PA - #06 - Acctg for Merchandising - Handout

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School

Riverside City College *

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42652

Subject

Accounting

Date

May 24, 2024

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docx

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Uploaded by AmbassadorIceWasp28

HANDOUT Principles of Accounting Accounting for Merchandising and Retail Businesses Handout Video #1 1. New Terminology: Merchandisers / Retailers Merchandise Inventory Cost of Goods Sold (COGS), or… Cost of Merchandise Sold, or… Cost of Sales Gross Profit (GP) Perpetual Inventory System Each purchase and sale is recorded in the inventory records in real time. The system updates what is sold and what is on hand continuously (perpetually). Periodic Inventory System Inventory records are NOT recorded or updated in real time. The inventory is calculated at the end of the accounting period (periodically). Income Statement Formats: Used by: Used by: Step Single Step Step Multiple Step Page 1

HANDOUT Example: A company sold $100 in merchandise. The customer returned $10 of merchandise and got a $5 discount. What were the Net Sales that should be shown? Sold Returns Discounts Net Sales Video #2.1 2. Sales Transactions a. Journal Entries Seller Sells Seller Receives a Return Revenue Cost AJEs at End of Period: Est Return Rev & Est Return Inv Estimate Returned Revenue Estimate Returned Cost (Inv) Credit Memo If there is a return or allowance and the items haven't been paid for yet, the Seller may issue a "Credit Memo." The Seller will credit the customer's A/R account, reducing the amount the customer owes. b. Valuation Accounts – Example Page 2

HANDOUT AAA Membership Customer Refunds Payable Jan Est Feb Est Mar Est Apr Est Invoice Return Video #2.2 c. Credit Terms Credit Terms Translation n/30 n/eom 2/10, n/30 1/20, n/45 3/15, n/60 d. Accounting Methods for Credit Terms Gross Method Record the entire invoice value up front - Assume no discounts are taken until they are actually taken Record the discount if / when customer takes it Net Method Record discounted invoice value up front Assume every discount is taken Video #3.1 Page 3

HANDOUT 3. Based on the following, prepare the sales transaction journal entries for Emmitt Company : a. Sold $500 in merchandise to a cash customer. The cost of the merchandise sold was $280. Revenue Cost b. Sold $2,000 in merchandise to a credit customer on a store account. The terms of the sale are 2/10, n/30. The cost of the merchandise sold was $1,600. Net Method: Revenue Cost c. Sold $1,200 worth of merchandise to a customer who charged the merchandise to her VISA card (personal credit card). The cost of the merchandise sold was $950. Hint: Bank card sales (VISA and MasterCard) are treated the same as cash sales because the retailer may deposit the credit card slips directly into his or her bank account. Revenue Cost Video #3.2 d. Accepted a return of $50 worth of merchandise from the cash customer in #a . The cost of the merchandise returned was $30. The customer received a cash refund. Page 4

HANDOUT Record both the Revenue and Cost entries. Assume appropriate valuation accounts are used to account for the returns. Revenue Cost e. Scenario #1: Received payment from the credit customer in #b within the discount period. Hint: Since the customer did pay within the discount period, you must recognize that discount as “final” with the cash collection transaction. Gross Sales x Disc % Disc $ A/R Gross Sales - Disc $ Cash Received f. Alternate Scenario #2: Received payment from the credit customer in #b but they did not pay within the discount period. Page 5

HANDOUT Hint: Since the customer did not pay within the discount period, you must "true up" the Sales to show total or Gross Sales when you recognize the cash collection transaction. Net Sales + Sales (Disc Lost) Gross Sales Sales (Total) A/R + Sales (Disc Lost) Cash Received g. Paid the service fee on VISA and Master Card sales to Third National Bank, $75. Video #4 4. Purchase Transactions Page 6

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