PowerPoint Author Brandy Mackintosh CA Learning Objective 61 Distinguish between service and merchandising operations Operating Cycles Operating Cycles in thousands in millions ID: 651161
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Slide1
Chapter 6
Merchandising Operations and the Multistep Income Statement
PowerPoint
Author:
Brandy Mackintosh, CA
Slide2
Learning Objective 6-1
Distinguish
between service and merchandising
operations.Slide3
Operating CyclesSlide4
Operating Cycles
(in thousands)
(in millions)
(in thousands)
(in millions)Slide5
Learning Objective 6-2
Explain
the differences between
periodic and
perpetual inventory
systems.Slide6
-
= Gross Profit
Inventory Systems
Three accounts are particularly important to a merchandiser:
Inventory
The merchandiser’s total cost of acquiring goods that it has not yet sold
Total selling price of all goods that the merchandiser did sell to customers
Total cost of all goods that the merchandiser did sell to customers
Sales Revenue
Cost of Goods SoldSlide7
Inventory Systems
BI + P – EI = CGS
or
BI + P – CGS = EI
$4,800 + 10,200 – 6,000 = $9,000 $4,800 + 10,200 – 9,000 = $6,000Slide8
Periodic Inventory System
A periodic inventory system updates the
inventory
records for merchandise purchases,
sales, and returns only at the end of the
accounting
period.
To
determine how much
inventory is on hand and how much inventory has been sold, periodic
systems require that inventory be physically
counted by the employees
at the end of the period.
BI + P – EI = CGS Slide9
Perpetual Inventory System
In a perpetual inventory system, the inventory records are updated “perpetually,” that is, every time inventory is bought, sold, or returned.
Perpetual systems often are combined with bar codes and optical scanners.Slide10
Inventory Control
Perpetual Inventory System
Can
Estimate Shrinkage
Periodic Inventory System
No Up-to-Date Records
Can’t Estimate Shrinkage
Continuous TrackingSlide11
Learning Objective 6-3
Analyze
purchase transactions
under a perpetual inventory system.Slide12
Recording Inventory Purchases
We will now look at the accounting for
inventory purchases
,
as well as transportation
costs, purchase returns and allowances, and purchase discounts.
We
will record all inventory-related transactions in the Inventory account. Slide13
Inventory Purchases
Walmart receives $10,500 of bikes purchased on account.
1
Analyze
Liabilities
Assets
=
Stockholders’ Equity
+
Inventory +$10,500
Accounts
Payable +$10,500
2
Record
Inventory
Accounts Payable
10,500
10,500Slide14
Transportation Cost
Walmart pays $400 cash to a trucker who delivers
the
$
10,500 of bikes
to one
of its stores.
1
Analyze
Liabilities
Assets
=
Stockholders’ Equity
+
Cash -$400
Inventory +$400
2
Record
Inventory
Cash
400
400Slide15
Purchase Returns and Allowances
Walmart returned
some of the
bikes
to the
supplier and received a $500 reduction in the balance owed.
1
Analyze
Liabilities
Assets
=
Stockholders’ Equity
+
Inventory -$500
Accounts
Payable -$500
2
Record
Accounts Payable
Inventory
500
500Slide16
Purchase Discounts
Walmart’s bike
purchase for $10,500 had terms of 2/10, n/30. Recall that
Walmart returned
inventory costing $500 and received a $500 reduction in its Accounts Payable.
Walmart
paid within
the
discount period.
1
Analyze
Liabilities
Assets
=
Stockholders’ Equity
+
Cash -$9,800
Inventory -$200
Accounts
Payable -$10,000
2
Record
Accounts Payable
Cash
Inventory
9,80020010,000Slide17
Summary of Inventory TransactionsSlide18
Learning Objective 6-4
Analyze
sales transactions
under a perpetual inventory system.Slide19
Recording Inventory Sales
Merchandisers earn revenues by transferring
control
of merchandise to a customer, either for cash or on credit.
For a merchandiser who is shipping goods to a customer, the transfer of
control
occurs at one of two possible times:
FOB shipping point
—the sale is recorded when the
goods leave the seller’s shipping department.
FOB destination
—the sale is recorded when the
goods reach their destination (the customer).Slide20
Recording Inventory Sales
Every merchandise sale has two components, each of which requires an entry in a perpetual inventory system.
Selling Price
CostSlide21
Recording Inventory Sales
Walmart sells two Schwinn mountain bikes at a selling price of $200 per bike, for a total of $400 cash. The bikes had previously been recorded in
Walmart’s
Inventory at a cost of $175 per bike, for a total cost of $350.
1
Analyze
Liabilities
Assets
=
Stockholders’ Equity
+
Cash +$400
Inventory -$350
Sales Revenue +$400
Cost of Goods Sold -$350
2
Record
Cash
Sales Revenue
Cost of Goods Sold
Inventory
400
350
400
350Slide22
Sales Returns and Allowances
When goods sold to a customer arrive in damaged condition or are otherwise unsatisfactory, the customer can
(1) return them for a full refund or
(2) keep them and ask for a reduction in the selling price, called an allowance.Slide23
Sales Returns and Allowances
Suppose that after
Walmart
sold the two Schwinn mountain bikes, the customer returned one to
Walmart.
