Chapter 6

Accounting for
Merchandising Businesses
Accounting, 21
st
Edition
Warren Reeve Fess
PowerPoint Presentation by Douglas Cloud
Professor Emeritus of Accounting
Pepperdine University
Copyright 2004 South-Western, a division
of Thomson Learning. All rights reserved.
Task Force Image Gallery clip art included in this
electronic presentation is used with the permission of
NVTech Inc.
Perusahaan Jasa
Fees earned $XXX
Operating expenses XXX
Net income $XXX
Nature of Businesses
Merchandising Business
Sales $XXX
Cost of Merchandise Sold XXX
Gross Profit $XXX
Operating Expenses XXX
Net Income $XXX
Nature of Businesses
Cost of Merchandise Purchased
Purchases $521,980
Less: Purchase returns and
allowances $9,100
Purchase discounts 2,525 11,625
Net purchases $510,355
Add transportation-in 17,400
Cost of merchandise purchased $527,755
Cost of Merchandise Sold
Merchandise inventory, 1/1/07 $ 59,700
Purchases $521,980
Less: Purchase returns and
allowances $9,100
Purchase discounts 2,525 11,625
Net purchases $510,355
Add transportation-in 17,400
Cost of merchandise purchased 527,755
Merchandise available for sale $587,455
Less merchandise inventory, 12/31/07 62,150
Cost of merchandise sold $525,305
Multiple-Step
Income
Statement
Revenue from sales:
Sales $720,185
Less:Sales returns and allowances $ 6,140
Sales discounts 5,790 11,930
Net sales $708,255
Cost of merchandise sold 525,305
Gross profit $182,950
NetSolutions
Income Statement For the Year Ended
December 31, 2007
Continued
Operating expenses:
Selling expenses:
Sales salaries expense $56,230
Advertising expense 10,860
Depr. Expensestore equipment 3,100
Miscellaneous selling expense 630
Total selling expenses $ 70,820
Administrative expenses:
Office salaries expense $21,020
Rent expense 8,100
Depr. expenseoffice equipment 2,490
Insurance expense 1,910
Office supplies expense 610
Misc. administrative expense 760
Total admin. expenses 34,890
Total operating expenses 105,710
Income from operations $ 77,240


Continued
Other income and expenses:
Rent revenue $ 600
Interest expense (2,440) (1,840)
Net income $75,400

Concluded
Single-Step Income
Statement for a
Merchandising
Business
Revenues:
Net sales $708,255
Rent revenue 600
Total revenues $708,855
Expenses:
Cost of merchandise sold $525,305
Selling expenses 70,820
Administrative expenses 34,890
Interest expense 2,440
Total expenses 633,455
Net income $ 75,400
NetSolutions
Income Statement
For the Year Ended December 31, 2007
Statement of
Owners Equity for
a Merchandising
Business
Chris Clark, capital, 1/1/07 $153,800
Net income for year $75,400
Less withdrawals 18,000
Increase in owners equity 57,400
Chris Clark, capital, 12/31/07 $211,200

NetSolutions
Statement of Owners Equity
For the Year Ended December 31, 2007
Balance Sheet
Assets
Current assets:
Cash $52,950
Accounts receivable 91,080
Merchandise inventory 62,150
Office supplies 480
Prepaid insurance 2,650
Total current assets $209,310

NetSolutions
Balance Sheet
December 31, 2007
Continued
Property, plant, and equipment:
Land $20,000
Store equipment $27,100
Less accumulated
depreciation 5,700 21,400
Office equipment $15,570
Less accumulated
depreciation 4,720 10,850
Total property, plant, and
equipment 52,250
Total assets $261,560

