Chapter 5

ACCOUNTING FOR
MERCHANDISE OPERATIONS

PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W. Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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C2

INVENTORY SYSTEMS
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C2

INVENTORY SYSTEMS

Perpetual systems Periodic systems

 continually update  accounting records
accounting records for relating to merchandise
merchandising transactions are
transactions updated only at the end
of the accounting period
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P1 ACCOUNTING FOR MERCHANDISE

PURCHASES
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P1
PURCHASE DISCOUNTS

A deduction from the invoice price granted to

induce early payment of the amount due.
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P1
PURCHASE DISCOUNTS

2/10,n/30
Number of
Days Otherwise,
Discount Discount Is Net (or All) Credit
Percent Available Is Due in 30 Period
Days
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P1 PURCHASE RETURNS AND

ALLOWANCES

Purchase Return . . .
Merchandise returned by the purchaser to
the supplier.
Purchase Allowance . . .
A reduction in the cost of defective
merchandise received by a purchaser from
a supplier.
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P1 TRANSPORTATION COSTS AND

OWNERSHIP TRANSFER
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P1

ACCOUNTING FOR MERCHANDISE

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P2 ACCOUNTING FOR MERCHANDISE

SALES
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P2
SALES OF MERCHANDISE

Each sales transaction for a seller of

merchandise involves two parts:

Revenue received in Recognition of the

the form of an asset cost of merchandise
from a customer sold to a customer
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P2

SALES RETURNS AND ALLOWANCES

Sales returns and allowances usually involve
dissatisfied customers and the possibility of
lost future sales.

Sales returns refer Sales allowances

to merchandise that refer to reductions in
customers return to the selling price of
the seller after a merchandise sold to
sale. customers.
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P2 MERCHANDISING COST FLOW IN

THE ACCOUNTING CYCLE
Beginning Net
inventory purchases
Period 1

Merchandise
available for sale

Ending Cost of
inventory goods sold To Income Statement
To Balance Sheet
Beginning Net
inventory purchases
Period 2

Merchandise
available for sale

Ending Cost of
inventory goods sold To Income Statement
To Balance Sheet
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P3 CLOSING ENTRIES FOR

MERCHANDISERS
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P4

A multiple-step
income
statement
format shows
detailed
computations
of net sales
and other
costs and
expenses, and
reports
subtotals for
various
classes of
items.
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P4

SINGLE-STEP INCOME STATEMENT

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P4
CLASSIFIED BALANCE SHEET

Highly
Liquid

Less
Liquid
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END OF CHAPTER 5