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    CH 4

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    fordan Zodorovic
    This document discusses merchandising businesses and their financial statements. It defines key terms like sales revenue, cost of goods sold, gross profit, and net income. It provides examples of journal entries for sales, purchases, returns, and discounts. It also shows a multiple-step income statement that calculates net income from revenues, costs, expenses, and other items.

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    CH 4

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    fordan Zodorovic
    43 views27 pages
    This document discusses merchandising businesses and their financial statements. It defines key terms like sales revenue, cost of goods sold, gross profit, and net income. It provides examples of journal entries for sales, purchases, returns, and discounts. It also shows a multiple-step income statement that calculates net income from revenues, costs, expenses, and other items.

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    This document discusses merchandising businesses and their financial statements. It defines key terms like sales revenue, cost of goods sold, gross profit, and net income. It provides examples of journal entries for sales, purchases, returns, and discounts. It also shows a multiple-step income statement that calculates net income from revenues, costs, expenses, and other items.

    Copyright:

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    Download as pptx, pdf, or txt
    43 views27 pages

    CH 4

    Uploaded by

    fordan Zodorovic
    This document discusses merchandising businesses and their financial statements. It defines key terms like sales revenue, cost of goods sold, gross profit, and net income. It provides examples of journal entries for sales, purchases, returns, and discounts. It also shows a multiple-step income statement that calculates net income from revenues, costs, expenses, and other items.

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    You are on page 1of 27

    Chapter 4

    T.Hend Alajaji
     Nature of Businesses .

     Special terms of Merchandising businesses .

     Analysis of merchandising transactions.

     Multiple-Step Income Statement


    Merchandising
    businesses

    Analyze
    Service
    Merchandising
    businesses
    transactions

    compute
    Merchandising
    Inventory Ch4 Net
    income

    Gross Selas
    Profit Revenues

    Cost of
    goods Sold
     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 $XXX
    Cost of Merchandise Sold –XXX
    Gross Profit $XXX
    Operating Expenses –XXX
    Net Income $XXX
    Compute the net income
    Service business:
    Fees earned – operating expenses = net income

    Merchandise business:
    Sales – cost of merchandise sold = gross profit
    Gross profit – operating expenses = net income
    Income Statement Comparison

    Service Business
    $150,000 Fees earned
    120,000 Operating expenses(-)
    $ 30,000 Net income

    Merchandising Business
    $600,000 Sales revenue
    450,000 Cost of mdse. Sold -
    $150,000 Gross profit
    120,000 Operating expenses -
    $ 30,000 Net income
    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


    Objective 3
    Analyze Merchandising transactions
    Every merchandise sale has two components,
    each of which requires an entry in a perpetual
    inventory system.

    Selling
    Price

    Cost
    6-12
    •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 Cash 1,800
    Sales 1,800

    Jan. 3 Cost of merchandise sold 1,200


    Merchandise inventory 1,200
    •On January 12, NetSolutions sold merchandise on account for $510. The
    cost of merchandise sold was $280.

    Date Description Debit Credit


    Jan. 12 Account receivable 510
    Sales 510

    Jan. 12 Cost of merchandise sold 280


    Merchandise inventory 280
    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.
    •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 allowances 225
    Account receivable – Krier Co. 225

    Jan. 13 Merchandise inventory 140


    Cost of merchandise sold 140
    A sales discount is a sales price reduction given to
    customers for prompt payment of their account
    balance.
    •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. Cash 1,470
    22 Sales discounts 30 1,500
    Account receivable
    The sales returns and allowances and sales
    discounts introduced in this section were
    recorded using contra-revenue accounts.
    Purchase Transactions

    •On January 3, NetSolutions purchased merchandise for cash.


    •On January 4, NetSolutions purchased merchandise on account from
    Thomas Corporation

    Date Description Debit Credit

    Jan. 3 Merchandise inventory 2,510


    Cash 2,510
    Jan. 4 Merchandise inventory 9,250
    Account payable - Thomas Corporation 9,250
    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. 12 Merchandise inventory 3,000
    Account payable - Alpha 3,000
    Technologies
    Mar. 22 Account payable - Alpha Technologies 3,000
    Cash 2,940
    Merchandise inventory 60
    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:

    Date Description Debit Credit

    Mar. 7 Account payable - Maxim Systems 900


    Merchandise inventory 900
    Multiple-Step Income
    Statement
    Revenue from sales:
    Sales $720,185
    Less:Sales returns and allowances $ 6,140
    Sales discounts 5,790 11,930
    Net sales $708,255
    Cost of merchandise sold 525,305
    Gross profit $182,950

    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 equipment 2,490
    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 $ 77,240

    Continued
    Other income and expenses:
    Rent revenue $ 600
    Interest 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

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