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Merchandising Activities
Service
Service organizations
organizations sell
sell time
time to
to earn
earn revenue.
revenue.
Examples:
Examples: Accounting
Accounting firms,
firms, law
law firms
firms and
and plumbing
plumbing services
services
Merchandising Activities
C1
Merchandising Companies
Merchandise
Cash Account
inventory
sales receivable
Merchandise
inventory Credit sales
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008
4-9
Inventory Systems
C3
= Merchandise
available for sale
Cost of goods
Ending inventory
+ sold
Trade Discounts
Example
Example
Matrix,
Matrix, Inc.
Inc. offers
offers aa 30%
30% trade
trade
discount
discount onon orders
orders ofof 1,000
1,000
units
units or
or more
more of of their
their popular
popular
product
product Racer.
Racer. Each
Each
Racer
Racer has
has aa list
list price
price ofof $5.25.
$5.25.
Seller
Invoice date
Purchaser
Order number
Credit terms
Freight terms
Goods
Invoice amount
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008
4-13
Purchase Discounts
P1
Time
Date of
Invoice
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008
4-14
P1
Purchase Discounts
2/10,n/30
Number
Number ofof
Days
Days Otherwise,
Otherwise,
Discount
Discount Discount
Discount Is
Is Net
Net (or
(or All)
All) Credit
Credit
Percent
Percent Available
Available Is
Is Due
Due in
in 30
30 Period
Period
Days
Days
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008
4-15
P1
Purchase Discounts
On
On May
May 7,
7, Jason,
Jason, Inc.
Inc. purchased
purchased $27,000
$27,000 ofof
merchandise
merchandise inventory
inventory on
on account,
account, credit
credit
terms
terms are
are 2/10,
2/10, n/30.
n/30.
Purchase Discounts
P1
On
On May
May 15,
15, Jason,
Jason, Inc.
Inc. paid
paid the
the amount
amount due
due
on
on the
the purchase
purchase of
of May
May 7.
7.
Purchase Discounts
P1
Days Number
Number Percent
Percent
Days
in of
of additional
additional paid
paid to
to
in aa
year days
days before
before keep
keep
year
payment
payment money
money
Purchase
Purchase Return
Return .. .. ..
Merchandise
Merchandise returned
returned byby the
the purchaser
purchaser to to the
the
supplier.
supplier.
Purchase
Purchase Allowance
Allowance .. .. ..
AA reduction
reduction inin thethe cost
cost of
of defective
defective merchandise
merchandise
received
received by
by aa purchaser
purchaser from
from aa supplier.
supplier.
On
On May
May 9,
9, Matrix,
Matrix, Inc. purchased $20,000
$20,000
of
of merchandise
merchandise inventory
inventory on
on account,
account,
credit
credit terms
terms are
are 2/10,
2/10, n/30.
n/30.
On
On May
May 10,
10, Matrix,
Matrix, Inc.
Inc. returned
returned $500
$500 of
of defective
defective
merchandise
merchandise to
to the
the supplier.
supplier.
Transportation Costs
P1
Buyer
Seller
FOB destination
FOB shipping point Merchandise (seller pays)
(buyer pays)
Transportation Costs
P1
Quick Check
P1
On
On July
July 6,
6, 2007,
2007, Seller
Seller Co.
Co. sold
sold $7,500
$7,500 of
of merchandise
merchandise toto Buyer,
Buyer,
Co.
Co. onon account;
account; terms
terms of
of 2/10,n/30.
2/10,n/30. The
The shipping
shipping terms
terms were
were FOB
FOB
shipping
shipping point.
point. The
The shipping
shipping cost
cost was
was $100.
$100. Which
Which of
of the
the following
following
will
will be
be part
part of
of Buyer’s
Buyer’s July
July 66 journal
journal entry?
entry?
a.
a. Credit
Credit Sales
Sales $7,500
$7,500
b.
b. Credit
Credit Purchase
Purchase Discounts
Discounts $150
$150
c.
c. Debit
Debit Merchandise
Merchandise Inventory
Inventory $7,600
$7,600
d.
d. Debit
Debit Accounts
Accounts Payable
Payable $7,450
$7,450
FOB shipping point indicates the buyer
ultimately pays the freight. This is recorded with
a debit to Merchandise Inventory.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008
4-26
P1
Sales
Sales discounts
discounts and
and returns
returns and
and allowances
allowances are
are Contra
Contra Revenue
Revenue accounts.
accounts.
McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 2008
4-28
P2
Sales of Merchandise
On
On June
June 8,
8, Barton
Barton Co.
Co. sold
sold merchandise
merchandise costing
costing $3,500
$3,500
for
for $6,000
$6,000 on
on account.
account. Credit
Credit terms
terms were
were 2/10,
2/10, n/30.
n/30. Let’s
Let’s
prepare
prepare the
the journal
journal entries.
entries.
Sales Discounts
P2
Multiple-Step
Single-Step
Balance Sheet
Acid-Test Ratio
A1
Gross
Net Sales - Cost of Goods Sold
Margin =
Ratio
Net Sales
Percentage of
dollar sales
available to cover
expenses and
provide a profit.
End of Chapter 4