment of
their account balance.
3 -Sales on Account and Sales Discounts
•To encourage the buyer to pay before the end of the credit period, the
seller may offer a discount, such as 2/10, n/30. These terms indicate that
a two percent discount can be taken if the invoice is paid within ten days.
After ten days the full amount is due by the thirtieth day from the invoice
date•On January 17, NetSolutions receives the amount due within ten days,
so the buyer deducted $30 ($1,500 x 2%) from the invoice amount
Date Description Debit Credit
Jan. 22
Cash Sales discounts
Account receivable
1,47030 1,500
Summary of Sales-Related Transactions
The sales returns and allowances and sales discounts introduced in this section
were recorded using contra-revenue accounts .
Date Description Debit Credit
Jan. 3 Merchandise inventoryCash
2,5102,510
Jan. 4 Merchandise inventoryAccount payable - Thomas Corporation
9,2509,250
Purchase Transactions
•On January 3, NetSolutions purchased merchandise for cash.
•On January 4, NetSolutions purchased merchandise on account
from Thomas Corporation
Date Description Debit CreditMar. 12 Merchandise inventory
Account payable - Alpha Technologies
3,0003,000
Mar. 22 Account payable - Alpha Technologies
CashMerchandise inventory
3,0002,94060
2- Purchases Discounts :•Alpha Technologies issues an invoice for $3,000 to NetSolutions
dated March 12, with terms 2/10, n/30. NetSolutions is trying to
determine if it should pay the invoice within the discount period.
•Based on the calculation in the previous slide, NetSolutions pays
the amount due, less the discount, on March 22.
Date Description Debit Credit
Mar. 7 Account payable - Maxim SystemsMerchandise inventory
900900
3- Purchases Returns and Allowances :
•NetSolutions receives a delivery from Maxim Systems and determines that $900 of the items are not the merchandise ordered. Debit memorandum #18 is issued to Maxim Systems. NetSolutions records the return of the merchandise as follows:
Revenue from sales:Sales $720,185Less:Sales returns and allowances $ 6,140
Sales discounts 5,790 11,930Net sales $708,255
Cost of merchandise sold 525,305Gross profit $182,950
NetSolutionsIncome Statement For the Year
Ended December 31, 2007
Continued
Operating expenses:
Selling expenses:
Sales salaries expense $56,230
Advertising expense 10,860
Depr. Expense–store equipment 3,100
Miscellaneous selling expense 630
Total selling expenses $ 70,820
Administrative expenses:
Office salaries expense $21,020
Rent expense 8,100
Depr. expense–office equipment2,490
Insurance expense 1,910
Office supplies expense 610
Misc. administrative expense 760
Total admin. expenses 34,890
Total operating expenses 105,710
Income from operations $ 77,240Continued
Other income and expenses:Rent revenue $ 600Interest expense (2,440)
(1,840)Net income $75,400
Concluded
M6-11 Calculating Shrinkage in a Perpetual Inventory System
Corey’s Campus Store has $50,000 of inventory on hand at the beginning of the month. During the month, the company buys $8,000 of merchandise and sells merchandise that had cost $30,000. At the end of the month, $25,000 of inventory is on hand. How much shrinkage occurred during the month?
Beginning inventory $50,000 Purchases +8,000 Cost of Goods Sold -30,000 Ending balance 28,000 Inventory count -25,000 Shrinkage $3,000
6-27