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Chapter 6 Accounting for Merchandising Businesses Notes

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Accounting Chapter 6: Accounting for Merchandising Businesses *Journal entries summarized on pg. 298 ➢ The operating cycle of a service and merchandising business differs in that a merchandising business must purchase merchandise for sale to customers ➢ The revenue activities of a merchandising business involve the buying and selling of merchandise ○ When merchandise is sold, the revenue is reported as sales and its cost is recognized as an expense (cost of merchandise sold) ○ Cost of merchandise sold is subtracted from sales to arrive at gross profit (profit before deducting operating expenses) ➢ Merchandize on hand at the end of an accounting period is called merchandise inventory ○ Reported as a current asset on the balance sheet ➢ Perpetual inventory system: Each purchase and sale of merchandise is recorded in the inventory account and related subsidiary ledger ○ The amount of merchandise available for sale and the amount sold are continuously (perpetually) updated in the inventory records ➢ Periodic inventory system: Inventory does not show the amount of merchandise available for sale and the amount sold ○ Listing of inventory on hand (physical inventory) i ...
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