This chapter’s objectives are to: Describe merchandising operations and inventory systems, record purchases under a perpetual inventory system, record sales under a perpetual inventory system, prepare a multiple-step income statement and a comprehensive income statement. | Merchandising Operations and the Multiple-Step Income Statement Kimmel ● Weygandt ● Kieso Financial Accounting, Eighth Edition 5 CHAPTER OUTLINE Describe merchandising operations and inventory systems. 1 LEARNING OBJECTIVES Record purchases under a perpetual inventory system. 2 Record sales under a perpetual inventory system. 3 Prepare a multiple-step income statement and a comprehensive income statement. 4 Determine cost of goods sold under a periodic inventory system. 5 Compute and analyze gross profit rate and profit margin. 6 Merchandising Companies Buy and Sell Goods Wholesaler Consumer The primary source of revenues is referred to as sales revenue or sales. Retailer LEARNING OBJECTIVE Describe merchandising operations and inventory systems. 1 LO 1 Income Measurement Cost of goods sold is the total cost of merchandise sold during the period. Not used in a Service business. Net Income (Loss) Less Less Equals Equals Sales Revenue Cost of Goods Sold Gross Profit Operating Expenses . | Merchandising Operations and the Multiple-Step Income Statement Kimmel ● Weygandt ● Kieso Financial Accounting, Eighth Edition 5 CHAPTER OUTLINE Describe merchandising operations and inventory systems. 1 LEARNING OBJECTIVES Record purchases under a perpetual inventory system. 2 Record sales under a perpetual inventory system. 3 Prepare a multiple-step income statement and a comprehensive income statement. 4 Determine cost of goods sold under a periodic inventory system. 5 Compute and analyze gross profit rate and profit margin. 6 Merchandising Companies Buy and Sell Goods Wholesaler Consumer The primary source of revenues is referred to as sales revenue or sales. Retailer LEARNING OBJECTIVE Describe merchandising operations and inventory systems. 1 LO 1 Income Measurement Cost of goods sold is the total cost of merchandise sold during the period. Not used in a Service business. Net Income (Loss) Less Less Equals Equals Sales Revenue Cost of Goods Sold Gross Profit Operating Expenses ILLUSTRATION 5-1 Income measurement process for a merchandising company Merchandising Company LO 1 OPERATING CYCLES ILLUSTRATION 5-2 Operating cycles for a service company and a merchandising company LO 1 Companies use either a perpetual inventory system or a periodic inventory system to account for inventory. FLOW OF COSTS ILLUSTRATION 5-3 Flow of costs LO 1 Perpetual System Maintain detailed records of the cost of each inventory purchase and sale. Records continuously show inventory that should be on hand for every item. Company determines cost of goods sold each time a sale occurs. FLOW OF COSTS LO 1 Do not keep detailed records of the goods on hand. Cost of goods sold determined by count at the end of the accounting period. Calculation of Cost of Goods Sold: Beginning inventory $ 100,000 Add: Purchases, net 800,000 Goods available for sale 900,000 Less: Ending inventory 125,000 Cost of goods sold $ 775,000 Periodic System FLOW OF COSTS LO 1 Traditionally used for merchandise with .
