Chpt 10.1 Merchandising Business Merchandising Business - ____________ ________________________________ Types: 1) ___________– buys goods from manufacturers and sells to retailers. 2) __________– buys goods from a wholesaler and sells them to the public (end consumer)

Merchandise Inventory The goods that are purchased for resale are called merchandise inventory Are these examples of merchandise inventory? New and used cars at a car dealership School busses at a school bus company Cereal at a grocery store Bobcat at a lumber company

Which Financial Statements Involve Inventory? ________________can be found on the: _______________ can be found on the: BALANCE SHEET (___________) INCOME STATEMENT (_______________)

Inventory on the Balance Sheet Merchandise Inventory is a current asset ______________________________. Chapter 10 – Accounting for a Merchandising Business | Accounting 1, 7th Edition

Inventory on the Income Statement • Appears twice in an important formula • The COST OF GOODS SOLD formula Chapter 10 – Accounting for a Merchandising Business | Accounting 1, 7th Edition

How to find the Cost of Goods Sold when using the Periodic System: ________________________ + - ____________________ _________________________ _____________________

Cost of Goods Sold Formula Chapter 10 – Accounting for a Merchandising Business | Accounting 1, 7th Edition

COGS on the Income Statement From a count From the ledger From addition From a count From subtraction • Calculating COGS this way requires a periodic count of inventory (The Periodic System) • Purchases is a ledger account for the purchase of inventory • Sales — Cost of Goods Sold = Gross Profit (Margin) Chapter 10 – Accounting for a Merchandising Business | Accounting 1, 7th Edition

Types of Inventory Systems: Periodic – used for Small Businesses ________________________of goods to determine: The amount of inventory on hand Cost of goods sold Perpetual – used for Large Businesses _________________________of: Cost of goods sold to date

Disadvantages of Periodic -need to take physical count of inventory __________________ _________________________________ -because the business owner doesn’t have timely, accurate information on inventory levels: There can easily be an __________________(which may lose customers) Items can be __________________(unnecessarily tying up cash) ***The former advantage to periodic was relative low cost, and ease of use, but technology have made perpetual affordable and practical for many businesses.