Chapter ACCT 201 4 Reporting and Analyzing Merchandising

Chapter ACCT 201 4 Reporting and Analyzing Merchandising Activities ACCT 201 UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee

Periodic Inventory Method When Inventory is Accts. Payable Purchased xxx Purchases Pur. Disc. xxx Pur. R&A xxx Inventory BI xxx The Inventory Account is not updated when inventory is purchased.

Perpetual Inventory Method Accts. Pay xxx Pur. Disc. xxx Purchases When Purchased xxx Pur. R&A xxx COGS xxx Inventory xxx When Sold

Perpetual Inventory Method Accts. Rec. xxx When Sale is made Sales Disc. xxx Sales R&A xxx Inventory xxx COGS xxx Match COGS

ACCT 201 Additional Merchandising Issues ACCT 201

ACCT 201 Adjusting Entries ACCT 201 Prepaid Expenses Depreciation Unearned Revenue ACCT 201 Accrued Expenses Accrued Revenue- There’s more!

ACCT 201 Perpetual Systems – Inventory Shrinkage ACCT 201 Shrinkage is defined as “the loss of inventory. ” Usually charged to cost of goods sold. ACCT 201

ACCT 201 Inventory Shrinkage – Example Text ACCT 201 Suppose that Z-Mart’s Inventory account at year-end 2002 has a balance of $21, 250, but that a physical count reveals only $21, 000 of inventory on hand. ACCT 201

ACCT 201 Closing Entries ACCT 201 Close the Revenue Accounts Close the Expense Accounts Close the Income Summary ACCT 201 Close the Dividends Account There’s more!

We have some new accounts Close these with the expense accounts.

Let’s prepare the closing entries for Bob’s Shop for Men.

Step 1: Close the Revenue Accounts to Income Summary.

Step 2: Close the Expense Accounts to Income Summary.

Step 2: Close Debit Balances in Temporary Accounts to Income Summary.

Step 3: Close Income Summary to Retained Earnings

ACCT 201 Inventory Systems Beginning inventory + Net cost of purchases ACCT 201 Merchandise available for sale ACCT 201 Ending Inventory + Cost of Goods Sold

Merchandising Cost Accounts Beginning inventory Year 1 Net cost of purchases + = Merchandise available for sale Ending Inv. Year 1 + Cost of Goods Sold Becomes beginning inventory of Year 2 Income Statement Balance Sheet

ACCT 201 Income Statement Formats ACCT 201 èMultiple-Step èSingle-Step ACCT 201

ACCT 201 Single-Step Income Statement ACCT 201

ACCT 201 Multiple-Step Income Statement ACCT 201

Merchandising Cash Flows Accrual. Based Cash. Based Exhibit 4 -19

ACCT 201 Acid-Test Ratio Acid-Test = Ratio Quick Assets Current Liabilities ACCT 201 Cash + S-T Investments + Receivables Acid-Test = Current Liabilities Ratio ACCT 201 A common rule of thumb is the acid-test ratio should have a value of at least 1. 0 to conclude a company is unlikely to face liquidity problems in the near future.

Gross Margin Ratio Gross Net Sales – Cost of Goods Sold Margin = Net Sales Ratio Percentage of dollar sales available to cover expenses and provide a profit.