...Seventeenth Edition 5. Accounting for Merchandising Operations Text © The McGraw−Hill Companies, 2004 “I felt we should go into something that we had some connection to”—Dwayne Lewis (standing; Michael Cherry sitting) 5 A Look Back Accounting for Merchandising Operations A Look at This Chapter This chapter emphasizes merchandising activities. We explain how reporting merchandising activities differs from reporting service activities. We also analyze and record merchandise purchases and sales transactions and explain the adjustments and closing process for merchandisers. A Look Ahead Chapter 6 extends our analysis of merchandising activities and focuses on the valuation of inventory. Topics include the items in inventory, costs assigned, costing methods used, and inventory estimation techniques. Chapter 4 focused on the final steps of the accounting process. We explained the importance of proper revenue and expense recognition and described the closing process. We also showed how to prepare financial statements from a work sheet. Larson−Wild−Chiappetta: Fundamental Accounting Principles, Seventeenth Edition 5. Accounting for Merchandising Operations Text © The McGraw−Hill Companies, 2004 Learning Objectives CAP Conceptual Analytical Procedural merchandising activities C1 Describeincome components for aand A1 Compute the acid-test ratio and explain its use to assess liquidity. identify merchandising company. (p. 178) (p. 193) P1 Analyze...
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... MERCHANDISING OPERATIONS SUBMITTED BY SOUJANYA PAPOLU Merchandising: Merchandising is any practice which contributes to the sale of products to a retail consumer. at a retail in-store level, merchandising refers to the variety of products available for sale and the display of those products in such a way that it stimulates interest and entices customers to make a purchase. Business that sell a product are called merchandiser. The operating cycle of merchandiser: it begins when the company purchases inventory from a vendor and the company sells the inventory to the customer. Finally the company collects cash from customers. Objectives of merchandising operations Account for the sale of inventory Use sales and gross profit to evaluate a company Adjust and close the accounts of a merchandising business Prepare a merchandiser’s financial statements Use gross profit percentage and inventory turnover to evaluate a business Accounting inventory Merchandising companies use several accounts that service companies do not use. The balance sheet includes an additional current asset called merchandise inventory, or simply inventory, which records the cost of merchandise held for resale. On balance sheets, the inventory account usually appears just below accounts receivable because inventory is less liquid than accounts receivable. Merchandising companies...
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...CHAPTER 5 ACCOUNTING FOR MERCHANDISING BUSINESSES DISCUSSION QUESTIONS 1. Merchandising businesses acquire merchandise for resale to customers. It is the selling of merchandise, instead of a service, that makes the activities of a merchandising business different from the activities of a service business. Yes. Gross profit is the excess of (net) sales over cost of merchandise sold. A net loss arises when operating expenses exceed gross profit. Therefore, a business can earn a gross profit but incur operating expenses in excess of this gross profit and end up with a net loss. The date of sale as shown by the date of the invoice or bill. a. b. c. 5. 6. a. 1% discount allowed if paid within 15 days of date of invoice; entire amount of invoice due within 60 days of date of invoice. Payment due within 30 days of date of invoice. Payment due by the end of the month in which the sale was made. A credit memo issued by the seller of merchandise indicates the amount for which the buyer’s account is to be credited (credit to Accounts Receivable) and the reason for the sales return or allowance. A debit memo issued by the buyer of merchandise indicates the amount for which the seller’s account is to be debited (debit to Accounts Payable) and the reason for the purchases return or allowance. The buyer The seller 2. 3. 4. Sales to customers who use MasterCard or VISA cards are recorded as cash sales. b. 7. 8. 9. 10. a. b. Examples of such accounts include the following:...
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...Accounting for a Merchandising Business In this lesson, we examine the accounting for merchandising operations -- those that sell products. The products held for sale are called inventory, or more specifically, merchandise inventory. Inventory is a current asset that will be sold to yield a profit--and the adage "buy low, sell high" is a succinct way to state a merchandiser's profit strategy. In addition to introducing a new asset, we also introduces a new cost category, and a new name for the revenue account. The cost is called Cost of Merchandise Sold (also called Cost of Goods Sold by some companies), and represents the cost of the inventory that was sold during the period. If John purchases 100 units of product for $5 each and sells 20 of them for $10 each, John earns $200 of sales revenue. The cost of the units sold is 20 * $5 = $100, and would be the Cost of Goods Sold. The difference between the revenue earned and the cost of merchandise sold is called gross profit. Here is a very basic income statement that computes the gross profit: John's Products | | Partial Income Statement | | For Month Ended 1/31/2013 | | | | Sales (20 units * $10) | $200 | Cost of Merchandise Sold (20 units * $5) | $100 | Gross Profit | $100 | Expenses | 0 | Net Income | $100 | Note that 20 units of product were sold for $10 each. The ones that were sold cost $5 each, resulting in gross profit of $100. The balance sheet for John's Products will show an Inventory account,...
