10.1 Accounting for a Merchandising Business

What is a Merchandising Business? A business that buys goods and sells for a profit Examples in Preston?

There are different categories of merchandising business: A. Wholesaler: Buy goods from manufacturer and resells to retailers or consumers. Example: Costco B. Retailer: Buys from wholesaler and resells to consumers example: The Gap

What is Merchandise Inventory? The quantity of merchandise on hand Current Assets Debit Balance

$120,000 available goods to sell $25,000 not sold & on hand $95,000 sold during fiscal period EXAMPLE: Balance sheet: current asset (Merchandise inventory) Physical count of inventory  accuracy  lost, theft, damaged, returns Income Statement  cost of goods sold (COGS)

2 Types of Inventory i. Periodic- When inventory is updated at regular intervals (eg. Daily, monthly, annually) ii. Perpetual- When inventory is updated after each sale Many Businesses use combination of both

11.2 Four Accounts affecting a Merchandising Business: 1. Merchandise Inventory: Current Assets represent beginning inventory for current period (what’s left over from last period) Adjusted at year-end to equal updated physical count “DR” balance  valued at cost price

2.Purchases  Used to record merchandise purchased for resale  O.E. account; considered an expense  Cost to Company (DR)  Part of COGS section Eg. PurchasesXXX HST RecoverableXXX Bank or A/PXXX

3. Sales:  Revenue account for merchandising business  To record sale to customer Bank or A/RXXX Revenue (sales)XXX HST PayableXXX

4. Freight-in  Transportation charges on incoming goods for resale (expense  cost  DR)  FOB: FREE ON BOARD destination (seller pays transportation charges) destination or FOB shipping (buyer pays transportation charges)  Eg. Freight-inXXX Bank or A/PXXX

Cost of Goods Sold Beginning Inventory, Jan. 1 +Purchases + Freight-in Cost of goods Available for Sale - less inventory, December 31 Cost of Goods Sold

1. Complete the following chart on cost of goods sold Beginning Inventory PurchasesEnding Inventory Cost of Goods Sold a)$ 7 000$ 5 000$ b) c) d) e) =

2. Calculate the COGS for the Following: Black’s tablet shop has tablets at a cost price of $100 each in the inventory of January 1. During the year, tablets are purchased. As of December 31, there are tablets on hand COGS Beginning Inventory, Jan. 1 $ (1700x100) +Purchases (5500x100) +Freight-in 0 Cost of Goods Avail for Sale ending Inventory (1400x100) Cost of Goods Sold

Complete the following Exercises: I. Handout with exercises #3 & 4 II. Ex. 1 p. 402 (t), p (w) III. Ex. 1 p (t), p. 329 (w) IV. Ex. 2 & 3 p (t), p. 330 (w) V. Extra Ex. 5 p. 403 (t), p. 327 (w)