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©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Accounting for Merchandising Businesses Chapter 4

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Learning Objectives After studying this chapter, you should be able to: Distinguish the activities and financial statements of a service business from those of a merchandising business. Describe and illustrate the financial statements of a merchandising business. Describe the accounting for the sale of merchandise. Describe the accounting for the purchase of merchandise. Describe the accounting for freight and sales taxes. Illustrate the dual nature of merchandising transactions. Describe the accounting for merchandise shrinkage.

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Learning Objective 1 Distinguish the activities and financial statements of a service business from those of a merchandising business

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Service Businesses vs. Merchandise Operations Merchandise Operations Revenue activities involve the buying and selling of merchandise. Example: Home Depot Inc. Service Businesses Revenue activities involve providing services to customers. Example: Family Health Care, P.C.

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Gross Profit for a Merchandise Operation Gross Profit = Net Sales – COGS Net Sales: revenue less returns and discounts Cost of Goods Sold: cost paid for merchandise

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Learning Objective 2 Describe and illustrate the financial statements of a merchandising business

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. TechUSA – Multiple-Step Income Statement Considers customer returns and discounts Assume a perpetual inventory system Measures income/loss from the core operations of the business Exhibit 1: Multiple- Step Income Statement

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. TechUSA – Cost of Merchandise Sold – Periodic Inventory Exhibit 2: Cost of Merchandise Sold

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. TechUSA – Income Statement Exhibit 3: Single-Step Income Statement

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. TechUSA – Retained Earnings Statement Exhibit 4: Retained Earnings Statement for Merchandising Business

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. TechUSA – Balance Sheet Value of units on hand, not sold Exhibit 5: Report form of Balance Sheet

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. TechUSA – Statement of Cash Flows Equals cash on balance sheet Exhibit 6: Statement of Cash flows for Merchandising Business

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Learning Objective 3 Describe the accounting for the sale of merchandise

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. TechUSA - Sales Transactions Sales Revenue Cost of Merchandise Sold

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Sample Sales Invoice Credit terms Exhibit 8: Invoice

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Sales Discounts

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. TechUSA - Sales Discounts Sales Discounts

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Sales Returns and Allowances

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. TechUSA - Sales Returns and Allowances