View
218
Download
0
Category
Preview:
Citation preview
7/28/2019 Easy Print Merchandising
1/15
Introduction to Accountingfor Merchandising
Operations
Viewing this presentation
Get pencil and paperready
Plan to spend longerviewing this presentationthan the minutes shown
Pause the presentation(press ll ) when aquestion is presented
Compute the answer Press play () to
resume and check youranswer andunderstanding
Objectives
Review accrualaccounting basics
Introduceterminology formerchandisingoperations
Accrual basics
revenue recognition income determination matching
7/28/2019 Easy Print Merchandising
2/15
Revenue Recognition
Revenue is recognizedwhen the earningprocess is substantiallycomplete and themeasurability and thecollectibility of the dollaramount is reasonablyassured.
Revenue Recognition
Revenue is recognizedwhen the earningprocess is substantiallycomplete and themeasurability and thecollectibility of the dollaramount is reasonablyassured.
For most businessesrevenue is recognizedwhen goods are shippedto customers or servicesare provided.
Question:
If in January:A photographer starts a new business on January
1st The photographer takes, develops and delivers
pictures worth $7,500 to customers The photographer invoices $6,000 of these services
in January but does not get around to invoicing alarge corporate customer in February for the $1,500owed for photos finished and delivered in January
Customers paid $5,000 for photos The photographer expects all amounts owed will be
collected eventually What was the Revenue for January?
Question:
If in January:A photographer starts a new business on January
1st The photographer takes, develops and delivers
pictures worth $7,500 to customers The photographer invoices $6,000 of these services
in January but does not get around to invoicing alarge corporate customer in February for the $1,500owed for photos finished and delivered in January
Customers paid $5,000 for photos The photographer expects all amounts owed will be
collected eventually What was the Revenue for January?Answer: $7,500
7/28/2019 Easy Print Merchandising
3/15
The earning process
The earning process canstretch over aconsiderable period oftime and is fraught withuncertainties
Accountants recognizerevenue at the earliestpoint when the workdone to earn it issubstantially complete
Revenue: an increase in net
assets from operations
Income Determination
Under accrualaccountingexpenses incurred
are matched withrelated revenue todetermine netincome for aparticular time
period
Income Determination
Revenue $xxx
Less: Expenses ($xx)
Net Income $ xx
Under accrualaccountingexpenses incurredare matched withrelated revenue todetermine netincome for aparticular timeperiod
7/28/2019 Easy Print Merchandising
4/15
Question:
If in January:A photographer has Sales of $7,500 Photographic Supplies worth $700 are
purchased on account
$500 is paid for the Photographic Suppliespurchased
$400 of Photographic Supplies are used up What was the Net Income for January if
there were no other expenses?
Question:
If in January:A photographer has Sales of $7,500 Photographic Supplies worth $700 are
purchased on account $500 is paid for the Photographic Supplies
purchased $400 of Photographic Supplies are used up
What was the Net Income for January ifthere were no other expenses?
