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Canada (161,707)
Accounting (248)
ACCT 2220 (54)
m (7)
Chapter 5

ACCT NOTES - Chapter #5

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Department
Accounting
Course
ACCT 2220
Professor
m
Semester
Winter

Description
Chapter 5: Merchandising Operations Difference between Service and Merchandising Companies - Service companies perform services as their primary source of revenue (ex: accounting firm, law office) - Merchandising companies buy and sell merchandise (ex: Wal-Mart) Merchandising Company Revenues and Expenses - Revenue: Sales revenue (ex: from the sales of merchandise), Other Revenue (ex: interest, rent) - Expenses are divided into categories: cost of goods sold, operating expenses and income tax expense. Inventory Systems - Merchandising companies may use either (or both) of the fallowing inventory systems to determine their cost of goods sold and ending inventory: Perpetual or Periodic Perpetual Systems: - Inventory is updated constantly for purchases and sales - A physical count is done at least once a year to adjust perpetual records to actual. - This system enables the effective control inventory, which is an important asset. Periodic System: - This type of inventory system does not keep an updated record of all goods bought, sold and on hand. - Cost of goods sold is only determined at the end of the accounting period once inventory is counted. Perpetual Inventory System – Purchase of Merchandise - Purchase (includes all costs to get merchandise to place of business and ready for resale) - Purchase returns and allowances - Purchase Discounts - Freight (Purchases) – (purchase returns and allowances) – (purchase discounts) = (Net Purchases) + (Freight) = (Cost of Goods Sold) Freight: - Freight paid by the buyer is part of the cost of the merchandise purchased. - FOB (free on board) – this is
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