1. Chapter 4 Accounting for Merchandising Businesses

2. 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  Describe the accounting for transportation costs and sales taxes  Illustrate the dual nature of merchandising transactions  Describe the accounting for merchandise shrinkage

3. Learning Objective 1 Distinguish the activities and financial statements of a service business from those of a merchandising business

4. Service Businesses vs. Merchandise Operations Merchandise Operations –Revenue activities involve the buying and selling of merchandise. –Example: Home Depot Inc. Service Businesses –Revenue activities involve providing services to customers. –Example: Family Health Care, P.C.

5. Gross Profit for a Merchandise Operation Gross Profit = Net Sales – COGS Net Sales: revenue less returns and discounts Cost of Goods Sold: cost paid for merchandise

6. Learning Objective 2 Describe and illustrate the financial statements of a merchandising business

7. NetSolutions – Multiple-Step Income Statement Measures income/loss from the core operations of the business Assume a perpetual inventory system Considers customer returns and discounts

8. NetSolutions – Cost of Merchandise Sold – Periodic Inventory

9. NetSolutions – Income Statement

10. NetSolutions – Retained Earnings Statement

11. NetSolutions – Balance Sheet Value of units on hand, not sold

12. NetSolutions – Statement of Cash Flows Equals cash on balance sheet

13. Learning Objective 3 Describe the accounting for the sale of merchandise

14. NetSolutions - Sales Transactions

15. Sample Sales Invoice Credit terms

16. Sales Discounts

17. NetSolutions - Sales Discounts

18. Sales Returns and Allowances

19. NetSolutions - Sales Returns and Allowances

20. Learning Objective 4 Describe the accounting for the purchase of merchandise

21. Purchase Transaction - Using the Perpetual System

22. Purchase Discounts

23. Purchase Returns and Allowances

24. NetSolutions - Return of Merchandise

25. Learning Objective 5 Describe the accounting for transportation costs and sales taxes

26. Transportation Costs

27. NetSolutions - Transportation Costs

28. Sales Taxes Sale is made, liability for sales tax recorded as an obligation of the seller Payment is made to state taxing authority to satisfy obligation

29. Learning Objective 6 Illustrate the dual nature of merchandising transactions

30. Dual Nature of Merchandise Transactions Company A records a sale Company B records a purchase

31. Learning Objective 7 Describe the accounting for merchandise shrinkage

32. Merchandise Shrinkage

33. NetSolutions - Merchandise Shrinkage

34. End of Chapter 4