4 Accounting for Merchandising Enterprises.ppt

Accounting for Merchandising EnterprisesChapter 4 Service Enterprise Nature: A service is performed for a commission or fee. Net Income equals fees or commissions earned minus operating expenses. Examples: Laundries Taxicab companies Hair dressers Theatres Golf courses Lawyers Accountants MERCHANDISING COMPANY A merchandising company buys and sells goods to earn a profit. 1 Wholesalers sell to retailers 2 Retailers sell to consumers Merchandise Company- sale of merchandise Cars, clothing, food, office supplies Primary source of revenue is Sales MEASURING NET INCOME Expenses for a merchandiser are divided into two categories: 1 Cost of goods sold The total cost of merchandise sold during the period 2 Operating expenses Expenses incurred in the process of earning sales revenue Examples: sales salaries and insurance expense Gross profit is equal to Sales Revenue less Cost of Goods Sold Operating Cycles INVENTORY SYSTEMS Merchandising entities may use either: 1 Perpetual Inventory Detailed records of the cost of each item are maintained, and the cost of each item sold is determined from records when the sale occurs. 2 Periodic Inventory Cost of goods sold is determined only at the end of an accounting period. COST OF GOODS SOLD To determine the cost of goods sold under a periodic inventory system: 1 Determine the cost of goods on hand at the beginning of the accounting period, 2 Add to it the cost of goods purchased, and 3 Subtract the cost of goods on hand at the end of the accounting period. PURCHASES OF MERCHANDISE Merchandise is purchased for resale to customers, the account Merchandise Inventory is debited for the cost of goods. Like sales, purchases may be made for cash or on account credit . The purchase is normally recorded by the purchaser when the goods are received from the seller. Each credit purchase should be supported by a purchase invoice. PURCHASES OF MERCHANDISE Purchase Returns and Allowances Purchase Discounts Cre