Answer: $7,100
Net Income =
Revenue - Expenses
Net Income = Revenue Expenses
= $7,500 Supply Expense
Recognize expense:
Dr Supplies (balance sheet account)
Cr Cash or Accounts Payable
not at time of purchase
Dr Supplies Expense (income statement)
Cr Supplies (balance sheet account)
recognize expense at time assets expire/are used up
Expenses: a decrease in net
assets (used up assets)
7/28/2019 Easy Print Merchandising
5/15
Matching
Mismatched shoesare silly .. Unmatchedrevenues and
expenses aremisleading
Matching
Revenue $xxx
Less: Expenses ($xx)
Net Income $ xx
Mismatched shoesare silly .. Unmatchedrevenues and
expenses aremisleading
Cash vs Accrual Basis
In contrast to the accrualbasis, cash basisaccounting recognizesrevenue when money isreceived and recognizesmoney when paid
Cash vs Accrual Basis
In contrast to the accrualbasis, cash basisaccounting recognizesrevenue when money isreceived and recognizesmoney when paid
Cash basis may distortthe portrayal of financialposition and over or
understate performancemeasurement
7/28/2019 Easy Print Merchandising
6/15
service operations
Provide services ratherthan selling products
Have relatively smallsupply costs
Match expenses torevenue at end of period
Merchandising Operations
Buy and sell finished goods Cost of Goods Sold the
cost of items shipped tocustomers - is usually alarge expense
Inventory is reported onthe Balance Sheet: it isgoods held for sale
Merchandising Operations
Cost of Goods Sold (COGS) is a significant expense fora merchandising operations
COGS is often reported as a separate line item on theIncome Statement
Merchandising Operations
Cost of Goods Sold (COGS) is a significant expense fora merchandising operations
COGS is often reported as a separate line item on theIncome Statement
Often the change in inventory is computed at the timeof each sale (the perpetual method)
7/28/2019 Easy Print Merchandising
7/15
income statement
Revenue $xxx
Cost of Goods Sold xxx
Gross Profit xxx
Operating Expenses
Selling Expenses xxx
Administrative Expenses xxx xxx
Net Income $xxx
Balance Sheet
ASSETSCurrent AssetsCash $xxxAccounts receivable xxxInventory, at cost xxxPrepaid expenses xxx
Total Current Assets xxxxCapital AssetsLand $ xxxBuildings and Equipment xxxless: Accumulated depreciation xxx xxxxTotal Assets $xxxx
Recognizing Cost of Goods
Sold
not expensed when goods are purchased
Dr Inventory (balance sheet account)
Cr Cash or Accounts Payable
COGS is recognized when goods are sold
Dr Cost of Goods Sold (income statement)
Cr Inventory (balance sheet account)
Recognizing Cost of Goods
Sold
not expensed when goods are purchased
Dr Inventory (balance sheet account)
Cr Cash or Accounts Payable
COGS is recognized when goods are sold
Dr Cost of Goods Sold (income statement)
Cr Inventory (balance sheet account)
Well controlled
merchandiseoperations use aseparate inventoryaccount for each item
7/28/2019 Easy Print Merchandising
8/15
Perpetual inventory system
separate account for each inventory item accounting entry for every inventory receipt and shipment
Dr InventoryCr Accounts Payable or Cash
When
received
Perpetual inventory system
separate account for each inventory item accounting entry for every inventory receipt and shipment
Dr InventoryCr Accounts Payable or Cash
Dr Cost of Goods SoldCr Inventory
When
received
When sold
and shipped
Merchandising Operations
Cost of Goods Sold (COGS) is a significant expense fora merchandising operations
COGS is often reported as a separate line item on theIncome Statement
Often the change in inventory is computed at the timeof each sale (the perpetual method)
Sometimes the change in inventory is computed at theend of the accounting period (the periodic method)
Periodic inventory system
7/28/2019 Easy Print Merchandising
9/15
Merchandising Operations
Cost of Goods Sold (COGS) is a significant expense fora merchandising operations
COGS is often reported as a separate line item on theIncome Statement
Often the change in inventory is computed at the timeof each sale (the perpetual method)
Sometimes the change in inventory is computed at theend of the accounting period (the periodic method)
Even if the perpetual method is used, inventory must becounted and valued and the accounting recordsadjusted to the computed value
Mug promotions
Prepare financialstatements for theworlds simplestmerchandising business
Mug promotions
Buys ceramic mugs for$2 each
Customizes the mugswith a logo (in thisexample magically at nolabour cost to focusattention on theinventory transactions)
Sells the customizedmugs on account for $3each
Mug Promotions
Begins June:
Cash $ 5,000Accounts Receivable $ 2,000Inventory $ 4,000
Accounts Payable $ 1,000
During June:
receives 1,000 mugs and ships 2,500 mugs invoices customers for 2,000 mugs collects $5,000 from customers Pays suppliers $2,000
7/28/2019 Easy Print Merchandising
10/15
Question:
What was revenue in June?