Continued
Liabilities
Current liabilities:
Accounts payable $22,420
Note payable (current portion) 5,000
Salaries payable 1,140
Unearned rent 1,800
Total current liabilities $ 30,360
Long-term liabilities:
Note payable (due 2017) 20,000
Total liabilities $ 50,360
Owners Equity
Chris Clark, capital 211,200
Total liabilities and owners equity $261,560
Concluded
AKUNTANSI UNTUK PERSEDIAAN
BARANG DAGANGAN
Sistem
Periodik
Sistem
Perpetual
Dibuat account Persediaan BD
yang mengikuti perubahan
barang di gudang
Persediaan BD
500
5,000
1,000
Account Persediaan BD hanya
berubah pada akhir periode
Periodic vs. Perpetual Methods of
Accounting
Periodic Method
COGS dan Persed BD dihitung pada setiap Akhir
Periode
Perkiraan Persediaan BD tidak memperlihatkan
saldo yang sebenarnya setiap saat
Sistem Periodik
Saat beli, harga beli persediaan dicatat
di rekening Pembelian
Pada waktu menjual harga pokok
barang yang dijual tak dicatat dalam
akuntansi
Catatan mengenai persediaan tak sesuai dengan
persediaan yang ada di gudang, oleh karena itu
perlu penyesuaian setiap akhir periode
Sistem Periodik
Menghasilkan Informasi besarnya nilai
kegiatan
Pembelian BD
Retur Pembelian
Ongkos Angkut
Pembelian
Pembelian BD
Retur Pembelian
Ongkos Angkut
xx
xx
xx
Diskon Pembelian
Diskon Pembelian
xx
Setiap transaksi yang mempengaruhi persediaan
BD akan dicatat dalam perkiraan Persediaan BD
Jumlah COGS dan Barang tersedia dijual akan
selalu terlihat dalam catatan
Periodic vs. Perpetual Methods of
Accounting
Perpetual Method
SISTEM PERPETUAL
Analisis atas transaksi melihat arus persediaan
Transaksi
Membeli barang dagangan tunai $5,000
Bagaimana Pengaruhnya ?
1. Persediaan Bertambah $5,000
2. Kas Berkurang $5,000
Persediaan BD
500
5,000
Kas
5,000
Sistem Perpetual
Setiap transaksi yang mempengaruhi
Persediaan BD dicatat ke Perkiraan
Persediaan BD
Pembelian BD
Diskon Pembelian
Ongkos Angkut
Pembelian
Merchandise Inventory
xx xx
xx
Retur Pembelian
xx
Sales Transactions
JOURNAL
Date Description
Post.
Ref.
Dr Cr.
1
2
3
4
PAGE 26
5
Jan. 3 Cash 1 800 00
2007
Sales 1 800 00
To record cash sales.
On January 3, a firm sold $1,800
of merchandise for cash.
Cash Sales
Cash Sales
Using a perpetual inventory, the inventory
cost of $1,280 must be recorded.
6
7
8
9
3 Cost of Merchandise Sold 1 280 00
Merchandise Inventory 1 280 00
To record the cost of
merchandise sold.
10
Credit card sales (MasterCard or
Visa) are recorded as cash sales.
At the end of the month, $48 was
sent to cover this service charge.
JOURNAL
Date Description
Post.
Ref.
Dr Cr.
1
2
3
4
PAGE 28
5
Cash 48 00
Jan. 31 Credit Card Expense 48 00
2007
Cash Sales
To record service charges
on credit card sales for the
month.
Jan. 12 Accounts ReceivableSims Co. 510 00
Invoice No. 7172.
Sales 510 00
12 Cost of Merchandise Sold 280 00
Merchandise Inventory 280 00
Cost of merchandise sold
on Invoice No. 7172.
Sales on Account
On January 12, a firm sold Sims Company
merchandise on account, $510. The cost of
the merchandise to the seller was $280.
Sales Discounts
The terms for when payments for
