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Lecture Fundamental financial accounting concepts (8/e): Chapter 4 - Edmonds, McNair, Olds

Chapter 4 - Accounting for merchandising businesses. Previous chapters have discussed accounting for service businesses. These businesses obtain revenue by providing some kind of service. This chapter introduces accounting practices for merchandising businesses. | Chapter Four Accounting for Merchandising Businesses McGraw-Hill/Irwin McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Previous chapters have discussed accounting for service businesses. These businesses obtain revenue by providing some kind of service. This chapter introduces accounting practices for merchandising businesses. Merchandising Businesses Sale Merchandising businesses generate revenue by selling goods. The goods purchased for resale are called merchandise inventory. 4- Merchandising businesses generate revenue by selling goods. The goods purchased for resale are called merchandise inventory. Merchandising businesses include retail companies (companies that sell goods to the final consumer) and wholesale companies (companies that sell to other businesses). Product Costs Versus Selling and Administrative Costs Product Costs Costs that are included in inventory. Selling & Admin. Costs Costs that are not included in inventory. They are sometimes called period costs. 4- Part I Inventory costs are shown on the balance sheet in an asset account named Merchandise Inventory. Inventory costs are frequently called product costs. Examples of inventory costs include the price of the goods purchased, shipping and handling costs, transit insurance, and storage costs. Part II Costs that are not included in inventory are usually called selling and administrative costs or period costs. Examples of period costs include advertising, administrative salaries, sales commissions, insurance and interest. Allocation of Inventory Cost Between Asset and Expense Accounts Cost of Goods Available for Sale Merchandise Inventory (Balance Sheet) Cost of Goods Sold (Income Statement) 4- Part I The amount of inventory that is available for sale during a specific accounting period is calculated as beginning inventory plus purchases. Part II The cost of goods available for sale is allocated between the asset account . | Chapter Four Accounting for Merchandising Businesses McGraw-Hill/Irwin McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Previous chapters have discussed accounting for service businesses. These businesses obtain revenue by providing some kind of service. This chapter introduces accounting practices for merchandising businesses. Merchandising Businesses Sale Merchandising businesses generate revenue by selling goods. The goods purchased for resale are called merchandise inventory. 4- Merchandising businesses generate revenue by selling goods. The goods purchased for resale are called merchandise inventory. Merchandising businesses include retail companies (companies that sell goods to the final consumer) and wholesale companies (companies that sell to other businesses). Product Costs Versus Selling and Administrative Costs Product Costs Costs that are included in inventory. Selling & Admin. Costs Costs that are not included in .