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Chapter 05 - Accounting for Merchandising Operations
VISUAL #5-1
THE OUTDOOR STORE
Income Statement
For the Year Ended December 31, 20xx
Cost of goods sold
Inventory, January 1......................................... 40,300
Purchases......................................................... 462,000
Less: Purchase discounts ..............$12,000
Purchase returns and
Inventory, December 31.......................................... 70,000
Cost of goods sold............................... 417,500
Gross profit on sales............................................... 274,500
Operating expenses
Selling expenses
Total selling expenses.......................... 114,720
Administrative expenses
Office salaries expense........................ 32,000
Depreciation expense – building.......... 10,400
Property tax expense............................ 4,800
Other revenues and gains
Interest revenue................................................ 4,000
Other expenses and losses
Interest expense............................................... 11,000 7,000
Net income ............................................................. $ 98,300
5-1
Chapter 05 - Accounting for Merchandising Operations
VISUAL #5-2
(a) Purchases X
(b) – (Purchase Returns & Allowances X
+ Purchases Discounts) + X – X
(c) Net Purchases X
5-2
Chapter 05 - Accounting for Merchandising Operations
VISUAL #5-3
ACCOUNTS USED IN BASIC MERCHANDISING TRANSACTIONS
WITH A PERPETUAL INVENTORY SYSTEM
ASSETS LIABILITIES
REVENUES
& CONTRA-REV.
Cash
Accounts
Payable Sales
Dr. Bal. Cr. Bal. Cr. Bal.
+ + +
Accounts
Receivable
Sales Returns &
Allowance
Dr. Bal. Dr.
Bal.
+ COST +
Cost of Goods
Sold
Dr.
Bal.
Merchandise
Inventory
+ Sales
Discount
Dr. Bal. Dr.
Bal.
+ +
EXPENSE
Delivery
5-3
Chapter 05 - Accounting for Merchandising Operations
VISUAL #5-4
ACCOUNTS USED IN BASIC MERCHANDISING TRANSACTIONS
WITH A PERIODIC INVENTORY SYSTEM
ASSETS LIABILITIES
REVENUES
& CONTRA-REV.
COST &
CONTRA-COST
Cash
Accounts
Payable Sales Purchases
Dr. Bal. Cr. Bal. Cr. Bal. Dr. Bal.
+ + + +
Accounts
Receivable
Sales Returns &
Allowance
Purchase Returns
& Allowances
Dr. Bal. Dr.
Bal.
Cr. Bal.
+ + +
Merchandise
Inventory
Sales
Discount
Purchases
Discount
Dr. Bal. Dr.
Bal.
Cr. Bal.
+ + +
Transportation-In
EXPENSE Dr. Bal.
Delivery
Expense
+
5-4
Chapter 05 - Accounting for Merchandising Operations
Alternate Demonstration Problem #1
Chapter Five
The following data was taken from ledger account balances and
supplementary data for the Whisk Company. Whisk Company uses
periodic inventory method to account for its inventory.
Merchandise inventory, beginning................................................ $ 20,000
Merchandise inventory, ending...................................................... 23,000
Purchases........................................................................................ 215,000
Purchases discounts...................................................................... 6,000
Purchases returns and allowances............................................... 3,000
Sales................................................................................................. 400,000
Sales discounts............................................................................... 3,200
Sales returns and allowances........................................................ 1,800
Transportation-in............................................................................. 10,000
Required:
Show the computation, in Income Statement format, of net sales, cost of
goods sold, and gross profit for the year ended December 31, 20XX.
5-5
Chapter 05 - Accounting for Merchandising Operations
Solution: Alternate Demonstration Problem #1
Chapter Five
WHISK COMPANY
Income Statement
For the Year Ended December 31, 20XX
Revenue from sales:
Cost of goods sold:
Merchandise inventory, 1/1/XX 20,000
Purchases................................ $215,000
Less: Purchase discounts...... $6,000
Purchases returns and
allowances................. 3,000 9,000
Net purchases.......................... 206,000
5-6
Chapter 05 - Accounting for Merchandising Operations
Alternate Demonstration Problem #2
Chapter Five
Koda Company is a wholesale company that had the following
purchase and sales transactions related to its merchandise
inventory during the month of May.
May
1
Purchased $20,000 of merchandise on account from
Webber Mfg. Co. Credit terms: 2/10, n/30. FOB
shipping point
2 Received and paid the $1,000 shipping bill from
Interstate Shipping for the goods purchased on
March 1
6 Received a credit memo for the return of $5,000 of
the goods purchased on March 1 which had arrived
damaged.
10 Paid Webber Mfg. Co. the amount due.
15 Sold merchandise on account to Dover Company for
$5,000. The cost of the merchandise was $3,000.
(cost is 60% of the retail value) Terms: 2/10, n/30;
FOB Destination
16 Paid Crosstown Shipping $100 to deliver the goods
sold on March 15
17 Dover returned $1,000 of the goods they purchased
on March 15. You had sent them the wrong
merchandise.
24 Received the amount due from Dover Co.
Requirement 1: Record the transactions assuming Koda
Company uses perpetual inventory system
Requirement 2: Record the transactions assuming that Koda
Company uses periodic system.
5-7
Chapter 05 - Accounting for Merchandising Operations
Solution: Alternate Demonstration Problem #2
Chapter Five
PERPETUAL INVENTORY SYSTEM PERIODIC INVENTORY SYSTEM
5-
1
Inventory 20,000 5-
1
Purchases 20,00
0
15 Accts Receivable 5,000 15 Accts Receivable 5,000
Sales 5,000 Sales 5,000
15 Cost of Goods Sold 3,000
Inventory 3,000
sold
5-8
Chapter 05 - Accounting for Merchandising Operations
24 Cash 3,920 24 Cash 3,920
Receivable
5-9
