Quiz will occur on Thursday March 27 or Friday.

1. 2 Unit 2: Chapter 5 Quiz will occur on Thursday March 27 or Friday.

2. 1 Nature of Merchandising Businesses Merchandising Business Sales $XXX Cost of Merchandise Sold –XXX Gross Profit $XXX Operating Expenses –XXX Net Income $XXX

3. 1 Nature of Merchandising Businesses When merchandise is sold, the revenue is reported as sales, and its cost is recognized as an expense called cost of merchandise sold.

4. 1 Nature of Merchandising Businesses Merchandise on hand (not sold) at the end of an accounting period is called merchandise inventory.

5. 1

6. 2 Multiple-Step Income Statement The multiple-step income statement contains several sections, subsections, and subtotals.

7. Exhibit 1 2 Multiple-Step Income Statement (continued on Slide 19)

8. 2 Multiple-Step Income Statement The Sales account provides the total amount charged to customers for merchandise sold, including cash sales and sales on account.

9. 2 Multiple-Step Income Statement Sales returns and allowances are granted by the seller to customers for damaged or defective merchandise.

10. 2 Multiple-Step Income Statement Sales discounts are granted by the seller to customers for early payment of amounts owed.

11. 2 Multiple-Step Income Statement Net sales is determined by subtracting sales returns account and sales discounts account from sales.

12. 2 Multiple-Step Income Statement Cost of merchandise sold is the cost of the merchandise sold to customers.

13. Exhibit 1 2 Multiple-Step Income Statement (continued) (continued on Slide 28)

14. 2 Multiple-Step Income Statement The buyer may return merchandise to the seller (apurchase return), or the buyer may receive a reduction in the initial price at which the merchandise was purchased (apurchase allowance).

15. 2 Multiple-Step Income Statement You have seen how sellers may offer customers sales discounts for early payment of their bills. From the buyer’s perspective, such discounts are referred to as purchase discounts.

16. 2 Multiple-Step Income Statement If merchandise inventory at the end of the period is determined by taking a physical count of inventory on hand, a periodic inventory system is being used.

17. 2 Multiple-Step Income Statement Under the perpetual inventory system of accounting, the amounts of inventory available for sale and sold are continuously (perpetually) updated in the inventory records.

18. Exhibit 2 2 Cost of Merchandise Sold (Periodic Inventory system)

19. 2 Multiple-Step Income Statement Selling expenses are incurred directly in the selling of merchandise. • Sales salaries • Store supplies used • Depreciation of store equipment • Delivery expense • Advertising expense

20. 2 Multiple-Step Income Statement Administrative expenses sometimes called general expenses, are incurred in the administration or general operation of the business. The examples are: • Office salaries – secretary or CEO • Depreciation of office equipment (Headquarter) • Office supplies used (headquarter)

21. 2 Multiple-Step Income Statement • Other incomeis revenue from sources other than the primary operating activity of a business. • For example, interest you made from Accounts Receivable or Short Term Investment and Gain on sale of equipment (land) from selling your equimpment, which you bought for your operating activity. • Rent income from subleasing part of your store.

22. 2 Multiple-Step Income Statement • Other expenseis an expense that cannot be traced directly to the normal operations of the business. • For example, interest expense from Accounts Payable

23. Exhibit 1 2 Multiple-Step Income Statement (concluded)

24. 2 Single-Step Income Statement An alternative form of income statement is the single-step income statement. As shown in the next slide, the income statement for NetSolutions deducts the total of all expenses in one step from the total of all revenues.

25. Exhibit 3 2 Single-Step Income Statement

26. Exhibit 4 2 Retained Earnings Statement for Merchandising Business

27. 3 Classwork / Homework Use new textbook you got last week: Page 259 Exercise #BE5.11 P262 E5.7 and E5.12 P264 P5.5 a and buyt

28. Exhibit 5 2 Report Form of Balance Sheet (continued)

29. Exhibit 5 2 Report Form of Balance Sheet (continued)

30. 3 Cash Sales On January 3, NetSolutions sold $1,800 of merchandise for cash.

31. 3 Cash Sales Using the perpetual inventory system, the cost of merchandise sold and the decrease in merchandise inventory are recorded. The cost of merchandise sold on January 3 is $1,200.

32. 3 Credit Card Sales Sales made to customers using credit cards are recorded as cash sales. Assume that NetSolutions paid credit card processing fees of $48 on January 1.

33. 3 Sales on Account On January 12, NetSolutions sold merchandise on account for $510. The cost of merchandise sold was $280.

34. 3 Sales Discounts The terms for when payments for merchandise are to be made, are called credit terms. If payment is required on delivery, the terms are cash or net cash. Otherwise, the buyer is allowed an amount of time, known as the credit period, in which to pay.

35. Exhibit 8 3 Credit Terms

36. 3 Receipts on Account On January 22, NetSolutions receives the amount due, less the 2 percent discount. $1,500 × .02

37. 3 On January 13, issued Credit Memo 32 to Krier Company for merchandise returned to NetSolutions. Selling price, $225; cost to NetSolutions, $140.

38. 3 Purchase Transactions * *Assumes a perpetual inventory system is used.

39. 3 Purchase Transactions * *Assumes a perpetual inventory system is used. We will assume a perpetual inventory system is used throughout the chapter. The periodic inventory system is discussed in Appendix 2.

40. 3 Purchase Transactions Alpha Technologies issues an invoice for $3,000 to NetSolutions dated March 12, with terms 2/10, n/30. NetSolutions pays the amount due, less the discount, on March 22.

41. 3 Discount Taken

42. 3 Discount Not Taken Assume that NetSolutions pays the invoice on April 11.

43. 3 Purchase Returns and Allowances A purchases return involves actually returning merchandise that is damaged or does not meet the specifications of the order.

44. 3 Purchase Returns and Allowances When the defective or incorrect merchandise is kept by the buyer and the vendor makes a price adjustment, that is a purchases allowance.

45. 3 NetSolutions receives the delivery from Maxim Systems and determines that $900 of the items are not the merchandise ordered.

46. 3 NetSolutions records the return of the merchandise indicated in the debit memo in Exhibit 10 as follows:

47. 3 Price Allowance On May 2, NetSolutions purchased $5,000 of merchandise on account from Delta Data Link, terms 2/10, n/30.

48. 3 NetSolutions returned $3,000 of the merchandise purchased from Delta Data Link on May 4.

49. 3 On May 12, NetSolutions paid for the purchase of May 2 less the return and discount.

50. 3 Freight If ownership of the merchandise passes to the buyer when the seller delivers the merchandise to the freight carrier, it is said to be FOB (free on board) shipping point.