merchandise are to be made are
called credit terms.
If buyer is allowed an
amount of time to pay, it is
known as the credit period.
If invoice is
paid within
10 days of
invoice date
Sales Discounts
Credit Terms
Invoice for
$1,500
Terms:
2/10, n/30
$1,470 paid (less
2% as a cash
discount)
If invoice is
NOT paid
within 10
days of
invoice date
Sales Discounts
Credit Terms
Invoice for
$1,500
Terms:
2/10, n/30
$1,500 PAID
2/10,n30
3 4 5 6 7 8 9 10 11 12 13 14
Tgl jual beli
2
Desember
Dapat discount
Tak Dapat
discount
Sales Discounts
On January 21, the firm receives the
amount due from Sims (refer to Slide
25), less the 2 percent discount.
Jan. 21 Cash 499 80
Accounts ReceivableSims Co. 510 00
Sales Discounts 10 20
Collection of Invoice
No. 7172, less discount.
Sales Returns and Allowances
Merchandise that is returned to the
vendor is referred to as a sales return.
If there is a defect in the product or the
wrong item was shipped, the seller
may reduce the initial price at which
the goods were sold. This is known as
a sales allowance.
Jan. 13 Sales Returns and Allowances 225 00
Credit Memo No. 32.
Accounts ReceivableKrier Co. 225 00
13 Merchandise Inventory 140 00
Cost of Merchandise Sold 140 00
Cost of merchandise
returnedCredit Memo 32.
Sales Returns and Allowances
On January 13, issued Credit Memo 32 to Krier
Company for merchandise returned to NetSolutions.
Selling price, $225; cost to NetSolutions, $140.
Purchase
Transactions
Date Description
Post.
Ref.
Dr Cr.
1
2
3
4
5
Jan. 3 Merchandise Inventory 2 510 00
2007
Cash 2 510 00
Purchased inventory from
Bowen Co.
Purchase Transactions
On January 3, Purchased merchandise
for cash from Bowen Company, $2,510.
Whats the last
day the invoice
can be paid?
Purchase Discounts
Alpha Technologies
issues an invoice for
$3,000 to
NetSolutions dated
March 12, with terms
2/10, n/30.
Invoice period 30
Days in March 31
Date of invoice 12
Remaining days 19
April 11
Lets do a simple
calculation.
The full amount is
due on April 11.
Purchase Discounts
We can borrow at an annual interest rate of
6%. Should we borrow to pay the invoice
within the discount period?
Purchase Discounts
$60 discount
(2% x
$3,000)?
Discount $60.00
Interest for 20 days
at the rate of 6%
on $2,940 9.80
Savings from
borrowing $50.20
Lets see Interest on the
amount due of $3,000 less
the 2 percent
Purchase Discounts
Looks like we should take
advantage of the discount even if we
have to borrow the money.
Purchase Discounts
Discount $60.00
Interest for 20 days
at the rate of 6%
on $2,940 9.80
Savings from
borrowing $50.20
JOURNAL
Date Description
Post.
Ref.
Dr Cr.
1
2
3
4
PAGE 27
5
On March 12, NetSolutions purchased
merchandise on account from Alpha
Technologies, $3,000.
Mar. 12 Merchandise Inventory 3 000 00
2007
Accounts PayableAlpha
Technologies 3 000 00
Purchase Discounts
JOURNAL
Date Description
Post.
Ref.
Dr Cr.
1
2
3
4
PAGE 27
5
If payment is made by March 22 NetSolutions
records the discount as a reduction in cost.
Mar. 22 Accounts PayableAlpha Technol. 3 000 00
Cash 2 940 00
Merchandise Inventory 60 00

