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11.1 Accounting for a Merchandising Business

11.1 Accounting for a Merchandising Business. What is a Merchandising Business?. A business that buys goods and sells for a profit. Examples in Preston?. There are different categories of merchandising business:. Wholesaler:

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11.1 Accounting for a Merchandising Business

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  1. 11.1 Accounting for a Merchandising Business

  2. What is a Merchandising Business? • A business that buys goods and sells for a profit Examples in Preston?

  3. There are different categories of merchandising business: • Wholesaler: Buy goods from manufacturer and resells to retailers or consumers. Example: Costco • Retailer: Buys from wholesaler and resells to consumers example: The Gap

  4. What is Merchandise Inventory? • The quantity of merchandise on hand • Current Assets • Debit Balance

  5. Balance sheet: current asset (Merchandise inventory) $25,000 not sold & on hand EXAMPLE: Physical count of inventory  accuracy  lost, theft, damaged, returns $120,000 available goods to sell Income Statement  cost of goods sold (COGS) $95,000 sold during fiscal period

  6. 2 Types of Inventory • Periodic- When inventory is updated at regular intervals (eg. Daily, monthly, annually) • Perpetual- When inventory is updated after each sale Many Businesses use combination of both

  7. 11.2 Four Accounts affecting a Merchandising Business: • Merchandise Inventory: • Current Assets represent beginning inventory for current period (what’s left over from last period) • Adjusted at year-end to equal updated physical count • “DR” balance  valued at cost price

  8. 2. Purchases • Used to record merchandise purchased for resale • O.E. account; considered an expense  Cost to Company (DR) • Part of COGS section Eg. Purchases XXX HST Recoverable XXX Bank or A/P XXX

  9. Sales: • Revenue account for merchandising business • To record sale to customer Bank or A/R XXX Revenue (sales) XXX HST Payable XXX

  10. Freight-in • Transportation charges on incoming goods for resale (expense  cost  DR) • FOB: FREE ON BOARD destination (seller pays transportation charges) destination or FOB shipping (buyer pays transportation charges) • Eg. Freight-in XXX Bank or A/P XXX

  11. Cost of Goods Sold Beginning Inventory, Jan. 1 +Purchases + Freight-in Cost of goods Available for Sale - less inventory, December 31 Cost of Goods Sold

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