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...Unit I Accounting for Merchandising Business Overview Background Merchandising business deals primarily with the buying and selling of finished goods. This unit will introduce readers on the different activities done by a trading business. A brief discussion of the perpetual inventory systems is also included. Purpose The purpose of Unit I “Accounting for Merchandising Business ” is to illustrate the various buying and selling activities of a trading business. This unit also illustrates the basic entries using perpetual inventory system. A brief discussion of business documents are also included to give readers ideas of what are the basic papers being used that support a merchandising transaction. In this unit This unit contains the following topics: Topics Merchandising Business Inventory System Merchandise Accounts Business Documents Proprietor’s Investment and Withdrawal Purchase of Merchandise Purchase Returns and Allowances Discounts on Purchases Sales Sales Returns and Allowances Discounts on Sales Freight on Merchandise Income Statement Review Questions Exercises See Page 2 of F 3 of F 7 of F 9 of F 14 of F 15 of F 18 of F 20 of F 25 of F 27 of F 28 of F 29 of F 33 of F 38 of F 39 of F Marivic D. Valenzuela-Manalo Page 1of F Merchandising Business Overview An organization that is engaged in the buying and selling of goods or merchandise is a merchandising or trading concern. Merchandise refers to goods purchased for resale in the same form...
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...problems did the Rank Group find with the Hard Rock’s three main internal information systems (restaurant operations, merchandising, and financial)? Why was this a problem? Internal Information System | Problem(s)/Why | Restaurant Operations | -lack of a standard: differences in descriptions throughout what were planned to be restaurants with matching menus-no efficient way of tracking all transactions on a grand scale (i.e. all restaurants) | Merchandising | -no chain wide merchandising system: in certain instances, this led to shortages in merchandise. These aren’t affordable because of their importance to the total revenue | Financial | -there was too much recording taking place: 50 ledgers and 90 finance staff members were costly, inefficient time wise, and there was more room for error | 2. What’s the solution? * Operations * utilize a database with standardized descriptions of all food options available; arrange for some form of data movement (i.e. EDI, ETL, RSS); ensure there is efficient access of this database for each and every restaurant via an Internet connection * install machines or new software to record all point of sale transaction activity and send it to a database for processing * Merchandising * Install a merchandise system throughout all restaurants; coordinate with all computers to record changes in inventory after each transaction * Send necessary items to store locations when needed * Financial ...
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...Executive Summary: Our report focuses on the “Application of Accounting in a Merchandising Business - Prime International Limited”. Accounting is important in business because it offers great support to management for planning, controlling as well as decision making process. It is with the aid of accounting information that the performance of a unit can be evaluated, at the same time as, its logical records make possible to get rid of the frauds and the thefts. The main interested parties for the company are stockholders who always want to know about the performance of his or her company. To prepare a financial statement, an organization must start its work from identifying recording, summarizing, and adjusting the transactions and at last preparation of financial statements. Accounting is important for businesses for several reasons. Effective record keeping helps a business survive efficiently all the while keeping track of the operations of the company. Background of the Study: The garments industry of Bangladesh has been the key export division and a main source of foreign exchange for the last 35 years. At present, the country generates about $6 billion worth of products each year by exporting garment. The industry provides employment to about 3 million workers of whom 90% are women. Two non-market elements have performed a vital function in confirming the garment industry's continual success; these elements are (a) quotas under Multi-Fibred Arrangement1...
