Merchandising Business: Financial Statements

Cost of Goods Sold Merchandising businesses have the extra cost of inventory compared to service businesses This is an Income Statement amount called “Cost of Goods Sold” aka “COGS”

Balance Sheet

The Inventory Cycle The goal is to sell inventory quickly thus inventory moves in and out of the business frequently SO… 1) There is inventory to begin the accounting period with. 2) Merchandise is sold and moves out throughout the inventory period. 3) Merchandise is replaced by the purchase of new stock from time to time. 4) The ending inventory should be more or less the same as the beginning inventory.

Merchandise Inventory COGS is an expense account so it goes on the Income Statement Formula to calculate the COGS figure Cost of Beg. Inv + Cost of Net Purchases + Freight - Cost of Ending inventory = Cost of Goods sold

Income Statement

1) The C.O.G.S. is considered to be so significant that the statement is prepared in 2 stages. 2) The first stage determines the gross profit. profit is the difference between the selling price and the cost price of the goods sold. It can also been seen as the profit figure before deducting expenses. 3) The C.O.G.S. is shown on the income statement. 4) The expense section is now called OPERATING EXPENSES.

Questions: CASE 1 & 2 on Page 353 (On Word) Prepare an Income Statement in excel with the following accounts (Mustang Market, For the year ended Dec 31) – PERIODIC: T-Shirt Sales $ , Sweatshirt Sales $ , Beginning Inventory $45 000, Ending Inventory $32 000, Utilities Expense $1 365, Wages Expense $32, 000 Purchases $ , Freight In $1 050, Miscellaneous Expense $ 2 000, Purchase Returns $12 500, Delivery Expense $3 200, Purchase Returns & Allowances $3 450, Sales Returns & Allowances $2 500 – PERPETUAL: T-Shirt Sales $ , Sweatshirt Sales $ , Cost of Goods Sold $ , Utilities Expense $1 365, Wages Expense $32, 000 Purchases $ , Freight In $1 050, Miscellaneous Expense $ 2 000, Purchase Returns $12 500, Delivery Expense $3 200, Purchase Returns & Allowances $3 450, Sales Returns & Allowances $2 500