5- 1

Accounting for Merchandising

Operations
Chapter 5
PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W. Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA

Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

5- 2

C1

Reporting Income for a

Merchandiser
Merchandising companies sell products to
earn revenue.
Examples: sporting goods, clothing, and auto parts stores

5- 3

C2

Operating Cycle for

a Merchandiser
Begins with the purchase of merchandise and
ends with the collection of cash from the sale
of merchandise.

5- 4

C2

Inventory Systems

5- 5

C2

Inventory Systems

Perpetual systems
continually update
accounting records for
merchandising
transactions

Periodic systems
accounting records
relating to merchandise
transactions are updated
only at the end of the
accounting period

5- 6

P1

Trade Discounts
Used by manufacturers and wholesalers to
offer better prices for greater quantities
purchased.
Example
Z-Mart offers a 30% trade
discount for orders of 1,000
units or more on its popular
product Racer. Each
Racer has a list price of $5.25.

Quantity sold
Price per unit
Total
Less 30% discount
Invoice price

1,000
$ 5.25
5,250
(1,575)
$ 3,675

5- 7

P1

Accounting for Merchandise

Purchases

5- 8

P1

Purchase Discounts
A deduction from the invoice price granted
to induce early payment of the amount due.

5- 9

Purchase Discounts

P1

2/10,n/30
Discount
Percent

Number of
Days
Discount Is
Available

Otherwise,
Net (or All)
Is Due in 30
Days

Credit
Period

P1

Purchase Returns and

Allowances
Purchase Return . . .
Merchandise returned by the purchaser to the
supplier.

Purchase Allowance . . .
A reduction in the cost of defective or
unacceptable merchandise received by a
purchaser from a supplier.

5- 10

5- 11

P1

Transportation Costs and

Ownership Transfer

5- 12

P1

Accounting for Merchandise

P2

Accounting for Merchandise

Sales

5- 13

5- 14

P2

Sales of Merchandise
Each sales transaction for a seller of
merchandise involves two parts:

Revenue received in
the form of an asset
from a customer.

Recognition of the
cost of merchandise
sold to a customer.

5- 15

P2

Sales Discounts

Sales discounts on credit sales can benefit a seller by

decreasing the delay in receiving cash and reducing future
collection efforts.

5- 16

P2

Sales Returns and Allowances

Sales returns and allowances usually involve
dissatisfied customers and the possibility of
lost future sales.
Sales returns refer
to merchandise that
customers return to
the seller after a
sale.

Sales allowances
refer to reductions in
the selling price of
merchandise sold to
customers.

5- 17

P2

Merchandising Cost Flow in

the Accounting Cycle

5- 18

P3

Closing Entries for Merchandisers

5- 19

P4

A multiple-step
income
statement
format shows
detailed
computations
of net sales
and other
costs and
expenses, and
reports
subtotals for
various
classes of
items.

5- 20

P4

Single-Step Income Statement

5- 21

Classified Balance Sheet

Highly
Liquid

Less
Liquid

5- 22

End of Chapter 5