基础会计学英文版lesson06-enAccounting for Merchandising Activities

Lesson

6Accounting

for

MerchandisingActivitiesTask

Team

ofFUNDAMENTAL

ACCOUNTINGSchool

of

Business,

Sun

Yat-sen

UniversityOutline2Merchandising

activitiesOperating

cycle

of

merchandising

companieMerchandising

cost

accountsInventory

systemsMerchandise

purchasesSales

transactionsAdjusting

and

closing

entriesIntroduction3

Scandals

in

stock

market

occur

now

and

then.Among

them,

financial

frauds

or

incomemanipulation

are

common.

Income

manipulationtypically

starts

from

making

up

sales

revenues

aswell

as

purchases,

for

example,

GuangXia(Yinchuan).In

this

lesson

you

are

required

to

think

about,Why

these

income

statement

numbers

are

so

important?How

they

are

recorded

in

accounting

system?Merchandising

ActivitiesManufacturerWholesalerRetailerCustomerMerchandising

Companies4Reporting

Financial

PerformanceRevenuesExpensesNetincome5—

＝Service

organizations

sell

time

to

earn

revenue.–

Examples:

accounting

firms,

law

firms,

and

plumbingservicesReporting

Financial

PerformanceMerchandising

companies

sell

merchandise

to

earn

revenu–

Examples:

sporting

goods,

clothing,

and

auto

parts

storesNetSalesCost

ofGoods

SoldGrossProfitExpensesNetIncome—

＝

－＝6Operating

Cycle

of

Merchandise

Companies

Begins

with

the

purchase

of

merchandise

and

ends

with

thecollection

of

cash

from

the

sale

of

merchandise.MerchandiseinventoryCredit

salesAccountreceivablePurchasesMerchandiseinventoryCashsalesCash

SaleCredit

SaleCashcollection

Purchases7Merchandising

Cost

Accounts++Beginning

inventoryYear

1Net

cost

ofpurchasesEnding

InventoryYear

1Cost

of

GoodsSold=

Merchandiseavailable

for

saleIncomeStatementBecomes

beginninginventory

of

Year

2BalanceSheet8Inventory

SystemsPerpetual

MethodGives

a

continual

record

of

the

amount

of

inventory

on

haWhen

an

item

is

sold

it

is

recorded

in

the

Cost

of

GoodsSold

account.Periodic

MethodRequires

updating

the

inventory

account

only

at

the

end

othe

period.

Acquisition

of

merchandise

inventory

isrecorded

in

a

temporary

Purchases

account.9Perpetual

provides

a

continuous

record

of:The

amount

of

inventory

on

hand.Cost

of

goods

sold

to

date.

Periodic

requires

a

physical

count

of

gooddetermine:The

amount

of

inventory

on

hand.Cost

of

goods

sold.10Inventory

SystemsComparison

of

Perpetual

and

Periodic

Systems11Source

of

InformationEquationPeriodic

SystemPerpetual

SystemBeginning

InventoryCarried

over

fromprior

periodCarried

over

fromprior

periodAdd:

PurchasesAccumulated

in

thePurchases

accountAccumulated

in

theinventory

accountEquals:Cost

of

Goods

Available

for

SaleLess:

Ending

InventoryMeasured

at

endofperiod

by

physicalinventory

countPerpetual

recordupdated

at

every

saleCost

of

Good

SoldComputed

as

aresidual

amount

atend

of

periodMeasured

at

everysale

based

onperpetual

recordComparison

of

Periodic

and

Perpetual

Systems12TransactionPeriodicPerpetualMerchandise

purchasedfrom

supplier

onaccountPurchases

XXAccounts

PayableXXInventory

XXAccounts

PayableXXMerchandise

returned

tosupplierAccounts

Payable

XXPurchases

returns

&

allow.

XXAccounts

PayableInventoryXXXXMerchandise

sold

tocustomer

on

accountAccounts

ReceivableSalesXXXXAccounts

ReceivableSalesCost

of

Goods

SoldInventoryXXXXXXXXComparison

of

Periodic

and

Perpetual

Systems13TransactionPeriodicPerpetualMerchandise

retunedby

customerSales

Returns

&

Allow.

XXAccounts

Receivable

XXSales

Returns

&

Allow.

XXAccounts

Receivable

XXInventory

XXCost

of

Goods

Sold

XXAt

the

end

ofaccounting

periodCost

of

Goods

Sold

XXInventory

(beginning)

XXPurchasesXXInventory

(ending)

XXCost

of

goods

Sold

XXNo

entry5,00014Oct.

1

Inventory

5,000Accounts

Payable

/cashPurchased

inventory.The

operating

cycle

of

merchandise

companiesinvolves

the

purchase

and

subsequent

sale

ofmerchandise

inventory.Purchaseof

inventory

can

either

on

account

or

bycash.Merchandise

PurchasesTrade

DiscountsTrade

discounts

are

used

by

manufacturers

andwholesalers

to

change

selling

prices

withoutrepublishing

their

catalogs.ExampleMarCo,

Inc.

offers

a

20%

tradediscount

on

orders

of

100units

or

more

of

their

popularproduct

Racer.

Each

Racer

has

a

list

price

of

$5.00.15

Purchase

discount

is

a

deduction

from

the

invoice

pricegranted

to

induce

early

payment

of

the

amount

due.

