CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 4-2 Interim Departmental Statement of Gross Profit

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Interim Financial Statements GROSS Profit—Amount of revenue from Sales LESS the cost of goods sold Shows relationship between sales and sales price and merchandise inventory and the cost of merchandise inventory Reflects changes between COSTS and SELLING Prices 2 LESSON 4-2

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Interim Financial Statements Departmental Statement of Gross Profit Statement showing gross profit for EACH department. May show need to change: Selling price, supplier, product or delete dept. Statement is used to determine potential profit WAY TOO important to WAIT until end of fiscal period to analyze INTERIM or between terms or in the meantime 3 LESSON 4-2

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Inventory Methods Two methods to determine ACTUAL amounts of inventory on hand: PERIODIC Inventory—determined by actually COUNTING EVERY item in inventory Also called PHYSICAL inventory. Labor intensive!!! PERPETUAL Inventory—determined by continuously keeping records of increases, decreases, and balances on hand. Computerized!! Use barcodes and scanners with point of sale terminals or cash registers 4 LESSON 4-2

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Estimating Ending Inventory BEFORE you can complete the INTERIM Departmental Statement of Gross Profit: You must ESTIMATE the ENDING Inventory One method to estimate ending inventory is the “Gross Profit Method” Estimate inventory by using the previous year’s percentage (%) of gross profit on operations. Gross Profit Method of Estimating an Inventory 5 LESSON 4-2

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 6 LESSON List beginning inventory. 2.Determine net purchases. 3.Calculate merchandise for sale. 4.Determine net sales. 5.Calculate estimated gross profit. 6.Calculate the estimated cost of merchandise sold. 7.Calculate estimated ending inventory. ESTIMATING ENDING MERCHANDISE INVENTORY page Be careful!!

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 7 LESSON 4-2 INTERIM DEPARTMENTAL STATEMENT OF GROSS PROFIT page 95

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 8 LESSON The cost of merchandise sold percentage: 2.The gross profit margin percentage:.6076 or 60.8% = $42, $69, or 39.2% = $27, $69, COST OF MERCHANDISE SOLD AND GROSS PROFIT PERCENTAGES page

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Analyzing Interim Department Statements Component Percentage—The percentage relationship between one financial statement item and the TOTAL that includes that item. Every Dollar of Sales includes: Cost of merchandise sold (monthly) Gross profit on operations (monthly) Total operating expenses (END of period) Net income BEFORE federal income tax (END) 9 LESSON 4-2

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning TWO sources for determining ACCEPTABLE levels of performance: Historical records Industry comparisons 10 LESSON 4-2 Analyzing Interim Department Statements

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 11 LESSON 4-2 TERMS REVIEW gross profit departmental statement of gross profit periodic inventory perpetual inventory gross profit method of estimating an inventory component percentage page 97

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Audit Your Understanding 1.In addition to regular financial statements, what other reports does a departmentalized business prepare? 2.What are the two principal methods for determining amounts of merchandise on hand? 3.What are the three sections of a departmental statement of gross profit? 12 LESSON 4-2