11

GROUP PROJECT 5/25/12 FIND YOUR OWN GROUP OF 10 PEOPLE PER

GROUP. SUBMIT TO ME THE LIST NAME OF YR GROUP MEMBERS (WITH PHONE NO OF THE GROUP LEADER) AND COMPANY THAT YOU CHOOSE. YOUR TASK: CHOOSE A PUBLIC LISTED COMPANY (DONT CHOOSE BANKS OR FINANCIAL INSTITUTIONS)

1 COMPANY 1 GROUP. PREPARE A 20 PAGES REPORT OF 5 YEARS

E.G TM BHD, UEM ETC.
FINANCIAL STATEMENT ANALYSIS BASED ON CHAPTER 6 AND 7.

22

Chapter 4 ACCOUNTING FOR MERCHANDISING BUSINESSES

Click to edit Master subtitle style
5/25/12

33

TOPIC OUTLINE
1) Financial Statement Whats the different with services? 5) A transaction affected both parties. Seller and Buyer 4) Credit Terms and discounts 2) Inventory Merchandisi system ng business

5/25/12

a) Perpetual System What s the

different? How to records transactions?

3) Transportatio n Terms b) FOB What s Destinati the on different ?

b) Periodic System a) FOB Shippi ng Point

44

OBJECTIVES

5/25/12

1.Distinguish between activities and FS of service and merchandising businesses 2.Describe and illustrate the FS of a merchandising business. 3.Describe and illustrate the accounting for merchandise transactions including:

sale of merchandise purchase of merchandise transportation costs, sales taxes, trade discounts dual nature of merchandising transactions

4.Describe the adjusting and closing process for a merchandising business.

55

5/25/12

Objective 1

Distinguish between the activities and financial statements of service and merchandising businesses

66

5/25/12

Service Business vs Merc. Business

Income Statement Service Business: Income Statement Merchandising Business:

Fees earned RMXXX Operating expenses XXX

Sales RMXXX Cost of merchandise sold

77

Determine Gross Profit:

5/25/12

During the current year, merchandise is sold for RM250,000 cash and for RM975,000 on account. The cost of the merchandise sold is RM735,000. What is the amount of the gross profit?

Gross Profit = Sales - COGS

490k

88

5/25/12

The Operating Cycle

99

5/25/12

Objective 2

Describe and illustrate the financial statements of a merchandising business

1010

5/25/12

Types of Income Statement

1111
0

Multiple-Step Income Statement

5/25/12

Sales
- both cash & credit (on account) sales.

Sales returns and allowances

- for damaged or defective merchandise.

Sales discounts
- given to buyers for early payment.
120,000 (15,500) (2,300) (17,800) 102,200 (79,200) 23,000

Sales (cash + credit) Less Sales returns & allowances Less Sales discount Net Sales Less Cost of goods sold Gross profit

1212
0

5/25/12

6-2

Single-Step Income Statement

Deducts the total of all expenses in one step from the total of all revenues to get the net income. Refer Exhibit 3

1313
0

Exhibit 3: Single-Step Income Statement

NetSolutions Income Statement For the Year Ended December 31, 2009 Revenues: Net sales Rent revenue Total revenues Expenses: Cost of merchandise sold Selling expenses Administrative expenses Interest expense Total expenses Net income

5/25/12

RM708,255 600 RM708,855 RM525,305 70,820 34,890 2,440 633,455 RM 75,400

1414

5/25/12

Example Exercise 4-2

Based upon the following data, determine the cost of merchandise sold for May.
Merchandise Inventory, May 1 RM121,200 Merchandise Inventory, May 31 142,000 Purchases 985,000 Purchases Returns and Allowances 23,500 Purchases Discounts 21,000 Transportation In 11,300

1515
0

5/25/12

Merchandise Inventory, May 1 RM121,200 Purchases Less: Purchases returns & allowances Purchases discounts Net purchases Add transportation in Cost of merchandise purchased Merchandise available for sale RM1,073,000 Less merchandise inventory, May 31 142,000 Cost of merchandise sold 931,000

RM985,000 23,500 21,000 RM940,500 11,300 9 51,800

RM

1616

5/25/12

Objective 3
Describe and illustrate the accounting for merchandise transactions including: sale of merchandise; purchase of merchandise; transportation costs, sales taxes, trade discounts; and dual nature of merchandise transactions.

