Merchandising Operations

1
Merchandising Operations
AGRICULUTURAL TECHNICAL INSTITUTEBUS TEC T101
ACCOUNTING

• Chapter 5

Part 3
Merchandising Adjustments Closing
2
Five Categories Of Adjusting Entries
Adjust Close Accounts Of Merchandising Business
97
3
OBJ
I. Prepaids or Deferrals
A. Prepaid expenses
B. Accrued revenues
C. Depreciation
Cash paid first and expensed later
II.Accruals
E. Unearned revenues
D. Accrued expenses
Expensed first and Cash paid later
3
Adjust Close Accounts Of Merchandising Business
199
3
OBJ
Adjusting Entries- I. Pre-Pd/Deferrals
SERVICE FIRM
MERCHANDISE FIRM
A. Pre-Pd Exp
A. Pre-Pd Exp
Rent Exp 500 Pre-Pd Rent 500
Rent Exp 500 Pre-Pd Rent 500
B. Accrued Revenues
B. Accrued Revenues
Acct Rec 600 Serv Rev 600
Acct Rec 600 Serv Rev 600
C. Depreciation
C. Depreciation
Deprec Exp 400 Accum Dep 400
Deprec Exp 400 Accum Dep 400
4
Adjust Close Accounts Of Merchandising Business
199
3
OBJ
Adjusting Entries- II. Accruals
SERVICE FIRM
MERCHANDISE FIRM
D. Accrued Exp
D. Accrued Exp
Wage Exp 900 Wages Pay 900
Wage Exp 900 Wages Pay 900
E. Unearned Rev
E. Unearned Rev
Cash 60 Unearn Ser Rev 60
Cash 60 Unearn Ser Rev 60
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Merchandising Adj For Inventory
Adjust Close Accounts Of Merchandising Business
196
3
OBJ
Periodic Physical Count 252,500
2,500 difference
Perpetual Inventory Balance 255,000
Shop Lifting
Employee Theft
December 31 Cost of Goods Sold
2,500 Inventory
2,500 To adjust inventory to physical count
6
Adjust Close Accounts Of Merchandising Business
199
3
OBJ
Adjusting Entries- II. Accruals
SERVICE FIRM
MERCHANDISE FIRM
D. Accrued Exp
D. Accrued Exp
Wage Exp 500 Wages Pay 500
Wage Exp 500 Wages Pay 500
E. Unearned Rev
E. Unearned Rev
Cash 60 Unearn Ser Rev 60
Cash 60 Unearn Ser Rev 60
F. Missing Merchandise
COGS Exp 800 Inventory 800
7
Adjust Close Accounts Of Merchandising Business
199
3
OBJ
Closing Entries
SERVICE FIRM
MERCHANDISE FIRM
Step 1 Close Rev Accts to Income Summary
Serv Rev -gt Inc Sum
Sales Rev -gt Inc Sum
Sales Revenue 5000 Income Summary
5000
Income Summary
Sales Revenues
5000 (Rev-Adj)
5000 (NB)
(Rev Adj) 5000
8
Adjust Close Accounts Of Merchandising Business
199
3
OBJ
Closing Entries
SERVICE FIRM
MERCHANDISE FIRM
Step 2 Close Exp Accts to Income Summary
Supplies Expense
Supplies Expense
Utilities Expense
Utilities Expense
Sales Discount
Income Sum 3000
Sales Ret Allow
Exp Acct 300
Cost of Gds Sold
Exp Acct xxx
Exp Acct xxx
Income Summary
Expense Accts
(Exp Adj) 3000
5000 (Rev-Adj)
NB
300 (Exp Adj)
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Adjust Close Accounts Of Merchandising Business
199
3
OBJ
Closing Entries
SERVICE FIRM
MERCHANDISE FIRM
Step 3 Close Income Summary to Capital(Move
Profits from Inc Sum to Capital)
Income Sum 2000
Income Sum 2000
Capital 2000
Capital 2000
Income Summary
Capital
3000 (BC)
5000 (Rev-Adj)
(Exp Adj) 3000
2000 (NI Adj)
(NI Adj) 2000
10
Adjust Close Accounts Of Merchandising Business
199
3
OBJ
Closing Entries
SERVICE FIRM
MERCHANDISE FIRM
Step 4 Close Withdraw to Capital
Capital 1000
Capital 1000
Withdraw 1000
Withdraw 1000
Withdraw
1000
1000
Income Summary
Capital
(WD) 1000
5000 (Rev-Adj)
(Exp Adj) 3000
3000 (BC)
2000 (NI Adj)
(NI Adj) 2000
11
Adjust Close Accounts Of Merchandising Business
199
3
OBJ
Closing Entries
SERVICE FIRM
MERCHANDISE FIRM
Major Difference
In addition to other expenses, a merchandising
firm will have
Sales Discount
Sales Ret Allow
Cost of Gds Sold
12
198
3
Close rev, exp, withdrawal accts
OBJ
Step 1 Close Sales Oth Revenue to Inc Sum
Before
Adjusted Trial Balance
Account Title Dr. Cr.
Cash Accounts receivable Inventory Accounts
payable Salary payable Capital Withdrawals Sales
RevenueSales Discounts Sales Ret All Cost of
Gds Sold Supplies expense Depreciation
exp Totals
Sales Rev
Inc Sum
7260
11,700 3,050 1500 1500 228 326 1,4 90 100 200
1,550 1,200 15,000 7,260
Sales Revenue
7260
Inc Sum
7260
After
Sales Rev
Inc Sum
7260
7260
7260
0
13
198
Close rev, exp, withdrawal accts
3
OBJ
Step 1 Close Sales Oth Revenue to Inc Sum
General Journal
Sales Revenue
7260
Step 1
Inc Sum
7260
14
198
3
Close rev, exp, withdrawal accts
OBJ
Step 2 Close Merch Oth Exp to Inc Sum
Before
Inc Sum
COGS
Adjusted Trial Balance
Account Title Dr. Cr.
Cash Accounts receivable Inventory Accounts
payable Salary payable Capital Withdrawals Sales
RevenueSales Discounts Sales Ret All Cost of
