Describe and illustrate merchandising operations and
the two types of inventory systems
2. Account for the purchase of inventory using a perpetual
system
3. Account for the sale of inventory using a perpetual
system
4. Adjust and close the accounts of a merchandising
business
5. Prepare a merchandiser’s financial statements
6. Use gross profit percentage, inventory turnover, and
days in inventory to evaluate a business
7. Account for the sale of inventory using a periodic system
8. Prepare worksheets for a merchandiser
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International accounting Chapter 4: Merchandising Operations
MA. NguyenQuocNhat 1nhatnq.faa@gmail.com
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Chapter 4
MA. Nguyen Quoc Nhat
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Learning Objectives
1. Describe and illustrate merchandising operations and
the two types of inventory systems
2. Account for the purchase of inventory using a perpetual
system
3. Account for the sale of inventory using a perpetual
system
4. Adjust and close the accounts of a merchandising
business
5. Prepare a merchandiser’s financial statements
6. Use gross profit percentage, inventory turnover, and
days in inventory to evaluate a business
7. Account for the sale of inventory using a periodic system
8. Prepare worksheets for a merchandiser
www.themegallery.com Company Logo
Chapter ‘s content
4.1 What Are Merchandising Operations?
4.2 Accounting for Inventory in the
Perpetual System
4.3 Adjusting and Closing the Accounts of a
Merchandiser
4.4 Preparing a Merchandiser’s Financial
Statements
4.5 Three Ratios for Decision Making
International accounting Chapter 4: Merchandising Operations
MA. NguyenQuocNhat 2nhatnq.faa@gmail.com
www.themegallery.com Company Logo
4.1 What Are Merchandising Operations?
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4.1 What Are Merchandising Operations?
The operating cycle of a merchandiser is as follows :
1. It begins when the company purchases inventory
from a vendor.
2. The company then sells the inventory to a customer.
3. Finally, the company collects cash from customers.
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4.1 What Are Merchandising Operations?
Inventory Systems:
There are two main types of inventory accounting
systems:
● Periodic system
● Perpetual system
International accounting Chapter 4: Merchandising Operations
MA. NguyenQuocNhat 3nhatnq.faa@gmail.com
www.themegallery.com Company Logo
4.1 What Are Merchandising Operations?
Inventory Systems:
There are two main types of inventory accounting
systems:
● Periodic system - the business
physically counts its inventory periodically to
determine the quantities on hand
● Perpetual system - the number of inventory units
and the dollar amounts are perpetually
(constantly) updated.
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4.2 Accounting for Inventory in the
Perpetual System
Purchase of Inventory
Suppose Smart Touch buys $35,000 of
inventory, returns $700 of the goods, and
takes a 2% early payment discount. Smart
Touch also pays $2,100 of freight in. The
following summary shows Smart Touch’s
net cost of this inventory. All amounts are
assumed for this illustration.
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4.2 Accounting for Inventory in the
Perpetual System
International accounting Chapter 4: Merchandising Operations
MA. NguyenQuocNhat 4nhatnq.faa@gmail.com
www.themegallery.com Company Logo
4.2 Accounting for Inventory in the
Perpetual System
Sale of Inventory
Sales revenue (Sales): The amount a business earns
from selling merchandise inventory.
Cost of goods sold (COGS) (also known as Cost
of sales or COS)is the cost of inventory that has
been sold to customers. the merchandiser’s
major expense
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4.2 Accounting for Inventory in the
Perpetual System
Sale of Inventory
A sales return: The customer may return goods to Smart
Touch, asking for a refund or credit to the customer’s
account.
A sales allowance: Smart Touch may grant a sales
allowance to entice the customer to accept non-standard
goods. This allowance will reduce the future cash
collected from the customer.
A sales discount: If the customer pays within the
discount period—under terms such as 2/10, n/30—Smart
Touch collects the discounted amount.
Freight out: Smart Touch may have to pay delivery
expense to transport the
goods to the buyer.
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4.3 Adjusting and Closing the Accounts of a
Merchandiser
A merchandiser adjusts and closes accounts the same
way a service entity does. If a worksheet is used, the trial
balance is entered, and the worksheet is completed to
determine net income or net loss
International accounting Chapter 4: Merchandising Operations
MA. NguyenQuocNhat 5nhatnq.faa@gmail.com
www.themegallery.com Company Logo
4.3 Adjusting and Closing the Accounts of a
Merchandiser
Closing still means to zero out all accounts that aren’t on
the balance sheet. All amounts are assumed for this
illustration.
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4.4 Preparing a Merchandiser’s Financial
Statements
Income Statement:
The income statement begins with Sales,
Cost of goods sold, and Gross profit. Then
come the operating expenses, which are
those expenses other than Cost of goods sold
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4.4 Preparing a Merchandiser’s Financial
Statements
Balance sheet:
For a merchandiser, the balance sheet is the
same as for a service business, except
merchandisers have an additional current
asset, Inventory. Service businesses have no
inventory.
International accounting Chapter 4: Merchandising Operations
MA. NguyenQuocNhat 6nhatnq.faa@gmail.com
www.themegallery.com Company Logo
4.5 Three Ratios for Decision Making
The Gross Profit Percentage
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4.5 Three Ratios for Decision Making
The Rate of Inventory Turnover
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4.5 Three Ratios for Decision Making
Days in Inventory
International accounting Chapter 4: Merchandising Operations
MA. NguyenQuocNhat 7nhatnq.faa@gmail.com
LOGO
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