1717
0

Cash Sales

5/25/12

On January 3, NetSolutions sold RM1,800 of merchandise for cash. The cost of the merchandise sold was RM1,200.

Using a perpetual inventory, the RM1,200 cost of the inventory must be recorded.

1818

5/25/12

Sales on account

On January 12, NetSolutions sold merchandise on account to Sims Company, RM510. The cost of the merchandise sold was RM280.

Jan 12 Accounts Receivable Sims Sales To record credit sales to Sims 12Cost of merchandise

510 510

280

1919

5/25/12

Definitions

Credit terms

the terms for when payments for merchandise are to be made time allowed for the buyer to pay example: n/30, n/eom discount would be given if buyer pays within the period example: 2/10, n/30

Credit period

Discount period

2020

Credit Terms

5/25/12

If invoice is paid within 10 days of invoice date RM1,470 paid (RM1,500 less a 2% discount)

Invoice for RM1,500 Terms: 2/10, n/30

2121
0

5/25/12

Invoice for RM1,500 Terms: 2/10, n/30

If invoice is NOT paid within 10 days of invoice date Full amount (RM1,500) is due within 30 days of invoice date

2222

Example

5/25/12

Jan 15 Sold merchandise on account to Omega, RM1,500, terms 2/10, n/30. Cost of the merchandise sold was RM1,100. Jan 22 Received payment from Omega, less discount.

Jan 15Accounts Receivable Omega Sales Cost of merchandise sold Merchandise inventory Jan 22Cash

1,500 1,500 1,100 1,100 1,470

2323

5/25/12

Sales returns and allowances

Sales returns when buyer returns merchandise Sales allowances when seller reduces the initial price at which the goods were sold

2424

Example

5/25/12

Jan 13 Received merchandise returned by Triang. The selling price of the merchandise was RM225 and the cost was RM140.

Jan 13Sales returns and allowances Accounts Receivables Triang Merchandise inventory Cost of merchandise

225 225

140 140

2525

5/25/12

Example Exercise 4-3

Journalize the following transactions:
a.

Sold merchandise on account, RM7,500 with terms of 2/10, n/30. The cost of the merchandise sold was RM5,625. Received payment less the discount.

b.

2626

5/25/12

a.Accounts Receivable Sales Cost of merchandise sold Merchandise inventory b.Cash Sales discounts (98% x 7,500) Accounts Receivable

7,500 7,500 5,625 5,625 7,350 150 7,500

2727

5/25/12

Purchase transactions

Jan 3 Purchased transactions for cash, RM2,510. Jan 4 Purchased merchandise on account from Pemborong Maju, RM9,250.
Jan 3Merchandise Inventory Cash Jan 4Merchandise Inventory Accounts Payable Maju 2,510 2,510 9,250 9,250

2828

Purchase transactions with discount

5/25/12

Mar 12: Purchased transactions on account from Alpha, RM3,000, terms 2/10, n/30. If payment is made within 10 days (by Mar 22), buyer is entitled for 2% discount. Full payment must be made within 30 days.

2929

5/25/12

If payment is made by Mar 22 (e.g Mar 22): Mar 22 Accounts Payable 3,000 Cash 2,940 Merchandise 60 Under the perpetual inv system, Merc. Inv account is used Inventory to record purchase disc. If payment is made after Mar 22: Mar 22 Accounts Payable Cash 3,000 3,000

3030

Purchase Transaction Returns & Allowances

5/25/12

Buyer returns merchandise that is damaged or does not meet the specifications of the order Seller makes adjustment to the original purchase price purchases allowances

3131

5/25/12

Example

May 2: Purchased merchandise on account from Delta, RM5,000, terms 2/20, n/30. May 4: Returned RM3,000 of the merchandise. May 12: Paid the amount due.