Gds Sold Supplies expense Depreciation
exp Totals
7260
1490
11,700 3,050 1500 1500 228 326 1,4 90 100 200
Inc Sum
2344
1490
COGS
1,550 1,200 15,000 7,260
228
Sales Disc
326
Sales RA
Other Exp
300
After
COGS
Inc Sum
7260
2344
1490
1490
0
15
198
Close rev, exp, withdrawal accts
3
OBJ
General Journal
Sales Revenue
7260
Step 1
Income Summary
7260
Step 2 Close Merch Expenses Oth Exp to Inc Sum
2344
Income Sum
Cost Of Goods Sold
1490
Sales Discount
228
326
Sales Ret Allow
Supplies Expense
100
Depreciation Exp
200
16
198
3
Close rev, exp, withdrawal accts
OBJ
Step 3 Close Income Summary to Capital
Before
Adjusted Trial Balance
Account Title Dr. Cr.
Cash Accounts receivable Inventory Accounts
payable Salary payable Capital Withdrawals Sales
RevenueSales Discounts Sales Ret All Cost of
Gds Sold Supplies expense Depreciation
exp Totals
Capital
Inc Sum
15,000
7260
2344
11,700 3,050 1500 1500 228 326 1,4 90 100 200
1,550 1,200 15,000 7,260
Inc Sum
4916
4916
Capital
After
Capital
Inc Sum
15,000
7260
2344
4916
4,916
19,916
7260
7260
17
198
Close rev, exp, withdrawal accts
3
OBJ
General Journal
Sales Revenue
7260
Step 1
Income Summary
7260
Step 2
Income Summary
2344
Cost Of Goods Sold
1490
Sales Discount
228
326
Sales Ret Allow
Supplies Expense
100
Depreciation Exp
200
Step 3 Close Income Summary to Capital
Income Summary
4916
Name, Capital
4916
18
198
3
Close rev, exp, withdrawal accts
OBJ
Step 4 Close Withdraws to Capital
Before
Adjusted Trial Balance
Account Title Dr. Cr.
Cash Accounts receivable Inventory Accounts
payable Salary payable Capital Withdrawals Sales
RevenueSales Discounts Sales Ret All Cost of
Gds Sold Supplies expense Depreciation
exp Totals
Withdraw
Capital
15,000
1500
11,700 3,050 1500 1500 228 326 1,4 90 100 200
4,916
19,916
1,550 1,200 15,000 7,260
1500
Capital
1500
Withdraw
After
Withdraw
Capital
1500
1500
15,000
4,916
19,916
1500
18,416
19
198
Close rev, exp, withdrawal accts
3
OBJ
General Journal
Sales Revenue
7260
Step 1
Income Summary
7260
Step 2
Income Summary
2344
Cost Of Goods Sold
1490
Sales Discount
228
326
Sales Ret Allow
Supplies Expense
100
Depreciation Exp
200
Step 3
Income Summary
4916
Name, Capital
4916
Step 4 Close Withdraws to Capital
1500
Capital
1500
Withdraw
20
Multi-Step Format
Prepare A Merchandisers Financial Statements.
201
4
OBJ
Sporting Store Income Statement Year Ended
December 31, 2002
Sales revenue 2,760,000 Less Sales
discounts 22,824 Ret
allowances 32,605 Net sales
revenue 2,704,571 Cost of goods
sold 1,490,400 Gross margin/profit 1,21
4,171
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Multi-Step Format
Prepare A Merchandisers Financial Statements.
201
4
OBJ
Gross margin 1,214,171 Operating
expenses Wage expense 166,285
Rent expense 137,000 Insurance
expense 16,302 Depreciation
expense 9,781 Supplies
expense 8,151 Operating
income 876,652
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Multi-Step Format
Prepare A Merchandisers Financial Statements.
182
4
OBJ
Operating income 876,652 Other revenue
and expenses Interest revenue
7,348 Interest expense 1,000 Net
income 883,000
Advantage Separates Operational Profits from
Profits resulting from other Operations
23
The Classified Balance Sheet
201
4
Classify Assets Liabilities
OBJ
Balance Sheet XYZ Merchandiser As of January 31,
20XX
Assets

Liabilities Current assets
Current
liabilities Cash 12,100 Accounts
payable 1,200 Accounts
receivable 3,050 Salary payable
1,100 INVENTORY 75 Unearned
revenue 1,500 Supplies 75
Total current assets 15,300
Total liabilities 3,800 Plant assets
Long Term Liabilities Equipment 15,500
Owners equity Less Accum. deprec.
7,700 7,800 Capital 19,300

Total liabilities and Total
assets 23,100 owners equity 23,100
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Computing the Cost of Goods Sold in a Periodic
System
6
188
OBJ
Beginning inventory
Purchases of inventory
Purchases discounts
- Purc Returns allowances
Net purchases
Net purchases
Freight-in
Cost of goods available for sale
Ending inventory
Cost of goods actually sold
25
Computing the Cost of Goods Sold in a Periodic
System
188
6
OBJ
Computing the Cost of Goods Sold in a Periodic
System
Beginning Inventory 20,000
Ending Inventory 15,000
Cost of Goods Available for Sale 121,000
Cost of Goods Sold 106,000
Purchases and Freight-In 101,000
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SUMMARY
CH 5 MERCHANDISE OPERATIONS