Chapter 5 - Accounting for merchandising operations. In this chapter, the learning objectives are: Identify the differences between service and merchandising companies, explain the recording of purchases under a perpetual inventory system, explain the recording of sales revenues under a perpetual inventory system. | Accounting for Merchandising Operations 5 Learning Objectives Describe merchandising operations and inventory systems. Record purchases under a perpetual inventory system. Record sales under a perpetual inventory system. 3 Apply the steps in the accounting cycle to a merchandising company. 2 1 4 Compare a multiple-step with a single-step income statement. 5 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 Operations LO 1 The operating cycle of a merchandising company ordinarily is longer than that of a service company. Illustration 5-2 Operating Cycles Illustration 5-3 LO 1 Companies use either a perpetual inventory system or a periodic inventory system to account for inventory. Illustration 5-4 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 high unit values. Shows the quantity and cost of the inventory that should be on hand at any time. Provides better control over inventories | Accounting for Merchandising Operations 5 Learning Objectives Describe merchandising operations and inventory systems. Record purchases under a perpetual inventory system. Record sales under a perpetual inventory system. 3 Apply the steps in the accounting cycle to a merchandising company. 2 1 4 Compare a multiple-step with a single-step income statement. 5 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 Operations LO 1 The operating cycle of a merchandising company ordinarily is longer than .
