UT Knoxville ACCT 200 - Chapter 4 (19 pages)

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Chapter 4



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Chapter 4

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Pages:
19
School:
University of Tennessee
Course:
Acct 200 - Foundations of Accounting
Foundations of Accounting Documents

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Accounting for Merchandising Businesses Chapter 4 A200 Survey of Accounting University of Tennessee 2 Merchandising Operations A merchandiser is both a buyer and a seller of goods 1 Purchases goods from manufacturers Cost of merchandise purchased is recorded on the balance sheet as the current asset Inventory 2 Sells goods to customers Cost of merchandise sold is removed from Inventory on the balance sheet and is recorded on the income statement as Cost of Goods Sold Expense matching it with the revenue from the sale 3 Costs of running the business are recorded as Selling Expense and Administrative Expense on the income statement 4 Income and expenses not related to buying and selling merchandise normal operations are recorded as Other Income or Other Expense on the income statement 3 Merchandising Business Income Statement Merchandising Company Income Statement Multi Step For the year ended 12 31 12 Revenue Sales xx Sales Returns Allowances Sales Discounts Net Sales xx xx xx Expenses Cost of Merchandise Sold Expense Gross Profit xx xx 4 Merchandising Business Income Statement continued Gross Profit xx Operating Expenses Selling Expenses xx Administrative Expenses xx Income from operations xx Other income Other expenses Net income xx xx 5 Merchandiser Returns and Allowances Merchandiser as Seller Sales Returns and Allowances Price reductions given by merchandisers sellers to customers when customers return goods Sales R A reduce the seller s Sales Revenue for the period thus is defined as contra revenue Merchandiser as Buyer Purchase Returns and Allowances Cost reductions taken by merchandisers buyers when they purchase goods from manufacturers and then return them Purchase R A reduce the buyer s cost of Inventory Not pre set amounts negotiated situation by situation Merchandiser Discounts Merchandiser as Seller Sales Discounts Price reductions given by merchandisers sellers when they sell goods to customers to encourage customers to pay quickly Sales Discounts



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