5- 1 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. Chapter 5 Accounting for Merchandising Operations

5- 2 Service organizations sell time to earn revenue. Examples: Accounting firms, law firms, and plumbing services Service organizations sell time to earn revenue. Examples: Accounting firms, law firms, and plumbing services Service Companies C 1

5- 3 ManufacturerWholesalerRetailerConsumers Merchandising Companies Merchandiser C 1

5- 4 C 1 Reporting Income for a Merchandiser products Merchandising companies sell products to earn revenue. Examples: sporting goods, clothing, and auto parts stores

5- 5 Operating Cycle for a Merchandiser Begins with the purchase of merchandise and ends with the collection of cash from the sale of merchandise. C 2

5- 6 Inventory Systems C 2

5- 7  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 C 2 Inventory Systems

5- 8 Merchandise Purchases On November 2, Z-Mart purchased $1,200 of merchandise inventory for cash. P1

5- 9 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. 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. P1

5- 10 P1 Accounting for Merchandise Purchases

5- 11 Purchase Discounts A deduction from the invoice price granted to induce early payment of the amount due. A deduction from the invoice price granted to induce early payment of the amount due. P1

5- 122/10,n/302/10,n/30 Discount Percent Number of Days Discount Is Available Otherwise, Net (or All) Is Due in 30 Days Credit Period Purchase Discounts P1

5- 13 On November 2, Z-Mart purchased $1,200 of merchandise inventory on account, credit terms are 2/10, n/30. On November 2, Z-Mart purchased $1,200 of merchandise inventory on account, credit terms are 2/10, n/30. Purchase Discounts P1

5- 14 On November 12, Z-Mart paid the amount due on the purchase of November 2. On November 12, Z-Mart paid the amount due on the purchase of November 2. Purchase Discounts P1

5- 15 Purchase Discounts After we post these entries, the accounts involved look like these: After we post these entries, the accounts involved look like these: P1

5- 16 Purchase Returns and Allowances Purchase Return... Merchandise returned by the purchaser to the supplier. 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. A reduction in the cost of defective or unacceptable merchandise received by a purchaser from a supplier. Purchase Return... Merchandise returned by the purchaser to the supplier. 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. A reduction in the cost of defective or unacceptable merchandise received by a purchaser from a supplier. P1