Accounting for Merchandising Business
Accounting for Merchandising Business
Merchandising Operations 1. A merchandising business is engaged in buying goods and selling these at a profit. 2. The primary source of revenues is referred to as sales revenue or sales. 3. The operating cycle of a merchandising company ordinarily is longer than that of a service company. 4. Income is measured by cost of goods and operating expenses from sales revenue. * Cost of goods sold is the total cost of merchandise sold during the period.
Inventory Systems 1. Perpetual System
Features:
* Used when there are few controllable items in the inventory. * Purchases increase Merchandise Inventory. * Freight costs, Purchase Returns and Allowances and Purchase Discounts are included in Merchandise Inventory. * Cost of goods sold is increased and Merchandise Inventory is decreased for each sale.
- The perpetual inventory system provides a continuous record of Inventory and Cost of Goods Sold. * Physical count done to verify Inventory balance.
2. Periodic System
Features:
* Used by businesses with low priced high volume nature of merchandise. When there are numerous items to be accounted for, the cost of maintaining records for each item of merchandise becomes very prohibitive. * Purchases of merchandise increase Purchases. * Separate accounts used to record purchases, freight costs, returns & allowances, and discounts. * Company does not maintain a running account of changes in inventory. * Ending Inventory is determined by physical count. * Determining Cost of Goods Sold under a periodic system
Merchandise inventory, beginning | | | xxx | Purchases | | xxx | | Less: Purchase returns & allowances | xxx | | | Purchase discounts | xxx | xxx | | Net purchases | | xxx | | Add: Freight in | | xxx | | Cost of goods purchased | | | xxx | Cost of goods available for sale | | | xxx
Merchandising Operations 1. A merchandising business is engaged in buying goods and selling these at a profit. 2. The primary source of revenues is referred to as sales revenue or sales. 3. The operating cycle of a merchandising company ordinarily is longer than that of a service company. 4. Income is measured by cost of goods and operating expenses from sales revenue. * Cost of goods sold is the total cost of merchandise sold during the period.
Inventory Systems 1. Perpetual System
Features:
* Used when there are few controllable items in the inventory. * Purchases increase Merchandise Inventory. * Freight costs, Purchase Returns and Allowances and Purchase Discounts are included in Merchandise Inventory. * Cost of goods sold is increased and Merchandise Inventory is decreased for each sale.
- The perpetual inventory system provides a continuous record of Inventory and Cost of Goods Sold. * Physical count done to verify Inventory balance.
2. Periodic System
Features:
* Used by businesses with low priced high volume nature of merchandise. When there are numerous items to be accounted for, the cost of maintaining records for each item of merchandise becomes very prohibitive. * Purchases of merchandise increase Purchases. * Separate accounts used to record purchases, freight costs, returns & allowances, and discounts. * Company does not maintain a running account of changes in inventory. * Ending Inventory is determined by physical count. * Determining Cost of Goods Sold under a periodic system
Merchandise inventory, beginning | | | xxx | Purchases | | xxx | | Less: Purchase returns & allowances | xxx | | | Purchase discounts | xxx | xxx | | Net purchases | | xxx | | Add: Freight in | | xxx | | Cost of goods purchased | | | xxx | Cost of goods available for sale | | | xxx