Begins June:
Cash $ 5,000Accounts Receivable $ 2,000Inventory $ 4,000
Accounts Payable $ 1,000
During June:
receives 1,000 mugs and ships 2,500 mugs invoices customers for 2,000 mugs collects $5,000 from customers Pays suppliers $2,000 Mugs sell for $3 each on account; mugs cost $2 each
Answer:
Mug Promotions
Income Statement for June
Revenue $7,500
Mugs sell for $3 each and 2,500 wereshipped in June.
Revenue is recognized when goods aredelivered.
Question:
What was COGS in June?
Begins June:
Cash $ 5,000Accounts Receivable $ 2,000Inventory $ 4,000
Accounts Payable $ 1,000
During June:
receives 1,000 mugs and ships 2,500 mugs invoices customers for 2,000 mugs collects $5,000 from customers Pays suppliers $2,000 Mugs sell for $3 each on account; mugs cost $2 each
Answer:
Mug PromotionsIncome Statement for June
Revenue $7,500Cost of goods sold 5,000Gross Profit $2,500
Mugs cost $2 each. Cost of goods sold is matchedtorevenue - - 2,500 mugs were sold in June so the cost
of 2,500 mugs, 2,500 x $2, is recognized as Cost ofGoods Sold
There are no other expenses Net Income is also$2,500
7/28/2019 Easy Print Merchandising
11/15
Question:
What was Cash Balance at
June 30th?Begins June:
Cash $ 5,000Accounts Receivable $ 2,000Inventory $ 4,000
Accounts Payable $ 1,000
During June:
receives 1,000 mugs and ships 2,500 mugs invoices customers for 2,000 mugs collects $5,000 from customers Pays suppliers $2,000 Mugs sell for $3 each on account; mugs cost $2 each
Answer:
ASSETS June 30 June 1
Cash $8,000 $ 5,000
Accounts Receivable ?? $ 2,000
Inventory ?? $ 4,000
?? $11,000
LIABILITIES and OWNERs EQUITY
Accounts Payable ?? $ 1,000
Owners Equity ?? ??
Cash Balance June 1 ($5,000) + Customer
Receipts ($5,000) payments to suppliers ($2,000)
Question:
What was Accounts Receivable
Balance at June 30th?Begins June:
Cash $ 5,000Accounts Receivable $ 2,000Inventory $ 4,000
Accounts Payable $ 1,000
During June:
receives 1,000 mugs and ships 2,500 mugs invoices customers for 2,000 mugs collects $5,000 from customers Pays suppliers $2,000 Mugs sell for $3 each on account; mugs cost $2 each
Answer
ASSETS June 30 June 1
Cash $8,000 $ 5,000
Accounts Receivable 4,500 $ 2,000
Inventory ?? $ 4,000
?? $11,000
LIABILITIES and OWNERs EQUITY
Accounts Payable ?? $ 1,000
Owners Equity ?? ??A/R Balance June 1 ($2,000) + Credit Sales
($7,500) - Customer Receipts ($5,000)
7/28/2019 Easy Print Merchandising
12/15
Question:
What was Inventory
Balance at June 30th?Begins June:
Cash $ 5,000Accounts Receivable $ 2,000Inventory $ 4,000
Accounts Payable $ 1,000
During June:
receives 1,000 mugs and ships 2,500 mugs invoices customers for 2,000 mugs collects $5,000 from customers Pays suppliers $2,000 Mugs sell for $3 each on account; mugs cost $2 each
Answer
ASSETS June 30 June 1
Cash $8,000 $ 5,000
Accounts Receivable 4,500 $ 2,000
Inventory 1,000 $ 4,000
$13,500 $11,000
LIABILITIES and OWNERs EQUITY
Accounts Payable ?? $ 1,000
Owners Equity ?? ??
Inventory Balance June 1 ($4,000) + mugspurchased (1,000 x $2 = $2,000) cost of mugs
shipped ($5,000)
Question:
What was Accounts Payable
Balance at June 30th?Begins June:
Cash $ 5,000Accounts Receivable $ 2,000Inventory $ 4,000
Accounts Payable $ 1,000
During June:
receives 1,000 mugs and ships 2,500 mugs invoices customers for 2,000 mugs collects $5,000 from customers Pays suppliers $2,000 Mugs sell for $3 each on account; mugs cost $2 each
Answer
ASSETS June 30 June 1
Cash $8,000 $ 5,000
Accounts Receivable 4,500 $ 2,000
Inventory 1,000 $ 4,000
$13,500 $11,000
LIABILITIES and OWNERs EQUITY
Accounts Payable $1,000 $ 1,000
Owners Equity ?? ??
