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Lecture Financial accounting: Information for decisions (7/e): Chapter 4 - John J. Wild

Chapter 4 - Reporting and analyzing merchandising operations. When you finish this chapter, you should: Describe merchandising activities and identify income components for a merchandising company, identify and explain the inventory asset and cost flows of a merchandising company, compute the acid-test ratio and explain its use to assess liquidity, compute the gross margin ratio and explain its use to assess profitability. | Financial Accounting John J. Wild Seventh Edition Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Chapter 4 Reporting and Analyzing Merchandising Operations In this chapter, we will learn how to record purchases and returns of inventory and how to record sales discounts and returns for those companies engaged in the business of merchandising operations. Manufacturer Wholesaler Retailer Customer Merchandising Companies Merchandising Activities C1 4- Reporting Income for a Merchandiser Merchandising companies sell products to earn revenue. Examples: sporting goods, clothing, and auto parts stores Cost of goods sold Gross profit Expenses Net income Net sales Minus Equals Minus Equals C1 4- Operating Cycle for a Merchandiser Begins with the purchase of merchandise and ends with the collection of cash from the sale of merchandise. Purchases Merchandise inventory Credit sales Accounts receivable Cash collection Purchases Merchandise inventory Cash sales Cash Sale Credit Sale C2 4- Inventory Systems + + Beginning inventory Net purchases Merchandise available for sale Ending inventory Cost of goods sold = C2 4- Cost of Merchandise Purchased P1 4- Sales Returns and Allowances On June 20, Barton received the amount owed to it from the sale of June 12. P2 4- Adjusting Entries for a Merchandiser Adjusting entries for a merchandiser will generally be the same as those for a service-based organization One additional adjustment will need to be made to the Merchandise Inventory account to adjust for Shrinkage in the account. Dec 31 Cost of Goods Sold . . . . . 250 Merchandise Inventory . . . . 250 (To adjust for $250 shrinkage revealed by a physical count of inventory.) P3 4- P3 4- Next, let’s complete the accounting cycle by preparing the closing entries for Barton Company. Completing the Accounting Cycle Multiple-Step Income Statement P4 4- Balance Sheet P4 4- End of Chapter 4 4- | Financial Accounting John J. Wild Seventh Edition Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Chapter 4 Reporting and Analyzing Merchandising Operations In this chapter, we will learn how to record purchases and returns of inventory and how to record sales discounts and returns for those companies engaged in the business of merchandising operations. Manufacturer Wholesaler Retailer Customer Merchandising Companies Merchandising Activities C1 4- Reporting Income for a Merchandiser Merchandising companies sell products to earn revenue. Examples: sporting goods, clothing, and auto parts stores Cost of goods sold Gross profit Expenses Net income Net sales Minus Equals Minus Equals C1 4- Operating Cycle for a Merchandiser Begins with the purchase of merchandise and ends with the collection of cash from the sale of merchandise. Purchases Merchandise inventory