1. Chapter 8 Accounting for Merchandising Operations in Hospitality

2. 2 Differences Between a Service Enterprise and a Merchandising Company In a merchandising company, the primary source of revenues is the sale of merchandise, referred to as sales revenue or sales. Unlike expenses for a service company, expenses for a merchandising company are divided into two categories: –Cost of goods sold - the total cost of merchandise sold during the period. –Operating expenses - selling and administrative expenses.

3. 3 Terms Sales revenue or sales = sale of merchandise Cost of goods sold = total cost of merchandise sold

4. Income Statement Comparison Fees earned$150,000 Operating expenses120,000 Net income$ 30,000 Service Business Sales revenue$600,000 Cost of mdse. sold450,000 Gross profit$150,000 Operating expenses120,000 Net income$ 30,000 Merchandising Business

5. 5 Page 202 in book Sales Revenue Cost of Goods Sold Gross Profit Operating Expenses Net Income (Loss) Less Equals How Income is Measured in a Merchandising Company

6. 6 Operating cycle of a merchandising company is... zordinarily longer than that of a service company; zpurchase of merchandise and its sale lengthens the cycle.

7. 7 Receive Cash Perform Services Buy Inventory Sell Inventory Service Company Merchandising Company Cash Accounts Receivable Accounts Receivable Merchandise Inventory

8. 8 Inventory Systems Perpetual - detailed inventory system in which the cost of inventory is maintained and the records continuously show the inventory that should be on hand Periodic -inventory system in which detailed records are not maintained and the cost is goods sold is determined only at end of accounting period

9. 9 Merchandise Purchases Task: Record the purchase by getting information from the Purchase Invoice. The Purchase Invoice is a copy of the sales invoice.

10. 10 Purchase Discounts Credit terms of a purchase on account may permit the buyer to claim a cash discount for prompt payment. Credit terms specify the amount of cash discounts and the time period during which they are offered. 2/10, n/30 1/10 EOM(End of Month)

11. 11 Purchases Discounts Review - Company purchased $3800 of merchandise and returned $300. The credit terms are 2/10, n/30 and the invoice was paid within the discount period Original Invoice $3,800 -Returns 300 Amount due before discount $3,500 2% discount 70 Net due $3,430

12. 12 What Is the Sales Returns and Allowances Account? Contra Revenue Account to sales Used to show how much came in on returns and allowances Excessive returns and allowances suggest: zinferior merchandise zinefficiencies in filing orders zerrors in billing customers zmistakes in delivery or shipment of goods

13. 13 What Is the Sales Discount Account? Contra Revenue Account to sales Used to disclose amount of cash discounts taken by customers

14. 8-3 Work Sheet for a Merchandiser PARTIAL WORK SHEET Adjusted Trail Balance Income Statement Balance Sheet Account TitleDr.Cr.Dr.Cr.Dr.Cr. Merchandise InventoryXX SalesXX Sales Returns & AllowancesXX Sales DiscountsXX Cost of Goods SoldXX Procedure: (1)Merchandise Inventory is extended to the debit column of the balance sheet. (2)Sales is extended to the credit column of the income statement. (3)Sales Returns & Allowances and Sales Discounts are extended to the debit column of the income statement. (4)Cost of Goods Sold is extended to the debit column of the income statement.