Assuming that the bike is still like new,
Walmart
would refund the $200 selling price to the customer and take the bike back into inventory.
1
Analyze
Liabilities
Assets
=
Stockholders’ Equity
+
Cash -$200
Inventory +$175
Sales Returns and
Allowances (+xR) -$200
Cost of Goods Sold +$175
2
Record
Sales Returns & Allowances (+xR
)
Cash
Inventory Cost of Goods Sold 200175200175Slide24
Sales on Account and Sales Discounts
Suppose
Walmart’s
warehouse store (Sam’s Club) sells printer paper on account to a local business for $1,000 with payment terms of 2/10, n/30. The paper had cost Sam’s Club $700.
2
Record
Accounts Receivable
Sales Revenue
Cost of Goods Sold
Inventory
1,000
700
1,000
700
1
Analyze
Liabilities
Assets
=
Stockholders’ Equity
+
Accounts Receivable+$1,000
Inventory -$700
Sales Revenue +$1,000
Cost of Goods Sold -$700Slide25
2
Record
Cash
Sales Discounts (+xR
)
Accounts Receivable
1,000
980
20
Sales on Account and Sales Discounts
To take advantage of this 2% discount, the customer must pay
Walmart
within 10 days. If the customer does so, it will deduct the $20 discount (2% $1,000) from the total owed ($1,000), and then pay $980 to
Walmart.
(2% × $1,000)
1
Analyze
Liabilities
Assets
=
Stockholders’ Equity
+
Cash +$980
Accounts Receivable -$1,000
Sales Discounts (+xR) -$20Slide26
Summary of Sales-Related Transactions
The
sales returns
and
allowances
and
sales
discounts introduced in this section were recorded using contra-revenue accounts. Slide27
Learning Objective 6-5
Prepare and analyze
a merchandiser’s multistep income statement.Slide28
Multistep Income StatementSlide29
Gross Profit Analysis
Gross
Profit %
=
Gross Profit
Net Sales
×
100Slide30
Comparing Gross Profit PercentagesSlide31
Supplement 6A
Recording Inventory Transactions in a Periodic SystemSlide32
Learning Objective 6-S1
Record inventory transactions in a periodic system.Slide33
Recording Inventory Transactions in a Periodic System
An electronics retailer stocks and sells just one item
and the
following
events occurred:
We will record these events assuming the company uses
a periodic inventory system and then compare the
periodic inventory system to a perpetual inventory system.Slide34
Recording Inventory Transactions in a Periodic System
Periodic Inventory System
Perpetual Inventory SystemSlide35
Recording Inventory Transactions in a Periodic System
Periodic Inventory System
BI + P –
EI
=
CGS
End-of-year adjustment entries are not required using a perpetual inventory system.Slide36
Recording Inventory Transactions in a Periodic System
Summary of the Effects on the Accounting EquationSlide37
Chapter 6
Solved Exercises
M6-2, M6-16, E6-3, E6-5, E6-13,
E6-20Slide38
M6-2
Calculating Shrinkage in a Perpetual Inventory System
Corey’s Campus Store has
$4,000
of inventory on hand at the beginning of the month. During the month, the company buys
$41,000
of merchandise and sells merchandise that had cost $30,000. At the end of the month,
$13,000
of inventory is on hand. How much shrinkage occurred during the month?
Beginning inventory
Purchases
Cost of Goods Sold Ending balance Inventory count Shrinkage
$ 4,000+41,000-30,00015,000
-13,000$ 2,000Slide39
M6-16
Interpreting Changes in Gross Profit
Percentage
Luxottica
Group,
the Italian company that sells Ray Ban and Oakley sunglasses, reported
net sales
of €7.1 billion in 2012 and €6.2 billion in 2011. Gross profit increased from €4.1 billion
in 2011
to €4.7 billion in 2012. Was the increase in gross profit caused by
(a) an increase in gross profit per sale, (
b) an increase in sales volume, or (c) a combination of (a
) and (b)?
Net Sales
Cost of Goods Sold
Gross Profit
Gross Profit Percentage
2011
6.2
2.1
4.166.1%20127.12.44.766.2%(in billions of euro)Slide40
E6-3
Identifying Shrinkage and Other Missing Inventory Information
Calculate the missing information for each of the following independent cases:
Case
A
B
C
D
Beg. Inventory
$100
200
150
260
Purchases
$700
800
500
600
Cost of Goods Sold
$300
850200
650
Ending Inventory (perpetual)
Ending Inventory (As Counted)Shrinkage$500150450210$420150440200$8001010
??
?
??
?