2007
Purchase Discounts
JOURNAL
Date Description
Post.
Ref.
Dr Cr.
1
2
3
4
PAGE 27
5
If NetSolutions does not pay the invoice until
April 11, it would pay the full amount.
Apr. 11 Accounts PayableAlpha Technol. 3 000 00
Cash 3 000 00


2007
Purchase Discounts
Purchases Returns and Allowances
A purchases return involves actually
returning merchandise that is
damaged or does not meet the
specifications of the order.
When the defective or incorrect
merchandise is kept by the buyer and
the vendor makes a price adjustment,
this is a purchases allowance.
NetSolutions received the
delivery from Maxim
Systems and determined that
$900 of the items were not
the merchandise ordered.
Debit memorandum #18 is
issued to Maxim Systems.
Purchases Returns and Allowances
You sent me the wrong interface cards.
Well send a debit memorandum with the
returned items.
Mar. 7 Accounts PayableMaxim Systems 900 00
Debit Memo No. 18
Merchandise Inventory 900 00
Purchases Returns and Allowances
Purchases Returns and Allowances
On May 2, NetSolutions purchased $5,000
of merchandise from Delta Data Link,
subject to terms 2/10, n/30.
May 2 Merchandise Inventory 5 000 00
Purchased merchandise.
Accounts PayableDelta Data 5 000 00
Purchases Returns and Allowances
On May 4, NetSolutions returns
$3,000 of the merchandise.
May 4 Accounts PayableDelta Data Links 3 000 00
Returned portion of
merchandise purchased.
Merchandise Inventory 3 000 00
Purchases Returns and Allowances
On May 12, NetSolutions pays the amount due.
May 12 Accounts PayableDelta Data Links 2 000 00
Paid invoice.
Cash 1 960 00
Merchandise Inventory 40 00
($5,000
$3,000) x
2%
Transportation
Costs
FOB Shipping Point
Buyer pays freight costs and debits
Merchandise I nventory
Fruit Express
Title passes to buyer as
shipment leaves
shipping point.
June 10 Merchandise Inventory 900 00
Purchased merchandise, terms
FOB shipping point.
Accounts PayableMagna Data 900 00
10 Merchandise Inventory 50 00
Cash 50 00
Paid shipping cost .
On June 10, NetSolutions buys merchandise from
Magna Data on account, $900, terms FOB shipping
point and pays the transportation cost of $50.
FOB Shipping Point
FOB Destination
Title passes to buyer
upon arrival at
destination.
Seller pays freight costs and debits
Transportation Out
Fruit Express
On June 15, NetSolutions sells merchandise to Kranz
Company on account, $700, terms FOB destination.
The cost of the merchandise sold is $480.
NetSolutions pays the transportation cost of $40.
FOB Destination
June 15 Accounts ReceivableKranz Co. 700 00
Sold merchandise, terms FOB
destination.
Sales 700 00
15 Cost of Merchandise Sold 480 00
Merchandise Inventory 480 00
Cost of sale of Kranz Co .
FOB Destination
June 15 Transportation Out 40 00
Cash 40 00
Paid shipping cost on
merchandise sold.
On June 15, NetSolutions sells merchandise to Kranz
Company on account, $700, terms FOB destination.
The cost of the merchandise sold is $480.
NetSolutions pays the transportation cost of $40.
Sales Taxes
On August 12, merchandise is sold on
account to Lemon Company, $100. The
state has a 6% sales tax.
Aug. 12 Accounts ReceivableLemon Co. 106 00
Sales 100 00
Sales Taxes Payable 6 00
Invoice No. 339
Sales Taxes
On September 15, the seller sends in a
payment of $2,900 to the taxing unit for
the August taxes collected.
Sept.15 Sales Tax Payable 2 900 00
Cash 2 900 00
Payment for sales taxes
collected during August.
Illustration of Accounting for
Merchandise Transactions
July 1. Scully Company sold merchandise on account
to Burton Co., $7,500, terms FOB shipping point, n/45.
The cost of the merchandise sold was $4,500.
Scully Company (Seller)
Accounts ReceivableBurton Co. 7,500
Sales 7,500

Cost of Merchandise Sold 4,500
Merchandise Inventory 4,500
Burton Company (Buyer)
Merchandise Inventory. 7,500
Accounts PayableScully Co. 7,500
Illustration of Accounting for
Merchandise Transactions
Scully Company (Seller)
No entry.
Burton Company (Buyer)
Merchandise Inventory 150
Cash 150
July 2. Burton Company paid transportation charges of
$150 on July 1 purchase from Scully Company.
Illustration of Accounting for
Merchandise Transactions
July 5. Scully Company sold merchandise on account
to Burton Co., $5,000, terms FOB Destination, n/30.
The cost of the merchandise sold was $3,500.
Scully Company (Seller)
Accounts ReceivableBurton Co. 5,000
Sales 5,000

Cost of Merchandise Sold 3,500
Merchandise Inventory 3,500
Burton Company (Buyer)
Merchandise Inventory. 5,000
Accounts PayableScully Co. 5,000
Illustration of Accounting for
Merchandise Transactions
July 7. Scully Company paid transportation costs
of $250 for delivery of merchandise sold to
Burton Company on July 5.
Scully Company (Seller)
Transportation Out 250
Cash 250
Burton Company (Buyer)
No entry.
Illustration of Accounting for
Merchandise Transactions
July 13. Scully Company issued Burton Company a credit
memorandum for $1,000 of merchandise returned from a July 5
purchase on account. The cost of the merchandise was $700.
Scully Company (Seller)
Sales Returns and Allowances 1,000
Accounts ReceivableBurton Co. 1,000

