Accounting for Merchandisers: Inventory Systems, Cost of Sales, and Gross Profit, Lecture notes of Accounting

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ACCOUNTING FOR A

MERCHANDISER

PROF ZENAIDA VC MANUEL

APRIL 2021

Accounting for a Merchandiser After studying the chapter, you should be able to: a. compare profit earned for a service provider and a merchandiser. b. describe the periodic and perpetual inventory systems. c. determine cost of sales, gross profit and operating profit. d. account for sales and compute for net sales revenue. e. account for purchases and compute for net cost of purchases. f. Account for operating expenses classified into distribution and administrative expenses. g. recognize 12% VAT liability. h. prepare properly classified statement of income.

Summary of the Accounting Cycle

1. Analyze business transactions _2. Journalize the transactions

6. Prepare an adjusted trial balance
7. Prepare financial statements
8. Journalize and post closing entries
9. Prepare a post-closing trial balance
10. Prepare a trial balance
11. Post to ledger accounts
12. Journalize and post adjusting entries Illustration 4-_

Objective a. Compare profit of a Service Provider and a Merchandiser Service Fees Revenue P 30, Operating Expenses ( 12,000) Operating Profit 18, Other Revenues and Gains

Other Expenses and Losses

Net Profit P 19,

SUPER

BOOKSTORE

Sales Revenue P 54, Less Cost of Sales 30, Gross Profit 24, Operating Expenses ( 16,000) Operating Profit 8, Other Revenues and Gains 5, Other Expenses and Losses ( 2,000) Net Profit P 11,

CRUZ DELIVERY

SERVICE

Service Fees Revenue P 30, Operating Expenses ( 12,000) Operating Profit 18, Other Revenues and Gains

Other Expenses and Losses

Net Profit P 19,

SUPER

BOOKSTORE

Sales Revenue P 54, Less Cost of Sales 30, Gross Profit 24, Operating Expenses ( 16,000) Operating Profit 8, Other Revenues and Gains 5, Other Expenses and Losses ( 2,000) Net Profit P 11,

CRUZ DELIVERY

SERVICE

Business Documents

Recall that business transactions are supported by documents. For a merchandiser, a purchase is supported by a supplier’s

invoice while a sales is supported by a Sales Invoice. If the letterhead bears your company name, then this invoice evidences

your sales transactions. The moment your name appears in the sold to line, then the invoice evidences a purchase made by your

company. The following is an example of an invoice:

Take note of the different parts of an invoice:

1. Seller ‑ Royal Furniture Mart 6) Quantity‑ 4
2. Buyer ‑ Jim Perez Furnishers 7) Item: Book cabinets
3. Invoice No. ‑ 1008 8) Unit Price‑ P1,
4. Date ‑ March 10, 2018 9) Total Price‑ P4,
5. Terms ‑ cash 10) Signature of Customer: Jim Perez

Inventory System

Under the perpetual method:

a) record merchandise b) record cost of sales and c) balance at year end should

inventory sales revenue tally with inventory count

Under the periodic method:

a) record purchases b) record only sales revenue c) count unsold and record inventory end

a) We buy inventory b) We sell inventory^ c) Year-end, we report sales, cost of sales and inventory in F/S (there’s usually an inventory count @ year-end

Let’s try the entries

Under the perpetual method:

a) record merchandise b) record cost of sales and c) balance at year end should

inventory sales revenue tally with inventory count

a) We buy inventory b) We sell inventory^ c) Year-end, we report sales, cost of sales and inventory in F/S (there’s usually an inventory count @ year-end

Inventory System

Perpetual Method. Under this method there is complete or continuous recording of the merchandise from the time it is purchased to the time it is sold. This method is usually adopted by a business which sells high priced ‑ low volume goods such as car dealers and real estate companies. Periodic Method. Under this method, merchandise bought is recorded as Purchases representing goods available for sale. No entry is made for the cost of merchandise sold. It is only at the end of the accounting period that the cost of goods sold will be determined after making an inventory count of the goods that were not sold and deducting this from the total purchases or goods available for sale during the current period.

Objective c. Cost of Sales and Gross Profit NOTE: Assume in this example there are no beginning inventories

Objective c. Cost of Sales and Gross Profit NOTE: Assume in this example there are no beginning inventories

Record using 2 methods

Inventory end becomes inventory beg

Movement the following year