Chapter 4 Merchandising Businesses PDF

## Chapter 4: Merchandising Businesses - **Merchandising businesses** generate revenue by selling goods. - **Merchandise inventory** is the goods purchased for resale. ### Product Costs - All costs added to the product to put it ready to sell (transportation) ### Period Costs - Selling and admi...

## Chapter 4: Merchandising Businesses - **Merchandising businesses** generate revenue by selling goods. - **Merchandise inventory** is the goods purchased for resale. ### Product Costs - All costs added to the product to put it ready to sell (transportation) ### Period Costs - Selling and administrative costs (not included in inventory) ### Inventory Balance - **Inventory Purchased** - Cost of goods available for sale - **Merchandise Inventory** - Balance Sheet - **Cost of Goods Sold** - Income Statement ### How We Calculate Profit? - **Revenue** - **Cost of Goods Sold** = **Gross Profit** (Gross Margin) - **Gross Profit** = Beginning Inventory + Purchases - Ending Inventory #### Perpetual Inventory System - We update the inventory account at the end of every inventory transaction. #### Each Sales Transaction - We should record two transactions - **Sales Revenue** (revenue) - **Cost of Goods Sold** (expense) ### Event Examples | Event | Account | Debit | Credit | Description | |---|---|---|---|---| | 1 | Cash | 15,000 | | Common Stock | | 2 | Inventory (assets) | 14,000 | | Cash | | 3a | Cash | 12,000 | | Sales Revenue | | 3b | Cost of Goods Sold | 8,000 | | Inventory | | 4 | Selling Exp | 1,000 | | Cash | | 5 | Land | 5,500 | | Cash | | 6 | Inventory | 11,000 | | A/P | | 7 | A/P | 1,000 | | Inventory | | 8 | A/P | 9,800 | | Cash | | 9 | Inventory | 300 | | Cash | | 10 | Cash | 24,750 | | Sales Revenue | | 11 | Cost of Goods Sold | 11,500 | | Inventory | | 12 | Selling Exp | 450 | | Cash | | 13 | Selling Exp | 5,000 | | Cash | | 14 | Interest Exp | 360 | | Cash | | 15 | Cash | 6,200 | | A/R | | 16 | Cost of Goods Sold | 4,000 | | Inventory | | 17 | Sales Revenue | 1,000 | | A/R | | 18 | Inventory | 480 | | Cost of Goods Sold | | 19 | Sales Revenue | 75 | | A/R | | 20 | Cash | 7,425 | | A/R | ### Shipping Terms - **FOB Shipping Destination** - Seller pays for shipping, goods are delivered to the buyer. - **FOB Shipping Point** - Buyer pays for shipping, goods are received by the buyer. ### Returns - **Inventory** - A/P - **A/P** - Cash ### Discounts - **Inventory** - A/P - **A/P** - Cash ### Shipping - **Buyer** - Transportation costs are included in purchase costs. - **Seller** - Transportation costs are period costs. ### Damage, Lost or Stolen Inventory - **Ending Inventory** - Physical count of inventory. - **Inventory Loss (debit)** - Difference between recorded inventory and physical count. ### Return - **Inventory** - ↓ A/P - **A/P** - ↓ Cash ### Discount (from a customer) - **Sales Revenue** - ↓ A/R - **A/R** - ↑ Cash ### Shipping - **Buyer** - ↓ Cash - **Seller** - ↓ Selling Exp - ↓ Cash ### Gain or Loss - **Sales Price** - **Cost** = **Gain** or **Loss** - **Loss:** ↓ Land / ↑ Gain (Debit) - **Gain:** ↑ Land / ↓ Loss (Credit)