?Slide41
E6-5
Inferring Missing Amounts Based on Income Statement Relationships
Supply the missing dollar amounts
for
each of the following independent cases.Slide42
E6-5 Inferring Missing Amounts Based on Income Statement Relationships
Supply the missing dollar amounts for each of the following independent cases.
$300
?
200
650
?
Case
A
B
C
D
E
Sales Revenue
$700
900
?
800
1,000
Beginning Inventory
$100200100?50Purchases
$800
800?600900
Cost of Goods AvailableCost of Goods SoldCost of Ending Inventory$?150300250??????Gross Profit$?
?400?5009006004008501,00050500400
600150900300500950450Slide43
E6-13 Recording
Journal Entries for Net Sales with Credit Sales and Sales Discounts
Using the information in E6-12, prepare journal entries to record the transactions, assuming
Solitare uses
a perpetual inventory system
.
Jan
. 6 Sold goods for $100 to Wizard Inc. with terms 2/10, n/30. The
goods cost Solitare $70.
6 Sold goods to SpyderCorp for $80 with terms 2/10, n/30. The
goods cost Solitare $60. 14 Collected cash due from Wizard Inc.Feb. 2 Collected cash due from SpyderCorp.
28 Sold goods for $50 to Bridges with terms 2/10, n/45. The goods cost Solitare $30.
Jan. 6Accounts Receivable
Sales Revenue Cost of Goods Sold Inventory
100
70
100
70Slide44
E6-13
Recording Journal Entries for Net Sales with Credit Sales and Sales Discounts
Using the information in
E6-12,
prepare journal entries to record the transactions, assuming Solitare uses a perpetual inventory system.
Jan. 6 Sold goods for $100 to Wizard Inc. with terms 2/10, n/30. The
goods cost Solitare $70.
6 Sold goods to SpyderCorp for $80 with terms 2/10, n/30. The
goods cost Solitare $60.
14 Collected cash due from Wizard Inc.
Feb. 2 Collected cash due from SpyderCorp.
28 Sold goods for $50 to Bridges with terms 2/10, n/45. The goods cost Solitare $30.
Jan. 6Accounts Receivable Sales Revenue
Cost of Goods Sold Inventory
80
60
80
60Slide45
E6-13
Recording Journal Entries for Net Sales with Credit Sales and Sales Discounts
Using the information in
E6-12,
prepare journal entries to record the transactions, assuming Solitare uses a perpetual inventory system.
Jan. 6 Sold goods for $100 to Wizard Inc. with terms 2/10, n/30. The
goods cost Solitare $70.
6 Sold goods to SpyderCorp for $80 with terms 2/10, n/30. The
goods cost Solitare $60.
14 Collected cash due from Wizard Inc.
Feb. 2 Collected cash due from SpyderCorp.
28 Sold goods for $50 to Bridges with terms 2/10, n/45. The goods cost Solitare $30.
Jan. 14Cash ($100 x 98%)Sales Discounts ($100 x 2%)
Accounts Receivable
100
98
2Slide46
E6-13
Recording Journal Entries for Net Sales with Credit Sales and Sales Discounts
Using the information in
E6-12,
prepare journal entries to record the transactions, assuming Solitare uses a perpetual inventory system.
Jan. 6 Sold goods for $100 to Wizard Inc. with terms 2/10, n/30. The
goods cost Solitare $70.
6 Sold goods to SpyderCorp for $80 with terms 2/10, n/30. The
goods cost Solitare $60.
14 Collected cash due from Wizard Inc.
Feb. 2 Collected cash due from SpyderCorp.
28 Sold goods for $50 to Bridges with terms 2/10, n/45. The goods cost Solitare $30.
Feb. 2Cash
Accounts Receivable
80
80Slide47
E6-13
Recording Journal Entries for Net Sales with Credit Sales and Sales Discounts
Using the information in
E6-12,
prepare journal entries to record the transactions, assuming Solitare uses a perpetual inventory system.
Jan. 6 Sold goods for $100 to Wizard Inc. with terms 2/10, n/30. The
goods cost Solitare $70.
6 Sold goods to SpyderCorp for $80 with terms 2/10, n/30. The
goods cost Solitare $60.
14 Collected cash due from Wizard Inc.
Feb. 2 Collected cash due from SpyderCorp.
28 Sold goods for $50 to Bridges with terms 2/10, n/45. The goods cost Solitare $30.
Feb. 28Accounts Receivable Sales Revenue
Cost of Goods Sold Inventory
50
30
50
30Slide48
E6-20
Inferring Missing Amounts Based on Income Statement Relationships
Supply the missing dollar amounts for the income statement of Williamson Company for each of the following independent cases:
Sales Revenue
Sales Returns and Allowances
Net Sales
Cost of Goods Sold
Gross Profit
Case B
$ 6,000
500
5,500
4,050
$ 1,450
Case A
$ 8,000
150
7,850
5,750
$ 2,100
Case C$ 6,195 2755,920 5,400$ 520
Slide49
End of Chapter 6