Merchandise
Products that a company buys to resell
Merchandiser
Earns net income by buying and selling merchandise
Ex: Wholesalers and retailers
Wholesaler
Buys products from manufacturers and sells them to retailers
Retailer
Buys products from manufactures or wholesalers and sells them to consumers
Net income for a merchandiser
Net income=revenues from selling merchandise-both the cost of merchandise sold and other expenses
Sales
Revenue from selling merchandise
Cost of goods sold
The expense of buying and preparing merchandise
Merchandiser equation
Net sales-cost of goods sold=gross profit-expenses=net income
Inventory cost includes
The cost to buy the goods, ship them to the store and make them ready for sale
Operating Cycle for merchandiser
Cash purchases of merchandise
Inventory for sale
Credit sales
Accounts receivable
Receipt of cash
Two ways companies account for inventory
Perpetual inventory system
Periodic inventory system
Perpetual Inventory System
Updates accounting records for each purchase and each sale of inventory
Periodic Inventory System
Updates accounting records for purchases and sales of inventory only at the end of a period.
Credit Terms
Include the amounts and timing of payments from a buyer to a seller.
EOM
End of the month.
Ex: when sellers require payment within 30 days after the invoice date, credit terms are n/30 meaning net 30 days
Credit Period
The amount of time allowed before full payment is due
FOB Shipping Point
The buyer accepts ownership when the goods depart the sellers place of business
FOB Destination
Ownership of goods transfers to the buyer when the goods arrive at the buyers place of business
Buyer returns goods
when a buyer returns goods, the seller debits sales returns and allowances
Shrinkage
Loss of inventory
Closing Entries for Merchandisers
close credit balances in temporary accounts to income summary
close debit balances in temporary accounts to income summary
close income summary
close dividends
Multiple Step Income Statement
Details net sales and expenses and reports subtotals for various types of items
gross profit
income from operations
net income
Selling Expenses
Expenses of advertising merchandise, making sales and delivering goods to customers.
Single Step Income Statement
Lists cost of goods sold as another expense and shows only one subtotal for total expenses
Classified Balance Sheet
Reports merchandise inventory as a current asset, according to how quickly they can be converted to cash.
Acid Test Ratio
Quick assets (cash, short term investments and current receivables)/ current liabilities.
Gross Margin
Gross Margin (net sales-cost of goods sold)/net sales