Merchandise Inventory 700
Cost of Merchandise Sold 700
Burton Company (Buyer)
Accounts PayableScully Co. 1,000
Merchandise Inventory 1,000
Illustration of Accounting for
Merchandise Transactions
July 15. Scully Company received payment
from Burton Company for purchase of July 5.
Scully Company (Seller)
Cash 4,000
Accounts ReceivableBurton Co. 4,000
Burton Company (Buyer)
Accounts PayableScully Co. 4,000
Cash 4,000
Illustration of Accounting for
Merchandise Transactions
July 18. Scully Company sold merchandise on account to Burton
Company, $12,000, terms FOB shipping point, 2/10, n/eom. Scully
prepaid transportation costs of $500, which were added to the
invoice. The cost of the merchandise sold was $7,200.
Scully Company (Seller)
Accounts ReceivableBurton Co. 12,000
Sales 12,000

Accounts ReceivableBurton Co. 500
Cash 500
Burton Company (Buyer)
Merchandise Inventory 12,500
Accounts PayableScully Co. 12,500
Illustration of Accounting for
Merchandise Transactions
July 18. Scully Company sold merchandise on account to Burton
Company, $12,000, terms FOB shipping point, 2/10, n/eom. Scully
prepaid transportation costs of $500, which were added to the
invoice. The cost of the merchandise sold was $7,200.
Continued (Seller)
Cost of Merchandise Sold 7,200
Merchandise Inventory 7,200



Burton Company (Buyer)
Illustration of Accounting for
Merchandise Transactions
July 28. Scully Company received payment
from Burton Company for purchase of July
18, less discount (2% x $12,000).
Scully Company (Seller)
Cash 12,260
Sales Discounts 240
Accounts ReceivableBurton Co. 12,500
Burton Company (Buyer)
Accounts PayableScully Co. 12,500
Merchandise Inventory 240
Cash 12,260
Balance Sheet Accounts

200 Liabilities
210 Accounts Payable
211 Salaries Payable
212 Unearned Rent
215 Notes Payable

300 Owners Equity
310 Chris Clark, Capital
311 Chris Clark, Drawing
312 Income Summary
100 Assets
110 Cash
112 Accounts Receivable
115 Merchandise Inventory
116 Office Supplies
117 Prepaid Insurance
120 Land
123 Store Equipment
124 Accumulated Depreciation
Store Equipment
125 Office Equipment
126 Accumulated Depreciation
Office Equipment
NetSolutions
Chart of Accounts
Income Statement Accounts
600 Other Income
610 Rent Revenue
700 Other Expense
710 Interest Expense
400 Revenues
410 Sales
411 Sales Returns and
Allowances
412 Sales Discounts
500 Costs and Expenses
510 Cost of Merchandise Sold
520 Sales Salaries Expense
521 Advertising Expense
522 Depreciation Expense
Store Equipment
523 Transportation Out
529 Miscellaneous Selling Expense
530 Office Salaries Expense
531 Rent Expense
532 Depreciation Expense
Office Equipment
533 Insurance Expense
534 Office Supplies Expense
539 Miscellaneous Admin. Expense

NetSolutions
Chart of Accounts
Merchandise Inventory
Shrinkage
NetSolutions inventory
records indicate that
$63,950 of merchandise
should be available for sale
on December 31, 2007.
The physical count reveals
that only $62,150 is
actually available.
Merchandise Inventory
Shrinkage
Dec. 31 Cost of Merchandise Sold 1 800 00
Merchandise Inventory 1 800 00
Adjusting Entry
Inventory records $63,950
Inventory count 62,150
Inventory shortage $ 1,800
Profitability Measures -- Effective Use of Assets
Ratio of Net Sales to Assets
Sears Penney
Net sales $41,366,000 $31,846,000
Total assets:
Beginning of year $50,409,000 $19,742,000
End of year $44,317,000 $20,908,000
Average $47,363,000 $20,325,000

Ratio of net sales to assets .87 to 1 1.57 to 1
Ratio Use: To assess the effectiveness in the
use of assets to generate sales.
The End
Chapter 6