* Payment is made within 20 days, therefore buyer is entitled for 2% discount.

3232

5/25/12

May 2Merchandise Inventory Accounts Payable Delta (Purchase of merch. on account) 4Accounts Payable - Delta Merchandise Inventory (Return of merchandise) 12Accounts Payable - Delta Cash [98% x (5k 3K)] Merchandise Inventory

5,000 5,000

3,000 3,000 2,000 1,960 40

3333

5/25/12

Transportation costs

3434

Example

5/25/12

June 15: Sold merchandise on account to Kranz, RM700, terms FOB destination. The cost of the merchandise sold is RM480. Transportation cost was RM40.

June 15Accounts Receivable Sales Cost of Merchandise Sold Merchandise Inventory Delivery Transportation Expense

700 700 480 480 40

3535

Example

5/25/12

June 20: Sold merchandise on account to Planter, RM800, terms FOB shipping point. The cost of the merchandise sold is RM360. The seller prepaid the transportation cost of RM45. JuneAccounts Receivable 20 Sales Cost of Merchandise Sold Merchandise Inventory Accounts Receivable 800 800 360 360 45

3636
0

5/25/12

18

3737

5/25/12

Sales taxes

Imposed on sale of merchandise Charged to the buyer and collected by the seller Seller would then have to remit the taxes to the tax authority (Inland Revenue Board)

3838

Example

5/25/12

Augt 12: Sold merchandise on account to Lemon, RM100. The sales tax is 6% sales. Sept 15: Seller remits RM2,900 of sales taxes collected to the tax authority. Aug 12Accounts Receivable Sales Sales taxes Payable Sep 15Sales Taxes Payable 2,900 106 100 6

3939
0

Trade Discounts

5/25/12

6-3

When wholesalers offer special discounts to certain classes of buyers that order large quantities, these discounts are called trade discounts. Not recorded in the accounts (the amount in the account is after deducting trade discounts)

4040
0

Dual Nature of Merchandise Transactions

5/25/12

Each merchandising transaction affects a buyer and a seller The same transaction would be recorded by both the seller and the buyer Example: Sali sold merchandise on account to Balan, RM7,500, terms FOB shipping point, n/45. The cost of the merchandise sold was RM4,500.

4141

5/25/12

Salis (seller) journal Accounts Receivable Bayar Sales Cost of merchandise sold Balans (buyer) journal Merchandise Inventory 7,500 7,500 4,500 4,500

Merchandise Inventory 7,500 Accounts Payable Sali Refer to the full illustration in the text book Refer Example Exercise 4-6

7,500

4242

5/25/12

Objective 4
Describe the adjusting and closing process for a merchandising business

4343
0

Inventory Shrinkage

5/25/12

Loss of inventory due to shoplifting, employee theft, or errors in recording or counting inventory. If the balance of the Merchandise Inventory account is larger than the amount of merchandise count, the difference is often called inventory shrinkage or inventory shortage.

4444

5/25/12

Example

NetSolutions inventory records indicate that RM63,950 of merchandise should be available for sale on December 31, 2009. However, the physical count reveals that only RM62,150 is actually available.

Dec 31

Cost of Merchandise Sold Merchandise Inventory

(Adjusting entry to record inv. shrinkage; RM63,950 RM62,150)

1,800 1,800

4545

Closing entries

5/25/12

Similar with those of service businesses

4646

5/25/12

Closing entries

Refer to the textbook for an example of closing entries.

4747

APPENDIX 1 The Periodic Inv System

5/25/12

There is no perpetual record for merchandise inventory and cost of merchandise sold Closing inventory is determined by physical count at the end of the period
Cost of merchandise sold = Opening inv + Purchases Closing inv

Refer Exhibit 12

4848

Perpetual vs Periodic Inv System

5/25/12

Journal entries for transactions would differ between the two systems Main advantage of the perpetual inventory system provides continuous and updated record of merchandise inventory and cost of merchandise sold Refer Exhibit 14