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4. Reporting and Analyzing Merchandising Activities. Chapter. UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee. Pur. Disc. xxx. Pur. R&A. xxx. Periodic Inventory Method. When Inventory is Purchased.

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reporting and analyzing merchandising activities

4

Reporting and Analyzing Merchandising Activities

Chapter

UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee

periodic inventory method

Pur. Disc.

xxx

Pur. R&A

xxx

Periodic Inventory Method

When Inventory is Purchased

Accts. Payable

xxx

Purchases

Contra

xxx

Inventory

BI xxx

Contra

The Inventory Account is not updated when inventory is purchased.

perpetual inventory method
Perpetual Inventory Method

Accts. Pay

Pur. Disc.

xxx

xxx

Purchases

When Purchased

xxx

Pur. R&A

Inventory

xxx

xxx

xxx

COGS

xxx

When Sold

perpetual inventory method4
Perpetual Inventory Method

When Sale is made

Accts. Rec.

Sales Disc.

xxx

xxx

Sales

Contra

xxx

Sales R&A

Inventory

xxx

xxx

COGS

Contra

xxx

Match COGS

adjusting entries
Adjusting Entries
  • Prepaid Expenses
  • Depreciation
  • Unearned Revenue
  • Accrued Expenses
  • Accrued Revenue-

There’s more!

perpetual systems inventory shrinkage
Perpetual Systems – Inventory Shrinkage
  • Shrinkage is defined as “the loss of inventory.”
  • Usually charged to cost of goods sold.
inventory shrinkage text example
Inventory Shrinkage – Text Example
  • Suppose that Z-Mart’s Inventory account at year-end 2002 has a balance of $21,250, but that a physical count reveals only $21,000 of inventory on hand.
closing entries
Closing Entries
  • Close the Revenue Accounts
  • Close the Expense Accounts
  • Close the Income Summary
  • Close the Dividends Account

There’s more!

slide10

We have some new accounts

Close these with the expense accounts.

slide11

Let’s prepare the

closing entriesfor

Bob’s Shop for Men.

inventory systems

ACCT 201 ACCT 201 ACCT 201

Inventory Systems

Beginninginventory

Net cost ofpurchases

+

Merchandiseavailable for sale

Ending Inventory

Cost of GoodsSold

+

merchandising cost accounts

Becomes beginning inventory of Year 2

BalanceSheet

Merchandising Cost Accounts

BeginninginventoryYear 1

Net cost ofpurchases

+

Merchandiseavailable for sale

=

Ending Inv.Year 1

Cost of GoodsSold

+

Income Statement

merchandising cash flows
Merchandising Cash Flows

Accrual-Based

Cash-Based

Exhibit 4-19

acid test ratio

Acid-Test

Ratio

Quick Assets

Current Liabilities

=

Cash + S-T Investments + Receivables

Current Liabilities

Acid-Test

Ratio

=

ACCT 201 ACCT 201 ACCT 201

Acid-Test Ratio

A common rule of thumb is the acid-test ratio should have a value of at least 1.0 to conclude a company is unlikely to face liquidity problems in the near future.

gross margin ratio
Gross Margin Ratio

Percentage of dollar sales available to cover expenses and provide a profit.