Exampl–

2/10,

n30TermsTimeDueDiscount

Period

=10

daysCredit

Period

=

30

daysFull

amount

dueanytime

betweenOct.12

and

Oct.31PurchaseOct.1

Oct.11(Full

amount

minus

2%discount)

due

between

Oct.1and

Oct.1116Oct.31Purchase

DiscountsPurchase

Discounts2/10,n/30DiscountPercentNumber

ofDays

DiscountIs

AvailableOtherwise,Net

(or

All)

IsDueCreditPeriod17Assume

the

purchase

of

$4,000

inventory

on

OctoberOct.31AccountsPayableCash4,0004,000Purchase

DiscountsOct.11AccountsPayableInventoryCash4,000803,9202%

x

(5,000

-

1,000)

=

80Case

2-Discount

not

taken1

was

on

the

terms

2/10,n30.Case

1-Discount

taken18Managing

Discounts365

days

÷

20

days

×

2%

=

36.5%

annual

rateDaysin

ayearNumberof

additionaldays

beforepaymentPercentpaid

tokeepmoneyFailing

to

take

a

2/10,

n/30

discount

is

really

expensive!19Purchase

Returns

and

AllowancesPurchase

Return

.

.

.Merchandise

returned

by

the

purchaser

to

the

supplier.Purchase

Allowance

.

.

.A

reduction

in

the

cost

of

defective

merchandisereceived

by

a

purchaser

from

a

supplier.Purchase

Returns

and

AllowancesAccounts

Payable

XXXInventory

XXXDefective

merchandise

returned

to

supplier.20Purchase

Returns

and

AllowancesOn

Nov.

1,

Helo

Inc.

purchased

$10,000

ofMerchandise

Inventory

on

account,

credit

termsare

2/10,

n/30.21Purchase

Returns

and

AllowancesOn

Nov

5,

Helo

Inc.

returned

$250

of

defectivemerchandise

to

the

supplier.22Purchase

Returns

and

AllowancesOn

Nov

9,

Helo

Inc.

paid

the

amount

owed

for

thepurchase

of

Nov

1.23Transportation

CostsTransportation

ChargesInventory

XXXAccounts

Payable24XXXTransportation

charges

on

goods

purchased

FOBshipping

point.Recording

Purchases

Information201125Sales

TransactionsFor

a

business

engaged

in

a

merchandising

activity,

revenue

takes

the

fof

sales.The

entry

to

record

the

sale

of

merchandiseon

credit

under

a

perpetualinventory

system

requires

two

entries

On

March

10,TomCom

sold$20,000

ofmerchandise

onaccount.

Themerchandise

wascarried

in

inventoryat

a

cost

of

$16,000.26Sales

DiscountsA

sales

discount

is

a

cash

discount

taken

bycustomers

against

an

amountowed

to

the

seller.On

May

8,

Joye

Co.

sold

merchandise

costing

$3,000

for$5,000

on

account.

Credit

terms

were

2/10,

n/30.27Sales

Discounts

On

May

17,

Joye

Co.

received

acheck

for

$4,900

in

fullpayment

of

the

May

8

sale.28Sales

Returns

and

AllowancesOn

May

12,

Joye

Co.

sold

merchandise

costing$4,000

for

$6,000

on

account

The

credit

termswere

2/10,

n/30.29Sales

Returns

and

Allowances

On

May

14,

merchandise

with

a

sales

price

of

$600

and

acost

of

$400

was

returned

to

Joye

Co.

The

return

isrelated

to

the

May

12

sale.30Sales

Returns

and

Allowances

On

May

20,

Joye

received

the

amount

owed

to

it

fromthe

sale

of

May

12.31Recording

Sales

InformationSales

discounts

and

returns

and

allowancesare

Contra

Revenue

accounts.32Adjustments-Perpetual

Inventory

Perpetual

inventory

systems

keep

a

running

total

inventory

levels

by

recording

sales

and

purchase

transactions.

Periodic

adjustments

must

be

made

to

account

forshrinkage

(loss

due

to

theft

or

deterioration

ofinventory).33Inventory

per

accounting

records:

$198,000Inventory

per

physical

count:Difference

(shrinkage)$194,200$3,800Adjustment

required:Adjustments-Perpetual

InventoryOct.3134Cost

of

Goods

SoldInventory3,8003,800physicalTorecord

inventory

shrinkagerevealed

bycount.

The

closing

process

is

similar

for

merchandisingservice

companies.Merchandising

companies

have

additional

temporaryaccounts

that

must

be

closed.These

include:SalesSales

Returns

&

AllowancesSales

DiscountsCost

of

Goods

Sold35Closing

Entries

–

Perpetual

SystemDiscussion

CaseCIMCCIMC

is

the

number

one

stock

in

China,

mainly

due

to

its

“excellent”operating

performance.

However,

in

early

2005,

the

operatingperformance

of

CIMC

was

challenged.

Analysts

argued

that,

thesurprisingly

high

operating

performance

is

questionable.

Specificallyabnormal

growth

was

found

in

the

following

items,Sales

revenueGross

profitsAccounts

receivableInventoryHowever,

no

growth

was

found

in

cash

collected

from

customers.36Discussion

Casess,,••Required:

How

to

calculate

the

growthra