5-1
Accounting for
Merchandising Operations
7
Learning Objectives
Describe merchandising operations and inventory
systems.
Record purchases under a perpetual inventory system.
Record sales under a perpetual inventory system.
3
Apply the steps in the accounting cycle to a
merchandising company.
2
1
4
Compare a multiple-step with a single-step income
statement.
5
5-2
Merchandising Companies
Buy and Sell Goods
Wholesaler Consumer
The primary source of revenues is referred to as
sales revenue or sales.
Retailer
LEARNING
OBJECTIVE Describe merchandising operations and
inventory systems.
1
LO 1
5-3
Income Measurement
Cost of goods sold is the total
cost of merchandise sold during
the period.
Not used in a
Service business.
Net
Income
(Loss)
Less
Less
Equals
Equals
Sales
Revenue
Cost of
Goods Sold Gross
Profit
Operating
Expenses
Illustration 5–1
Income measurement process for a
merchandising company
Merchandising Operations
LO 1
5-4
The operating
cycle of a
merchandising
company
ordinarily is longer
than that of a
service
company.
Illustration 5-2
Operating Cycles
Illustration 5-3
LO 1
5-5
Beginning Inv + Purchases –COGS = Ending Inv
Companies use either a perpetual inventory system or a periodic
inventory system to account for inventory.
Illustration 5-4
Flow of Costs
LO 1
5-6
PERPETUAL SYSTEM
◆Maintain detailed records of the cost of each inventory
purchase and sale.
◆Records continuously show inventory that should be on
hand for every item.
◆Company determines cost of goods sold each time a
sale occurs.
Flow of Costs
LO 1
5-7
◆Do not keep detailed records of the goods on hand.
◆Cost of goods sold determined by count at the end of
the accounting period.
◆Calculation of Cost of Goods Sold:
Beginning inventory $ 100,000
Add: Purchases, net 800,000
Goods available for sale 900,000
Less: Ending inventory 125,000
Cost of goods sold $ 775,000
PERIODIC SYSTEM
Flow of Costs
LO 1
5-8
Flow of Costs
5-9
◆Traditionally used for merchandise with high unit
values.
◆Shows the quantity and cost of the inventory that
should be on hand at any time.
◆Provides better control over inventories than a periodic
system.
ADVANTAGES OF THE PERPETUAL SYSTEM
Flow of Costs
LO 1
5-10 LO 1
5-11
Indicate whether the following statements are true or false.
1. The primary source of revenue for a merchandising
company results from performing services for
customers.
2. The operating cycle of a service company is usually
shorter than that of a merchandising company.
3. Sales revenue less cost of goods sold equals gross
profit.
4. Ending inventory plus the cost of goods purchased
equals cost of goods available for sale.
1Merchandising Operations and Inventory
Systems
DO IT!
LO 1
False
True
True
False
◆Made using cash or credit (on account).
◆Normally record when
goods are received from
the seller.
LEARNING
OBJECTIVE Record purchases under a perpetual
inventory system.
2
