Inventing goods that t merchandising company sells to its customers -> relatively
liquid asset
Operating Cycle:
1. Purchases of merchandise
2. Sales of merchandise
3. Collection of receivables
Merchandising v manufacturing
Revenue
Gross Profit
Less: Expenses
Net Income
Subsidiary ledger – separate account for each of the items included in the balance of a
general ledger account e.g. account receivables sub-ledger shows receivables by
customer controlling account general ledger account which summarizes a sub-ledger
thus entries affecting sub-ledger must be posted twice 1. Sub-ledger 2. General ledger.
1. Perpetual Inventory
- Transactions are recorded as they occur
a. Purchase merchandise
Inventory
Accounts payable
b. Sale of merchandise
Accounts receivable
Sales
Inventory
Cash
Accounts receivable
Inventory
2. Periodic Inventory
Inventory amounts are determined periodically (usually year end)
a. Purchase merchandise
Purchases
Accounts payable
b. Sale of Merchandise\
Accounts receivable
Sales
Inventory – beginning
+ Purchases
CGAS
Less: Inventory-End
Inventory – Beginning
Purchases
Inventory – End
- When products sold on account many offer discounts of payment made before
due
e.g. 2/10, n/30 full payment due in 30 days but 2% discount if payment within 10 days
Inventory
Accounts payable
Accounts payable
Cash
Accounts payable
Cash
Inventory
Accounts payable
Accounts payable
Cash
Purchase discounts taken reduces Cost of goods sold
Accounts payable
Inventory
- Transportation costs to purchase inventor are part of cost of asset not current
expenses
Sales tax – imposed on consumer not seller but seller must collect and remit
Cash
Sales
Less: R &A
Discounts
Net Sales
1. Sales R +A
Inventory
2. Sales Discounts
Accounts Receivable
Sales
Cash
Accounts receivable
3. Delivery expense
Cash