ACG2021 FALL 2014 PIERNO CHAPTER 5 Retailers Merchandising companies that purchase and sell directly to consumers Wholesalers Merchandising companies that sell to retailers Sales Revenue sales Sale of merchandise Categories of expenses o Cost of Goods Sold COGS Total cost of merchandise sold during period directly related to revenue o Operating expense Service Company cash perform Service accounts receivable cash Merchandising Company cash buy inventory sell inventory accounts receivable cash Cost of goods available for Sale Beginning inventory Cost of goods purchased o As goods are sold assigned to cost of goods sold goods not sold go into ending inventory Systems to Account Inventory 1 Perpetual System Maintain detailed records of the cost of each inventory purchase and sale continuously show inventory that should be on hand for every item determines COGS each time a sale occurs Advantages for companies that sell merchandise with high unit values provides better control over inventory than periodic Beginning Inventory Cost of Goods Purchased Cost of Goods Available for Sale Ending Inventory Cost of Goods Sold 2 Periodic Inventory System Do not keep detailed inventory records of goods on hand Determine COGS only at end of period Makes physical inventory count to determine cost of goods on hand To Determined COGS 1 Determine cost of goods on hand at beginning of accounting period 2 Add to cost of goods purchased 3 Subtract cost of goods on hand at end of period ACG2021 FALL 2014 PIERNO CHAPTER 5 FREIGHT COST FOB Free On Board o FOB Shipping Point Seller places goods free on board the carrier and buyer pays for freight Freight In Buyer pays for freight SIBI FOB Shipping In Buyer Inventory o FOB Destination Seller places goods free on board to buyers place of business seller pays for freight Freight Out Seller pays for freight DOSO FOB Destination Out Seller Operating Expenses Purchase Return Credit if sale was made on credit or cash refund if purchase was with cash Purchase Allowance Seller grants reduction of purchase price Purchase Discount Buyer claims cash discount for prompt payment Credit Terms Amount of cash discount and time period during which it is offered Length of time in which the purchaser is expected to pay full invoice price 2 2 Cash Discount 10 If payment is made within ten days 2 10 n 30 n Net Amount 30 Invoice price is due 30 days from invoice date Recording Sale of Merchandise Business Document Written evidence of sale Cash Register Document Evidence of cash sale Sales Invoice Provides support for each sale shows date of sale customer name total sales price etc Two entries for each sale Date Cost of Goods Sold Expense Inventory Cash or A R Sales Revenue X XX X XX ACG2021 FALL 2014 PIERNO CHAPTER 5 Sales Returns and Allowances Sales Return Seller accepts goods back from purchaser Date Sales Returns and Allowances Accounts Receivable Inventory Cost of Goods Sold Date Sales Returns and Allowances Accounts Receivable Sales Allowance Grants reduction in purchase price so buyer will keep goods X XX X X XX X Sales Discount Cash discount for prompt payment Contra revenue account to sales revenue normal balance is Debit Sales Revenue 3800 Sales Returns and Allowances 300 Sales Discounts 70 Net Sales 3430 Single Step Income Statement Subtract expenses from revenues determine net income loss Revenues Operating Non Operating Revenues Expenses COGS Operating Non Operating Expenses Reasons to use single step 1 Easy to divide into two categories 2 Easy to Read Multi Step Income Statement More useful highlights components of Net Income Three important Lines 1 Gross Profit a COGS Net Sale 2 Income from Operations a Gross Profit Operating Expense 3 Net Income a Add subtract results of activities not related to operations Net Sales Sales Revenue Sales Returns and Allowances Sales Discounts Gross Profit Net Sales COGS not measure of overall profit Income from Operations Gross Profit Operating Expenses ACG2021 FALL 2014 PIERNO CHAPTER 5 Multi Step Income Statement Sales Sales Revenues Less Sales Returns and Allowances Sales Discounts Nets Sales Sales Revenues Sales Returns and Allowances Sales Discounts Cost of Goods Sold Gross Profit Profit Margin Net Sales Cost of Goods Sold Operating Expenses Salary and wages Utility Advertise Depreciation Freight out insurance etc Expense Income from Operations Gross Profit Operating Expenses Non Operating Activities Other Revenues and Gains Interest Dividend Rent etc Revenue Gains Other Expenses and Losses Interest expense Casualty losses Loss from Income Before Income Taxes Income from Operations Other Revenues and Gains Other Expenses and Losses Income Tax Expense Net Income Income Before Income Taxes Income Taxes ACG2021 FALL 2014 PIERNO CHAPTER 5 Gross Profit Rate Gross Margin Rate Gross Profit Net Sales Expresses relationship between gross profit and net sales High Volume Low Margin Ex Walmart Low Volume High Margin Ex Saks May Decline from 1 Forced to pay higher prices to suppliers without being able to pass costs to customers 2 Lower Selling Price Profit Margin Net Income Net Sales Is the company maintaining an adequate margin between sales and expenses Percentage of each dollar of sales that results in net income High Profit Margin Tiffany Co Low Profit Margin Publix Qualities of Earning Ratio Net Cash Provided by Operating Activities Net Income Less Than One Company uses aggressive accounting techniques accelerate income recognition provide definitive evidence of low quality earnings Greater Than One Company uses conservative accounting techniques delay recognition income ACG2021 FALL 2014 PIERNO CHAPTER 6 Merchandisers only need one classification of inventory 1 Merchandise Inventory Manufactures have three categories of Inventory 1 Finished Goods Completed ready to sell 2 Work in Progress Begun production process 3 Raw Materials Basic goods that will be used in production have not been placed in production Just in Time Inventory Method JIT Companies manufacture or purchase goods just in time for use Determining Ownership seller Goods in Transit Who owns goods that have not been received 1 FOB Shipping Point Ownership Passes to buyer when public carrier accepts good from 2 FOB Destination Ownership remains with seller until goods reach buyer Consigned Goods Hold goods of other parties try to sell them for a fee but without taking ownership Ex Used Cars Does not take ownership does not count towards inventory costing Inventory
View Full Document
Unlocking...