Thirteenth Edition
Weygandt Kimmel Kieso
Chapter 5
Accounting for
Merchandising Operations
Prepared by
Coby Harmon
University of California, Santa Barbara
Westmont College
Chapter Outline
Learning Objectives
LO 1 Describe merchandising operations and inventory
systems.
LO 2 Record purchases under a perpetual inventory
system.
LO 3 Record sales under a perpetual inventory system.
LO 4 Apply the steps in the accounting cycle to a
merchandising company.
LO 5 Prepare a multiple-step income statement and a
comprehensive income statement.
Copyright ©2018 John Wiley & Son, Inc. 2
Merchandising Operations and
Inventory Systems
Merchandising Companies
Buy and Sell Goods
Retailer
Wholesaler Consumer
Accounts
Receivable
ILLUSTRATION 5.2
Operating cycle for a service company
Receive Buy
Cash Inventory
Cash
Mail
Sell Inventory
Accounts
Inventory
Receivable
Cost of Goods
Available for Sale
Cost of Ending
Goods Sold Inventory
ILLUSTRATION 5.6
Sales invoice used as purchase
invoice by Sauk Stereo
Ownership of goods
remains with seller until
the goods reach buyer.
ILLUSTRATION 5.7
Shipping terms
Freight costs incurred by the seller are an operating expense.
Net Sales
$3,430
LO 3 Copyright ©2018 John Wiley & Son, Inc. 34
Sales Discounts
Illustration: Assume Sauk Stereo pays the balance due of
$3,500 (gross invoice price of $3,800 less purchase
returns and allowances of $300) on May 14, the last day
of the discount period. Prepare the journal entry PW
Audio Supply makes to record the receipt on May 14.
Cash 3,430
Sales Discounts 70
Accounts Receivable 3,500
[($3,800 – $300) X 2%]
Multiple- Sales
Sales revenue $480,000
Multiple- Sales
Sales revenue $480,000
Income Statement
For the Year Ended December 31, 2020
Revenues
Net sales $460,000
Interest revenue 3,000
Gain on disposal of plant assets 600
Total revenues 463,600
Expenses
Cost of goods sold $316,000
Operating expenses 114,000
Interest expense 1,800
Casualty loss from vandalism 200
Total expenses 432,000
Net income $ 31,600