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Accounting cycle merchandising business

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ACCOUNTING CYCLE – MERCHANDISING BUSINESS DISCUSSION NOTES LEARNING OBJECTIVES • Describe merchandising activities and identify business examples. • Identify and explain the components of income for a merchandising entity. • Analyze and record transactions for sales of merchandise and related accounts using a periodic and perpetual inventory system. • Explain the nature of inventories of a merchandising entity. • Distinguish between a cash discount and a trade discount. • Describe the different shipping charges on merchandise purchased or sold. • Describe both periodic and perpetual inventory systems. • List the essential accounting features of a periodic inventory system and perpetual inventory system. ACCOUNTING FOR MERCHANDISING BUSINESS How is it different from a service business? Measuring Profit - Profit to a merchandiser implies that revenue from selling merchandise exceeds both the cost of merchandise sold to customers and the cost of other expenses for the period. - The accounting term for revenues from selling merchandise is sales, and the accounting term for cost of buying and preparing the merchandise is cost of goods sold. A merchandiser’s expenses are often called operating expenses. MEASURING PROFIT Service Business Revenues MINUS Expenses EQUALS Profit Merchandise Business Net Sales MINUS Cost of goods sold EQUALS Gross Profit MINUS Operating Expenses EQUALS Profit MEASURING PROFIT Merchandise Business Ne ...
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