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Chapter 7

Chapter 7. The Merchandising Company. Merchandising . Sell goods (products) Net Income: Revenue – Cost of Goods Sold = Gross Profit Gross Profit – Expenses = Net Income Schedule of Cost of Goods Sold provides details on an income statement. Schedule of Cost of Goods Sold. Inventory.

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Chapter 7

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  1. Chapter 7 The Merchandising Company

  2. Merchandising • Sell goods (products) • Net Income: Revenue – Cost of Goods Sold = Gross Profit Gross Profit – Expenses = Net Income • Schedule of Cost of Goods Sold provides details on an income statement

  3. Schedule of Cost of Goods Sold

  4. Inventory • An account that stores the value of goods not yet resold • Periodic System: count merchandise not sold at the end of the period to determine cost of goods sold • Perpetual System: record inventory and cost of goods sold when sales made

  5. “Cost” Accounts • Purchases: debit when buying goods for resale in periodic system • Purchase Returns and Allowances: credit when returning goods not useful • Purchase Discounts: credit when making payment for good early • Transportation on Purchases: debit to receive goods, similar to expense • Cost of Goods Sold is created at period end in periodic and debited in every sale in perpetual

  6. Revenue Accounts • Sales: credited to indicate revenue • Sales Returns and Allowances: debited to show customer not satisfied with goods • Sales Discounts: debited when customer pays early

  7. Terms of Sale • COD: customer pays when goods delivered • Net 30: full amount due in 30 days • EOM: full amount due at end of the month • 2/10, n/30: receive 2% discount if paid within 10 days after invoice received

  8. Invoices • Sales Invoice: dr A/R cr Sales • Credit Invoice: dr Sales Returns cr A/R • Purchase Invoice: dr Purchases or Inventory cr A/P

  9. Journal Entries • Credit Sale dr A/R 300 cr Sales 3001/10, net 30, invoice #45 • Return dr Sales Returns and Allowance 100 cr A/R 100

  10. Journal Entries (periodic) • Payment within discount period dr Cash 297 dr Sales Discounts 3 cr A/R 300 • Payment beyond discount dr Cash 300 cr A/R 300

  11. Journal Entries (periodic) • Purchase goods for resale (periodic) dr Purchases 400 cr Cash or A/P 4002/15, n/30, invoice #P398 • Payment within discount period* dr A/P 400 cr Purchase Discounts 8 cr Cash 392 Cheque #26 for invoice #P398 * Otherwise A/P and Cash

  12. Journal Entries • Transportation (for goods for resale) dr Transportation-In 50 cr A/P or Cash 50 • Delivery Charge (for goods sold to customers) dr Delivery Expense 25 cr A/P or Cash 25

  13. Journal Entries (perpetual) • Purchase good for resale: • Sale: dr Inventory 300 cr A/P or Cash 300 dr A/R or Cash 400 cr Sales 400 and dr Cost of Goods Sold 300 cr Inventory 300

  14. Journal Entries (perpetual) • Inventory shortage (count at end of period) dr Inventory Shortage 20 cr Inventory 20Charge shortage to expense

  15. Sales Taxes • GST: Goods and Services Tax 7% • PST: Provincial Sales Tax 8% • Typical Sale: dr Cash or A/R 115 cr Sales 100 cr GST Payable 7 cr PST Payable 8

  16. Sales Taxes • GST on Purchases: dr Purchases (or Inventory, etc.) 200 dr GST Refundable 16 cr Cash or A/P 216 • “Remit” GST if owing: • Refund of GST is owed: dr GST Payable 500 cr GST Refundable 450 cr Cash 50 dr GST Payable 450 dr Cash 50 cr GST Refundable 500

  17. Credit Cards • Increases sales • Typical Sale: dr Cash 672dr Visa Discount Expense 18 cr Sales 600 cr PST Payable 48 cr GST Payable 42$600 x 3% visa charge

  18. Debit Cards • Charged by banks and as good as cash to retailer dr Cash 114.75dr Debit Card Expense 0.25 cr Sales 100 cr PST Payable 8 cr GST Payable 7

  19. NEW Original Close all Close all Worksheet (perpetual)

  20. Complete Income Statement

  21. Chart of Accounts • Assets 100s (e.g. Inventory 130) • Liabilities 200s • Equities 300s • Revenues 400s (e.g. Sales 400, Sales Returns 401) • Cost Accounts 500s (e.g. Cost of Goods Sold 500, Purchases 500, Purchase Returns 501, etc.) • Expenses 600s

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