Accounts Payable Balance June 1 ($1,000) + mugspurchased (1,000 x $2 = $2,000) payments($2,000)
7/28/2019 Easy Print Merchandising
13/15
Question:
What was Owners Equity
Balance at June 30th?Begins June:
Cash $ 5,000Accounts Receivable $ 2,000Inventory $ 4,000
Accounts Payable $ 1,000
During June:
receives 1,000 mugs and ships 2,500 mugs invoices customers for 2,000 mugs collects $5,000 from customers Pays suppliers $2,000 Mugs sell for $3 each on account; mugs cost $2 each
Answer
ASSETS June 30 June 1
Cash $8,000 $ 5,000
Accounts Receivable 4,500 $ 2,000
Inventory 1,000 $ 4,000
$13,500 $11,000
LIABILITIES and OWNERs EQUITY
Accounts Payable $1,000 $ 1,000
Owners Equity ?? $10,000
?? $11,000
Balance Sheet Equation Assets = Liabilities + OE
Question:
Do June 30th Statements
Balance?Begins June:
Cash $ 5,000Accounts Receivable $ 2,000Inventory $ 4,000
Accounts Payable $ 1,000
During June:
receives 1,000 mugs and ships 2,500 mugs invoices customers for 2,000 mugs collects $5,000 from customers Pays suppliers $2,000 Mugs sell for $3 each on account; mugs cost $2 each
Does the computed NetIncome change OwnersEquity to balance theBalance Sheet?
Answer
ASSETS June 30 June 1
Cash $8,000 $ 5,000
Accounts Receivable 4,500 $ 2,000
Inventory 1,000 $ 4,000
$13,500 $11,000
LIABILITIES and OWNERs EQUITY
Accounts Payable $1,000 $ 1,000
Owners Equity $12,500 $10,000
$13,500 $11,000Yes! Owners Equity at June 1 + Net Income ($2,500) is
$12,500 which balances
7/28/2019 Easy Print Merchandising
14/15
Financial StatementsBalance Sheet
Assets = Liabilities + Shareholders' Equity
Share Capital + Retained Earnings
Cash Flow StatementChanges in cash resultfrom:
investing activitiesfinancing activities
operating activities
Statement ofRetained Earnings (RE)Dividends decrease RENet Income increases RE
Income StatementNet Income = Revenue - Expenses
Computing COGS
Opening Inventory $xxxx
Plus net cost of purchases
Purchases $xxxx
Less: Purchases returns
and allowances (xxx)
Less: Purchase discounts (xx)
Add: Transporation in xx xxx
Cost of Goods Available xxxx
Less ending inventory (xxx)
COGS $xxxx
manufacturing operations
also use Inventory andCost of Goods Soldaccounts
costs included in inventorynot only product costs, butalso certain manufacturingcosts and period costs(e.g., rent and utilities)
Separate inventoriesamounts are reported: raw
materials inventories, work-in-process inventories andfinished goods inventories.
inventory errors
Errors which incorrectly includes orexcludes items from ending inventory willresult in both income statement andbalance sheet errors
Errors in inventory valuation will result inboth income statement and balance sheeterrors.
Inventory errors can be HUGE
7/28/2019 Easy Print Merchandising
15/15
merchandising example
www.homedepot.com
world's largest home improvementretailer
For year ended February 3, 2002:over 1,500 stores and 280,000
employees
merchandising example
www.homedepot.com
world's largest home improvement retailer over 1,500 stores and over 250,000 employees Net Sales over $50 billion US Cost of Goods Sold over $30 billion US
Accountings contribution
Home Depot:
has over 40,000 different inventory items has over 6 Billion US$ in inventory
Good inventory accounting is apart of its success story
Recommended