 Show CHAPTER 5 ACCOUNTING FOR MERCHANDISING OPERATIONS CHAPTER LEARNING OBJECTIVES 1.Describe merchandising operations and inventory systems. Because of inventory, a merchandising company has sales revenue, cost of goods sold, and gross profit. To account for inventory, a merchandising company must choose between a perpetual and a periodic inventory system. 2.Record purchases under a perpetual inventory system. The company debits the Inventory account for all purchases of merchandise and, freight-in, and credits it for purchase discounts and purchase returns and allowances. 3.Record sales under a perpetual inventory system. When a merchandising company sells inventory, it debits Accounts Receivable (or Cash) and credits Sales Revenue for the selling price of the merchandise. At the same time, it debits Cost of Goods Sold and credits Inventory for the cost of the inventory items sold. Sales Returns and Allowances and Sales Discounts are debited and are contra revenue accounts. 4.Apply the steps in the accounting cycle to a merchandising company. Each of the required steps in the accounting cycle for a service company applies to a merchandising company. A worksheet is again an optional step. Under a perpetual inventory system, the company must adjust the Inventory account to agree with the physical count. 5.Prepare financial statements for a merchandising company. The income statement has the following components: sales revenues, cost of goods sold, gross profit, operating expenses, other income and expense, and interest expense. A comprehensive income statement adds or subtracts any items of other comprehensive income to net income to arrive at other comprehensive income. a6.Prepare a worksheet for a merchandising company. The steps in preparing a worksheet for a merchandising company are the same as for a service company. The unique accounts for a merchandiser are Inventory, Sales Revenue, Sales Returns and Allowances, Sales Discounts, and Cost of Goods Sold. a7.Record purchases and sales under a periodic inventory system. In recording purchases under a periodic system, companies must make entries for (a) cash and credit purchases, (b) purchase returns and allowances, (c) purchase discounts, and (d) freight costs. In recording sales, companies must make entries for (a) cash and credit sales, (b) sales returns and allowances, and (c) sales discounts. What is the name of the account in which sales of merchandise are recorded?The sales journal is used to record all of the company sales on credit. Most often these sales are made up of inventory sales or other merchandise sales. Notice that only credit sales of inventory and merchandise items are recorded in the sales journal. Cash sales of inventory are recorded in the cash receipts journal.
What are the accounts used in perpetual inventory system?In a perpetual system, you record purchases in the raw materials inventory account or the merchandise account. In a periodic system, you log purchases into the purchases asset account, without adding any unit-count information.
What is the name of the account that is used to record the purchase of merchandise intended to be resold?Purchase Transactions
When companies purchase goods they intend to sell to customers, the transaction is recorded in the Merchandise Inventory account, a current asset.
How do you record purchases in a perpetual inventory system?Journal Entries for Merchandise Purchaser (Perpetual Method)
As inventory is purchased, the Merchandise account is debited. As inventory is sold, the Merchandise Inventory account is credited, and Cost of Goods Sold is debited for the cost of the inventory sold.
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What is the name of the account in which purchases of merchandise are recorded in a perpetual inventory system?
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