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Operations
Chapter 5
5-1
Learning Objectives
1. Describe merchandising operations
and the two types of merchandise
inventory systems
2. Account for the purchase of
merchandise inventory using a
perpetual inventory system
3. Account for the sale of merchandise
inventory using a perpetual
inventory system
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Learning Objectives
4. Adjust and close the accounts of a
merchandising business
5. Prepare a merchandisers financial
statements
6. Use the gross profit percentage to
evaluate business performance
7. Account for the purchase and sale of
merchandise inventory using a
periodic inventory system (Appendix
5A)
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Learning Objective 1
Describe
merchandising
operations and the
two types of
merchandise
inventory systems
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Calculated as:
Net SalesCOGS
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Learning Objective 2
Account for the
purchase of
merchandise
inventory using a
perpetual inventory
system
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Periodic
As computer
technology takes
over more and
more accounting,
the Periodic
Method is used
less and less.
Inventory is
physically
counted
Inexpensive
inventory
Small shops without
opscan(optical
scanning) capability
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Perpetual
Every inflow and
outflow is tracked
in real time
Merchandising and
purchase systems are
integrated with the
accounting system
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Purchase of Inventory
Assume that Smart Touch Learning pays
for the inventory at the point of sale.
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Purchase on Account
If we had received the inventory, but
chosen to pay later . . .
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Transportation Costs
While goods are in transit, rules are necessary
to determine who bears the risk of loss.
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Freight In
With FOB shipping point, the freight cost is paid
by the buyer and is part of the inventory cost.
Assume Smart Touch Learning pays a $60
freight charge on the June 3 purchase.
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Purchase Discounts
Invoices that accompany credit purchases
often indicate credit terms, which offer the
buyer discount if they pay early.
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Purchase Discounts
The amount of the discount is determined by the
credit terms indicated on the invoice.
Discount Period
Discount
Percent
3/15,
3/15, NET
NET 30
30 DAYS
DAYS
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Purchase Discounts
If Smart Touch Learning pays within the
15 day period, they get a 3% discount.
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Learning Objective 3
Account for the sale
of merchandise
inventory using a
perpetual inventory
system
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Recording a Sale
In a perpetual
system, two entries
must be made for
every sale
Record the sale
Record the
reduction of
inventory
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Sales Returns
Requires an entry to Sales Returns and
Allowances and to Merchandise Inventory.
Inventory
A customer returns 3 tablets that sold for $1,500
and originally cost $1,050.
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Sales Allowances
Requires an entry to Sales Returns and
Allowances.
Smart Touch Learning grants a customer $100
for goods damaged in transit.
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Sales Discounts
The customer pays Smart Touch Learning on
June 30, 9 days after the invoice date, and after
the return and the allowance.
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Freight Out
The freight in is part of the inventory cost.
The freight out is a selling expense.
Smart Touch Learning pays $30 to ship the June
21 sale to the customer.
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Net Revenue
For the year, Smart Touch Learning sells
$297,500 of merchandise inventory. They
process $11,200 of sales returns and
allowances, and they award $5,600 of sales
discounts.
What is Net Sales Revenue for the year?
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Net Revenue
For the year, Smart Touch Learning sells
$297,500 of merchandise inventory. They
process $11,200 of sales returns and
allowances, and they award $5,600 of sales
discounts.
What is Net Sales Revenue for the year?
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Gross Profit
The difference between Net Sales Revenues
and Cost of Goods Sold
Indicates the amount available to cover
operating expenses
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Learning Objective 4
Adjust and close the
accounts of a
merchandising
business
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Learning Objective 5
Prepare a
merchandisers
financial statements
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We break
our
Operating
Expenses
into Selling
Expenses &
Admin
Expenses.
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Finally,
Net
Income
is determined by subtracting Other
Revenues and Expenses from
Operating
Income.
Most companies will use a multi-step
income statement.
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Learning Objective 6
Use the gross profit
percentage to
evaluate business
performance
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Learning Objective 7
Account for the
purchase and sale of
merchandise
inventory using a
periodic inventory
system (Appendix 5A)
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End of Chapter 5
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