Merchandising operation and merchandise inventory

Topics: Revenue, Inventory, Expense Pages: 26 (1322 words) Published: March 6, 2014
Merchandising operation
and merchandise inventory

Businesses

that sell a product to customers

Inventory
 Merchandise

held for sale
 Asset account

3

Describe and illustrate merchandising
operations and the two types of inventory
systems

4

Balance Sheet

Inventory
 Asset

Income Statement
Sales

revenue
Cost of goods sold
 Expense

5

Cash

Purchase
inventory
Collect cash
from
customers

Accounts
receivable

Sell
inventory

Inventory

6

PERIODIC
 Goods

counted
periodically to
determine quantity
 Used by small
businesses
 Less popular now
because of
computerized inventory
systems

PERPETUAL
 Record

of quantity of
goods is constantly
updated
 Better control of
inventory
 Popular now due to bar
codes and computer
scanning
7

Learning Objective 2
Distinguish between merchandising
and manufacturing

Difference between Merchandising and
Manufacturing
Manufacturing

converts raw materials to
finished goods for sale

Merchandising

merchandising companies
purchases finished goods for
sale.



In the Income Statement,
Cost of goods sold =
Beginning finished goods
inventory plus cost of goods
manufactured minus ending
finished goods inventory



In the Income Statement,
Cost of goods sold =
Beginning merchandise
inventory plus cost of goods
purchased minus ending
merchandise inventory.



In the Balance Sheet, three
inventory accounts : finished
goods, work in process, and
raw materials.



In the Balance Sheet, only
merchandise inventory

Manufacturing Cost Flows
Costs

Balance Sheet
Inventories

Material Purchases

Raw Materials

Direct Labor

Work in
Process

Manufacturing
Overhead

Selling and
Administrative

Finished
Goods

Period Costs

Income
Statement
Expenses

Cost of
Goods
Sold
Selling and
Administrative

The Income Statement
Cost of goods sold for manufacturers differs only slightly
from cost of goods sold for merchandisers.
Merchandising Company
Cost of goods sold:
Beg. merchandise
inventory
+ Purchases
Goods available
for sale
- Ending
merchandise
inventory
= Cost of goods
sold

$ 14,200
234,150
$ 248,350

(12,100)
$ 236,250

Manufacturing Company
Cost of goods sold:
Beg. finished
goods inv.
+ Cost of goods
manufactured
Goods available
for sale
- Ending
finished goods
inventory
= Cost of goods
sold

$ 14,200
234,150
$248,350

(12,100)
$236,250

Learning Objective 3
Single step and multiple step
income statement

Single-Step Income Statement
One step… subtract total

expenses from total revenues
Revenues $10,000
Expenses
3,000
Net income $ 7,000

PW AUDIO, Inc.
Single-step Income Statement
For the Year Ended December 31, 2004

Sales
Interest Revenue
Gain on Sale of equipment
Total Revenues
Expenses
Cost of goods sold
Selling expenses
Administrative expenses
Interest expense
Casualty Loss from vandalism
Income tax expense
Total expenses
Net income

$460,000
3,000
600
$463,600

$316,000
76,000
38,000
1,800
200
10,100
442,100
$ 21,500

PW AUDIO SUPPLY, INC.
Multi-step Income Statement For the Year Ended
December 31, 2004

Sales revenues
Sales
Less: Sales returns and allowance
Sales discounts
Net sales
460,000
Cost of goods sold
Gross profit
144,000

$ 480,000
$12,000
8,000

20,000

316,000
$

PW AUDIO SUPPLY, INC.
Multi-step Income Statement For the Year Ended
December 31, 2004

Cost of Goods Sold
Inventory, Jan 1
Purchases
Less: Purchase returns and allowance
Purchase discounts
Net purchases
Add: Freight in
Cost of goods purchased
Cost of goods Available for sale
Inventory, December 31
Cost of goods sold

$ 36,000
$325,000
$10,400
6,800

17,200
307,800
12,200
320,000
356,000
40,000
316,000

PW AUDIO SUPPLY, INC.
Multi-step Income Statement For the Year Ended
December 31, 2004...
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