COMMERCE 1AA3 Lecture Notes - Lecture 21: Gross Profit
27 Jun 2018
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Lecture (Ch 5) 23/10/2017
October 23, 2017
9:46 AM
Chapter 5 Inventory & Costs of Good Sold
Merchandising and Manufacturing vs Service
Merchandising and Manufacturing
oSales Revenue
oCosts of goods sold
oGross profit
oOperating Expenses
Service
oService Revenue
oOperating expenses
Inventory
It is an asset that is held for resale or used to produce services and goods for sale
Merchandising firms have only merchandise inventory
Manufacturing firms have three types of inventory
oRaw material
oWork in process
oFinished goods
o(WILL NOT BE ON FINAL EXAM)
I.e.: In a car dealership cars are inventory because they are held for resale
Demo car at a dealership is not inventory, it is initially used to generate more sales. (Long term
operating asset)
Sales of a demo car at a dealership:
It is a disposal of long term assets, not sales revenue
Cost Included in Inventory
The cost principle requires that inventory be recorded at the price paid plus all costs incurred to
bring the inventory to saleable conditions
oInvoice price
oFreight and Insurance
oInspection Costs
oPreparation Costs
Purchases Returns and Allowances
When customers are sold damage merchandise, they can either
oReturn the merchandise and receive full refund: Sales returns
oKeep the merchandise, but receive some credit (either reduction in A/R, store credit, or
cash): Sales allowances
Inventory Quantities
Take physical count
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Costs of goods sold: gross profit, operating expenses. It is an asset that is held for resale or used to produce services and goods for sale. Manufacturing firms have three types of inventory o. Raw material: work in process o o. Finished goods (will not be on final exam) : in a car dealership cars are inventory because they are held for resale. Demo car at a dealership is not inventory, it is initially used to generate more sales. (long term operating asset) Sales of a demo car at a dealership: It is a disposal of long term assets, not sales revenue. The cost principle requires that inventory be recorded at the price paid plus all costs incurred to bring the inventory to saleable conditions o o o o. When customers are sold damage merchandise, they can either o o. Return the merchandise and receive full refund: sales returns.