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...TRUE-FALSE STATEMENTS 8. Closing entries are not needed if the business plans to continue operating in the future and issue financial statements each year. 9. The dividends account is closed to the Income Summary account in order to properly determine net income (or loss) for the period. 10. After closing entries have been journalized and posted, all temporary accounts in the ledger should have zero balances. 11. Closing revenue and expense accounts to the Income Summary account is an optional bookkeeping procedure. 12. Closing the dividends account to Retained Earnings is not necessary if net income is greater than dividends during the period. 13. The dividends account is a permanent account whose balance is carried forward to the next accounting period. 14. Closing entries are journalized after adjusting entries have been journalized. 15. The amounts appearing on an income statement should agree with the amounts appearing on the post-closing trial balance. 17. A business entity has only one accounting cycle over its economic existence. 18. The accounting cycle begins at the start of a new accounting period. 19. Both correcting entries and adjusting entries always affect at least one balance sheet account and one income statement account. 20. Correcting entries are made any time an error is discovered even though it may not be at the end of an accounting period...
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...Strategy Dollar General’s mission statement is “Serving Others.” To carry out this mission, the Company has developed a business strategy of providing its customers with a focused assortment of fairly priced, consumable merchandise in a convenient, small-store format. Our Customers . The Company serves the basic consumable needs of customers primarily in the low and middle-income brackets and those on fixed incomes. According to AC Nielsen’s 2005 Homescan® data, in 2005 approximately 48% of the Company’s customers earned less than $30,000 per year and approximately 26% earned less than $20,000 per year. The Company’s merchandising and operating strategies are primarily designed to meet the need for basic consumable products of the consumers in these lower income groups. Our Stores . The traditional Dollar General store has, on average, approximately 6,800 square feet of selling space and generally serves customers who live within five miles of the store. Of the Company’s 8,019 stores operating as of March 3, 2006, approximately 4,580 serve communities with populations of 20,000 or less. The Company believes that its target customers prefer the convenience of a small, neighborhood store. The Company believes that Dollar General’s convenient discount store format will continue to attract customers and provide the Company with a competitive advantage. In 2003, the Company began testing a Dollar General Market concept. Dollar General Markets are larger than the...
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...strategy of everyday low prices and highly efficient operations, logistics, and information system that keep inventory to a minimum and ensure against both overstocking and understocking. Walmart began its international expansion in the early 1990s to grow their company’s commission. They first teamed in a joint venture with Cifra, Mexico’s largest retailer, to open a series of supercenters that sell both groceries and general merchandise in Mexico. Although they faced some challenges, such as understanding their culture and buying preferences, they quickly managed to change their marketing and merchandising strategies to meet the local conditions. As they built up their distribution systems in Mexico, the Mexicans started to change their shopping habits, and now Walmart is Mexico’s largest retailer and Mexico is considered to be the company’s most successful foreign venture. Walmart continued its international expansion by establishing operations in Europe and South Korea, however the company had less success. Consumers in Europe and South Korea, seemed to have a preference for higher-quality merchandise and were not as attracted to Walmart discount strategy as consumers were in United States and Mexico. Regardless of how, Walmart had greater success in China where they have learned to adapt the Chinese culture and changed their merchandise and operations strategies. 1. Do you think Walmart could translate its merchandising strategy wholesale to another country and succeed? If...
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...5, 2011 Exam consists three part with 100 points Part I T/F – Please read the question careful and answer T for True and F for False 1.If the unit price of inventory is increasing during a period, a company using the LIFO inventory method will show less gross profit for the period, than if it had used the FIFO inventory method. 2.Under a perpetual inventory system, the cost of goods sold is determined each time a sale occurs. 3.A periodic inventory system does not require a detailed record of inventory items. 4.Control over cash disbursements is improved if major expenditures are paid by check. 5.A manufacturer’s inventory consists of raw materials, work in process, and finished goods. 6.Non-operating activities include revenues and expenses that are related to the company’s main line of operations. 7. In periods of falling prices, FIFO will result in a larger net income than the LIFO method. 8.Sales revenues, cost of goods sold, and gross profit are amounts on a merchandising company's income statement not commonly found on the income statement of a service company. 9. If the unit price of inventory is increasing during a period, a company using the LIFO inventory method will show less gross profit for the period, than if it had used the FIFO inventory method. 10.The average cost inventory method relies on a simple average calculation.) 11. A bank reconciliation is generally prepared by the bank and sent to the depositor along with canceled checks...
