1. ©2014 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

2. ©2014 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 (Continued…)

3. ©2014 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: Describe the accounting for freight and sales taxes Illustrate the dual nature of merchandising transactions Describe the accounting for merchandise shrinkage Financial Analysis: Describe and illustrate the gross profit percent, average markup percent, and ratio of sales to assets in assessing a company’s financial performance

4. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Distinguish the activities and financial statements of a service business from those of a merchandising business Learning Objective 1

5. ©2014 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 _____ and ____ of merchandise Example: Home Depot Inc. Service Businesses Revenue activities involve providing _____ to customers Example: Family Health Care, P.C.

6. ©2014 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 Service Business __________$XXX Operating exp. −XXX Net income$XXX Merchandising Business _________ $XXX _________ −XXX Gross profit XXX Operating expenses −XXX Net income XXX

7. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Describe and illustrate the financial statements of a merchandising business Learning Objective 2

8. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Multiple-Step Income Statement Considers customer returns and discounts Assume a _____ inventory system Measures ____/____ from the core operations of the business Measures ____/____ from the core operations of the business

9. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Cost of Merchandise Sold – Periodic Inventory

10. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Income Statement

11. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Retained Earnings Statement

12. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Balance Sheet Value of _____ ___ ____, not sold Value of _____ ___ ____, not sold

13. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Statement of Cash Flows Equals cash on ____ ____

14. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Integrated Financial Statements

15. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Describe the accounting for the sale of merchandise Learning Objective 3

16. ©2014 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 Transactions Assume that on January 3, TechUSA sells merchandise for $1,800 that cost $1,200 ____ _____ ____ _____ ____ __ ____ ____

17. ©2014 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 ____________

18. ©2014 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

19. ©2014 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 Assume that cash is received within the discount period on June 13 from the credit sale of $1,500 Sales Discounts

20. ©2014 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

21. ©2014 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 Assume that the cost of the merchandise returned in the preceding credit memorandum was $140

22. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Describe the accounting for the purchase of merchandise Learning Objective 4

23. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Purchase Transaction - Using the Perpetual System

24. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Purchases Discounts Purchase Discounts

25. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Purchases Returns and Allowances

26. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Return of Merchandise

27. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Describe the accounting for freight and sales taxes Learning Objective 5

28. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Freight

29. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Freight Assume that on December 10, TechUSA buys merchandise from Magna Data on account, $900, terms FOB shipping point, and pays the freight cost of $50

30. ©2014 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 Taxes When sale is made, liability for sales tax is recorded as an _____ by the seller Payment is made to state taxing authority to satisfy _____

31. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Illustrate the dual nature of merchandising transactions Learning Objective 6

32. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Dual Nature of Merchandise Transactions Company A records a ____ Company B records a ______

33. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Describe the accounting for merchandise shrinkage Learning Objective 7

34. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Merchandise Shrinkage

35. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Merchandise Shrinkage To illustrate, TechUSA’s inventory records indicate the following on December 31, 20Y7

36. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Financial Analysis: Describe and illustrate the gross profit percent, average markup percent, and ratio of sales to assets in assessing a company’s financial performance Learning Objective 8

37. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Financial Analysis Ratios useful in analyzing and assessing a company’s financial performance _____ _____ _____

38. ©2014 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 Percent Average Markup Percent Gross profit: sales less cost of merchandise sold Gross Profit Percent ____ _____ ____ = Average Markup Percent ____ _____ ____ __ ____ ____ =

39. ©2014 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 Percent Average Markup Percent Data (in millions) taken from two recent years financial statements of Walgreen Company

40. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Ratio of Sales to Assets Useful in assessing how efficiently a company generates sales from its assets Ratio of Sales to Assets ___ ____ _____ ___ _____ =

41. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. Ratio of Sales to Assets Data (in millions) taken from two recent years financial statements of Walgreen Company

42. ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publically accessible website, in whole or in part. End of Chapter 4