Merchandising Company and what is its primary source of revenue?
Enterprise that buys & sells goods to earn a profit. Sales is its primary source of revenues.
What is the chain of command in the merchandising company?
wholesaler sells to--> retailer (sells to)--> consumers
What are the expenses for merchandising companies? define each one
1) cost of goods sold: total cost of merchandise sold during the period
2) operating expenses: expenses incurred in process of earning sales revenue (i.e. sales salaries, insurance expense)
Gross Profit Equation
Gross profit =
Sales revenue - Cost of goods sold
Net income (loss) Equation
Net income (loss) = Gross profit - operating expenses
What are the 2 types of inventory systems of merchandising companies? Define each.
1) Perpetual: "continual" - detailed records of each time cost are kept and cost of each item sold is found from records when the sale occurs.
2) Periodic: "@ end of period" - cost of goods is determined at end of accounting period
What are the steps of cost of goods sold under periodic inventory system?
1) find cost of goods @ beginning of accounting period
2) add to that cost of goods purchased
3) subtract cost of goods on hand @ end of accounting period
General Journal entry for purchase of merchandise (to resale for customers)
Debit Merchandise Inventory
Credit Accounts Payable
seller or buyer pays cost of transportation to buyers place of business
FOB Shipping Point
1) Goods placed free on board the carrier by seller
2) Buyer pays freight cost
1) Goods placed free on board @ buyer's business
2) Seller pays freight cost
purchaser can return goods to seller
purchaser may keep the merchandise if the seller grants an allowance
General Journal entry for returned goods
Debit Accounts Payable
Credit Merchandise Inventory