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Financial Statement Preparation: Merchandising Operations Overview

Learn about merchandising operations, financial statement preparation, inventory methods, purchasing, sales transactions, closing entries, and more in this comprehensive guide. Topics include basic flow, inventory systems, revenue recognition, and financial statement relationships.

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Financial Statement Preparation: Merchandising Operations Overview

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  1. Session 8Merchandising Operations FINANCIAL ACTG. - BUS 020 - SPRING 2015

  2. Merchandising Operations • Basic Flow • Purchase of Inventory • Sales of Merchandise • Inventory Systems • Merchandising Transactions • F/S Overview FINANCIAL ACTG. - BUS 020 - SPRING 2015

  3. Inventory Methods • Perpetual • Revenue and COGS—on-going • B + I - O = E • Periodic • Revenue only; count inventory; calculate COGS • B + I - E = O FINANCIAL ACTG. - BUS 020 - SPRING 2015

  4. Purchasing Transactions • Purchases • Freight and other misc. costs • Returns • Discounts FINANCIAL ACTG. - BUS 020 - SPRING 2015

  5. Sales Transactions • Shipment • Returns • Discounts Use contra accounts FINANCIAL ACTG. - BUS 020 - SPRING 2015

  6. Closing Entries • Temporary accounts • Zero them out • Revenue, expenses and dividends • Permanent accounts • Retained earnings is the final location for the temporary accounts FINANCIAL ACTG. - BUS 020 - SPRING 2015

  7. Merchandising Transactions • See Summary on p. 235-236 • Note: we do not use the Income Summary; we balance the closing entry directly into Retained Earnings FINANCIAL ACTG. - BUS 020 - SPRING 2015

  8. Financial Statement Overview • Multi-step Income Statement—p. 237 • Non-operating activities—p. 236 • Classified Balance Sheet—p. 238-239 • Statement of Shareholders’ Equity • Statement of Cash Flows FINANCIAL ACTG. - BUS 020 - SPRING 2015

  9. Financial Statement Preparation • Headings are IMPORTANT • Company, Title and Date • Note how the T-Account balances track to the actual financial statements FINANCIAL ACTG. - BUS 020 - SPRING 2015

  10. Expanded Income Statement Revenue - Cost of Goods Sold = Gross Margin - Operating expenses = Operating income +/- Other income and expense = Income before taxes - Income taxes = Net income FINANCIAL ACTG. - BUS 020 - SPRING 2015

  11. A Closer Look at the Balance Sheet • Current assets • Non-current assets • Current liabilities • Long-term debt • Shareholders’ equity • Contributed capital • Retained earnings • Dividends FINANCIAL ACTG. - BUS 020 - SPRING 2015

  12. Financial Statement Relationships Stmt of Sharehldrs Eq. Balance Sheet Income Statement Statement of Cash Flows Current Assets Non- current Assets Current Liabilities Long- term Debt Equity Revenue Cost of Goods Sold (COGS) Gross Margin Operating Exps. Net Income Operating Cash Investing Cash Financing Cash Change in Cash Beginning Cash Ending Cash Beginning S/E Net Income Less: Dividends Ending S/E FINANCIAL ACTG. - BUS 020 - SPRING 2015

  13. Let’s Do It! • See p. 242 • Create a Multi-step Income Statement • Create a Classified Balance Sheet • Create a Statement of Shareholder’s Equity FINANCIAL ACTG. - BUS 020 - SPRING 2015

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