Prepared by: C. Douglas Cloud Professor Emeritus of Accounting Pepperdine University © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Student Version Accounting for Merchandising Businesses Chapter 6 These slides should be viewed using the presentation mode (click the icon to start presentation). These slides should be viewed using the presentation mode (click the icon to start presentation). © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objective 1  Distinguish between the activities and financial statements of service and merchandising businesses. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO 1 LO 1 Nature of Merchandising Businesses  Most service businesses, such as plumbing repair and accounting services, have no merchandise.  Merchandising businesses, such as a department store or sandwich shop, generate revenue by selling a product.  Merchandise on hand (not sold) at the end of an accounting period is called merchandise inventory. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objective 2  Distinguish between the activities and financial statements of service and merchandising businesses.  Describe and illustrate the financial statements of a merchandising business. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO 2 LO 2 Multiple-Step Income Statement  The multiple-step income statement contains several sections, subsections, and subtotals. The first segment reports revenue from sales. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO 2 LO 2  Sales is the total amount charged customers for merchandise sold, including cash sales and sales on account.  Sales returns and allowances are granted by the seller to customers for damaged or defective merchandise.  Sales discounts are granted by the seller to customers for early payment of amounts owed.  Net sales is determined by subtracting sales returns and allowances and sales discounts from sales. Multiple-Step Income Statement © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO 2 LO 2  The second segment of the multiple-step income statement is the cost of merchandise sold section.  The cost of merchandise sold is the cost of the merchandise sold to customers. Merchandise costs consist of all the costs of acquiring the merchandise and readying it for sale, such as purchase and freight costs. Multiple-Step Income Statement © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO 2 LO 2  The buyer may return merchandise to the seller (purchase return), or the buyer may receive a reduction in the initial price at which the merchandise was purchased (purchase allowance).  Sellers may offer customers sales discounts for early payment of their bills. From the buyer’s perspective, such discounts are referred to as purchase discounts. Multiple-Step Income Statement © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO 2 LO 2  If merchandise inventory at the end of the period is determined by taking a physical count of inventory on hand, a periodic inventory system is being used.  Under the perpetual inventory system, the amounts of inventory purchased, available for sale, and sold are continuously (perpetually) updated in the inventory records. Multiple-Step Income Statement © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO 2 LO 2 Gross Profit  Gross profit is computed by subtracting the cost of merchandise sold from net sales. Gross Profit [...]... financial statements of a merchandising business Describe and illustrate the accounting for merchandising transactions including: sale of merchandise; purchase of merchandise; freight; sales taxes and trade discounts; dual nature of merchandising transactions © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a... using the report form © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use Learning Objective 3 Distinguish between the activities and financial statements of service and merchandising businesses Describe... scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO 2 Balance Sheet The form of balance sheet with the assets on the left-hand side and the liabilities and owner’s equity on the right-hand side is called the account form  When the balance sheet is presented in... on a password-protected website for classroom use LO 3 Cash Sales On January 3, NetSolutions sold $1,800 of merchandise for cash © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO 3 Cash Sales... part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO 3 Sales on Account On January 12, NetSolutions sold merchandise on account for $510 The cost of merchandise sold was $280 © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as... website for classroom use LO 3 Purchase Transactions On January 3, NetSolutions purchased merchandise for cash * NOTE: Assume a perpetual inventory system is used © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for. .. whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO 3 Invoice Paid On May 12, NetSolutions paid for the purchase of May 2 less the return and discount © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted... except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO 3 Credit Memo  A credit memorandum, often called a credit memo, authorizes a credit to (decreases) the buyer’s account receivable © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for. .. service or otherwise on a password-protected website for classroom use LO 3 Credit Memo On January 13, issued Credit Memo No 32 to Krier Company for merchandise returned to NetSolutions Selling price, $225; cost to NetSolutions, $140 © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a... duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use LO 3 Sales Discounts  The terms for when payments for merchandise are to be made are called credit terms  If payment is required on delivery, the terms are cash or net cash Otherwise, the buyer is allowed an amount . website for classroom use. LO 1 LO 1 Nature of Merchandising Businesses  Most service businesses, such as plumbing repair and accounting services, have no merchandise.  Merchandising businesses, . statements of service and merchandising businesses.  Describe and illustrate the financial statements of a merchandising business.  Describe and illustrate the accounting for merchandising transactions. product or service or otherwise on a password-protected website for classroom use. Student Version Accounting for Merchandising Businesses Chapter 6 These slides should be viewed using the presentation