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...service-specific adaptations of traditional manufacturing cost techniques. These practices provide a consistent framework for analyzing business decisions and examining issues that are more important for service companies. Part I Manufacturing, Merchandising and Service Companies. There are three different types of companies and each type of company will have a slightly different in term of financial statement presentation and cost management also. The main difference is with the cost of goods sold. A manufacturing company uses labor and other inputs to transforms raw materials into finished product and then sells the product, like a merchandising company. But in service company does not produce/sell products, instead it provides service. So service companies usually don’t have a cost of goods sold as they aren’t selling a product, they are selling an idea. As the other two company types; Manufacturing, Merchandising Company are selling a tangible product, they will have a cost of goods sold. 1.1 How are they different in term Cost accounting? Title | Manufacturing company | Merchandising company | Service Company | Inventory | * Raw materials * Work in process * Finish goods | * Merchandise inventory | No inventory | Cost of goods/services | * Cost of goods sold | * Net purchase price | * Cost of rendering of services | Cost of goods manufactured | * Direct materials * Direct labor * Overhead | * | * Related service expenses...
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...ing CHAPTER 5 Accounting for Merchandising Operations ASSIGNMENT CLASSIFICATION TABLE | | |Brief | |Problems Set A |Problems | |Study Objectives |Questions |Exercises |Exercises | |Set B | |Describe the differences between |1, 2, 3, 4 |1 |1 |1 |1 | |service and merchandising companies. | | | | | | |Prepare entries for purchases under a |5, 6, 7, 8, 9, 10,|2, 3, 4, 5 |1, 2, 4, 5, 10 |2, 3, 4 |2, 3, 4 | |perpetual inventory system. |11 | | | | | |Prepare entries for sales under a |8, 9, 10, 11 |6, 7 |1, 3, 4, 5, 10 |2, 3, 4 |2, 3, 4 | |perpetual inventory system. | | | | | | |Perform the steps in the accounting |12, 13, 14 |8, 9 |1, 4, 5, 7 |5, 6, 7 |5, 6, 7 | |cycle for a merchandising company. | | | | | | |Prepare multiple-step and single-step |15, 16, 17 |10, 11 ...
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... | Bilingual employees preferred but not a requirement. High school diploma minimum required. | Quick thinking and must be able to handle any situation that may occur to rectify the situation. Have to stand for long periods of time. | 2 | Associates are expected to handle cash register operations such as making sure the customers receive the correct change | Prior cash handling experience preferred but not a requirement. | High school diploma minimum required. Should be able to have basic arithmetic skills | Must be able to count effectively when handling money around the registers and verifying money count with managers. | 3 | Associates are to assist in store inventory. If the counts are off entirely, it can result in the store having too little or too much in stock. | Prior stockroom experience is preferred but not a requirement. | High school diploma minimum is required. Should be able to have basic arithmetic skills. | Must be able to follow directions and procedures when transporting excess merchandise into the stockroom. | 4 | Associates are expected to help merchandise the store by changing product locations, depending what the sale is for the week. | Merchandising is not a requirement. No required knowledge is necessary. | High school diploma minimum is required. Have to know basic reading comprehension skills. | Must be able to lift 20 pounds maximum. Must also be...
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...Introduction: The case study on Nine West Retail Stores presents the typical story of a firm that has achieved tremendous growth over a short period of time and now stands at a cross roads. The industry it has traditionally been operating in, i.e. the foot wear industry has been stagnating over the past few years and in a bid to move to the next level, NWRS has to expand its core business through diversifying into unchartered territory and portfolios while trying to balance its existing structures, processes and heritage intact. At the same time, the firm also needs to analyze the existing footwear industry as the annextures attached with the case reveal an interesting trend which might require NWRS to reposition some of its brands to improve its profitability. In our analysis, we will start of by outlining the main facts about Nine West Retail Stores and then move on to focus on the three core problems it faces and the proposed solution that we as a group feel can help NWRS move on to brighter pastures. Summary of Facts/NWRS current Structure: Company Background: Named for its early office location at 9 West 57th Street in New York City, the Nine West Group, Inc. started in 1977 as a manufacturer and wholesaler of women’s footwear, and by 1998 had expanded to include fashion footwear and accessories for fourteen brands, including Nine West and Easy Spirit. Nine West saw significant growth since its conception, reaching sales of $1.6 billion in 1996, which was achieved...
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