Chapter 5
Merchandising
Operations
Learning Objectives
1. Describe merchandising
operations and the two types of
merchandise inventory systems
2. Account for the purchase of
merchandise inventory using a
perpetual inventory system
3. Account for the sale of
merchandise inventory using a
perpetual inventory system
5-2© 2016 Pearson Education, Inc.
Learning Objectives
4. Adjust and close the accounts of
a merchandising business
5. Prepare a merchandiser’s
financial statements
6. Use the gross profit percentage
to evaluate business performance
7. Account for the purchase and
sale of merchandise inventory
using a periodic inventory system
(Appendix 5A)
5-3© 2016 Pearson Education, Inc.
Learning Objective 1
Describe merchandising
operations and the two types
of merchandise inventory
systems
5-4© 2016 Pearson Education, Inc.
What Are Merchandising Operations?
•A merchandiser is a business that sells
merchandise, or goods, to customers.
–The merchandise that this type of business
sells is called merchandise inventory.
•A wholesaler buys goods from a
manufacturer and sells them to retailers.
•A retailer buys merchandise from
manufacturers or a wholesaler and then
sells the goods to consumers.
5-5© 2016 Pearson Education, Inc.
The Operating Cycle of a
Merchandising Business
•The operating cycle begins when the
company purchases inventory from a
vendor.
•The company then sells the inventory to
customers.
•The company collects cash from
customers.
5-6© 2016 Pearson Education, Inc.
The Operating Cycle of a
Merchandising Business
5-7© 2016 Pearson Education, Inc.
The Operating Cycle of a
Merchandising Business
•The income statement of a merchandiser
reports:
•Sales Revenue rather than Service Revenue
•The cost of merchandise sold to customers,
called Cost of Goods Sold (COGS)
•Gross profit, which is net Sales Revenue minus
Cost of Goods Sold
•Operating expenses, which re expenses other
than Cost of Goods Sold
5-8© 2016 Pearson Education, Inc.
The Operating Cycle of a
Merchandising Business
5-9© 2016 Pearson Education, Inc.
The Operating Cycle of a
Merchandising Business
5-10© 2016 Pearson Education, Inc.
Merchandise Inventory Systems: Perpetual
and Periodic Inventory Systems
•Businesses need to determine the value
on merchandise inventory on hand and
the value sold.
•The two inventory accounting systems:
•A periodic inventory system requires a physical
count of inventory to determine inventory on
hand.
•A perpetual inventory system offers continuous
computerized record of merchandise inventory.
5-11© 2016 Pearson Education, Inc.
Learning Objective 2
Account for the purchase of
