Merchandising Operations Horngren’s Accounting Lecture Eleven Lisa, Li 1

to ledger accounts
Prepare unadjusted trial balance
Journalize and post adjusting entries
Prepare

Prepare financial statements

Prepare post-closing trial balance

Journalize and post closing entries

Start with beginning account balances

Prepare the worksheet (optional)

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and the two types of merchandise inventory systems
Account for the

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the accounts of a merchandising business
Prepare a merchandiser’s financial statements
Use

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types of merchandise inventory systems

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manufacturer)
Can be wholesaler or retailer
Inventory is an important current asset
Managing

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purchases inventory from an individual or business, called a vendor(manufacturer).
2.

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of a merchandiser is different than that of a service

( )

( )

( )

( )

Merchandise inventory that the business has sold to customers (cost

Gross Profit
Calculated as:
Net Sales—COGS

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differences?
Merchandise Inventory (CA) is usually the only type of inventory.

system that keeps a running computerized record of merchandise inventory.

Periodic Inventory System

This system requires businesses to obtain a physical count of inventory to determine the quantities on hand.
small, local store without optical-scanning
local Restaurants and small retail stores

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technology takes over more and more accounting, the Periodic Method

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Periodic Inventory System

and cost amounts.
Units sold and sales and cost amounts.

Every inflow and outflow is tracked in real time

Merchandising and purchase systems are integrated with the accounting system

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Perpetual Inventory System

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system

to discontinue its service business and instead plans to sell

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goods on June 3, 2015 and makes payment on that

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on June 3,
but chosen to pay later . .

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payment.
Invoices that accompany credit purchases often indicate “credit terms,” which

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terms” indicated on the invoice.
3/15, NET 30 DAYS
Discount Period
Discount Percent
Total

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Discount %: purchasers as an incentive for early payment; the seller is in need of positive cash inflow
Discount period: the company can deduct 3% from the total bill if it pays within 15 days.
NET 30 days: is due in 30 days. Pay the full amount of the bill.
EOM: means payment is due at the end of the current month.

day period, they get a 3% discount of the total

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What if Smart Touch Learning pays this invoice on June 24,2015？

allow purchasers to return merchandise that is defective, damaged, or

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Learning has not yet paid the original bill of June

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to the buyer, an issue arises as to who bears

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seller or the buyer must pay the transportation cost and

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to determine who bears the risk of loss.
Freight

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into the purchaser’s warehouse; thus, it is freight on purchased

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the net results of all the transactions for the period.
Purchase
Purchase

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sometimes prepays the transportation cost as a convenience and lists

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a $5,000 purchase of goods and related freight charge of

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Purchase cost of inventory − Purchase returns and allowances −

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Suppose that during the year, Smart Touch Learning buys $281,750 of inventory, returns $61,250 of the goods, and takes a $4,410 early payment discount. The company also pays $14,700 of freight in. Calculate net cost of the inventory purchased.

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Dady is $14,882 = ($20,250 + $90 – $5,000

of merchandise inventory using a perpetual inventory system

entries must be made for every sale

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Record the sale
Cash

for $1,000 cash. The cost of those tablets was $700.

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Matching principle : all expenses are recorded when they are incurred during the period. Expenses are matched against the revenues of the period.

for $500 each on account. Sales terms are 2/10, n/30.

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that return goods, asking for a refund or deducted the

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paid the original bill of June 21. Suppose, on June

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Record return of the inventory

Record sales returns

sales allowance, there are no returned goods from the customer.

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discount for early payment. Sales discounts is a contra account

5-

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of the inventory cost for the buyer.
The freight out is

5-

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