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Chapter ACCT 201 ACCT 201 4 Reporting and Analyzing Merchandising Activities ACCT 201 UAA – ACCT 201 Principles of Financial Accounting Dr. Fred Barbee
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ACCT 201 Service Organizations ACCT 201 Service organizations sell time to earn revenue. ACCT 201 Examples: accounting firms, law firms, and plumbing services.
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Slide #3.

ACCT 201 Service Organizations ACCT 201 ACCT 201 Income Statement Service Firm $50,00 Fees Earned 0 Operating 36,000 Expenses $14,00 Net Income 0
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ACCT 201 Merchandising Companies ACCT 201 Merchandising companies sell products to earn revenue. Examples: sporting goods, clothing, and auto parts stores ACCT 201
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ACCT 201 Merchandising Companies ACCT 201 ACCT 201 Income Statement Merchandising Firm $150,00 Sales 0 Cost of Goods Sold 90,000 Gross Profit $60,000 (Margin) Operating
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Slide #6.

ACCT 201 Merchandising Activities ACCT 201 Merchandising Companies Manufacturer Wholesaler Retailer Customer ACCT 201
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ACCT 201 Merchandising Companies ACCT 201 Merchandising Merchandising Company Company Balance BalanceSheet Sheet December December 31, 31, 2002 2002 Assets Assets ACCT 201 Cash Cash Merchandise MerchandiseInventory Inventory Equipment Equipment $$ 10,200 10,200 1,200 1,200 16,000 16,000 Total Totalassets assets $$ 27,400 27,400 Liabilities Liabilities Accounts $$ Accountspayable payable Notes Notes payable payable Total $$ Totalliabilities liabilities Equity Equity Total Totalliabilities liabilitiesand and equity $$ equity 1,200 1,200 4,000 4,000 5,200 5,200 22,200 22,200 27,400 27,400
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Slide #8.

ACCT 201 Classified Balance Sheet Toys-For-Kids, Inc. Balance Sheet December 31, 2002 ACCT 201 ACCT 201 Assets Current assets Cash Accounts receivable Merchandise inventory Supplies Prepaid insurance Total current assets Plant assets Land Building Less: accumulated depreciation Equipment Less: accumulated depreciation Furniture and fixtures Less: accumulated depreciation Total plant assets Total assets Liabilities Current liabilities Accounts payable Wages payable Short-term bank note Total current liabilities Long-term notes payable Equity Common stock Retained earnings Total liabilities and equity $ 24,580 98,400 125,090 4,700 6,800 $ 259,570 75,000 $ 421,500 117,200 114,720 41,900 62,800 21,000 304,300 72,820 41,800 493,920 $ 753,490 $ 187,600 15,875 25,000 $ 228,475 275,000 200,000 50,015 $ 753,490
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Slide #9.

ACCT 201 Operating Cycle ACCT 201 Begins with the purchase of merchandise and ends with the collection of cash from the sale of merchandise. ACCT 201
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Slide #10.

ACCT 201 Operating Cycle – Cash Sale Sale ACCT 201 ACCT 201 Purchase s Inventory
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Slide #11.

Operating Cycle – Credit Sale Sal e Accounts Receivable Inventory Collectio n Purchase s
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Slide #12.

ACCT 201 Inventory Systems ACCT 201 Beginning inventory + Net cost of purchases Merchandise available for sale ACCT 201 Ending Inventory + Cost of Goods Sold
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Slide #13.

ACCT 201 ACCT 201 ACCT 201 Periodic Invento ry System s
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Slide #14.

ACCT 201 Periodic Inventory System ACCT 201 Physically count inventory, usually at end of accounting period. No detailed records of the actual inventory are maintained during the accounting period. ACCT 201 Less costly than perpetual inventory method, but provides less information.
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Slide #15.

Periodic Inventory When Method Inventory is Accts. Payable xxx Pur. Disc. xxx Purchased Purchases xxx Pur. R&A xxx Inventory BI xxx The Inventory Account is not updated when inventory is purchased.
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Slide #16.

Cost of Goods Sold Component Amount Beginning Inventory $52,800 Net Purchases 126,860 Goods Available for Sale 179,660 Less: Ending Inventory Cost of Goods Sold 48,300 $131,660
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Slide #17.

ACCT 201 ACCT 201 ACCT 201 Perpetu al Invento ry System
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Slide #18.

ACCT 201 Perpetual Inventory System ACCT 201 Continuous records are kept of the quantity and, usually, the cost of individual items as they are bought and sold. ACCT 201 More effective for providing information about quantities and ensuring optimal customer service.
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Slide #19.

Perpetual Inventory Method Accts. Pay xxx Pur. Disc. xxx Purchases When Purchased xxx Pur. R&A xxx COGS xxx Inventory xxx xxx When Sold
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Slide #20.

ACCT 201 Perpetual Inventory System ACCT 201 In a perpetual inventory system, each purchase and sale of merchandise is recorded in an inventory account. ACCT 201 In this way, the inventory records always (perpetually) disclose the amount of inventory on hand the the amount sold.
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Slide #21.

ACCT 201 ACCT 201 ACCT 201
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Slide #22.

ACCT 201 Merchandise Purchases ACCT 201 On June, 20, Melton Company purchased $14,000 of merchandise inventory paying cash. GENERAL JOURNAL Date Description ACCT 201 Jun 20 Merchandise Inventory Cash Page 55 PR Debit Credit 14,000 14,000
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Slide #23.

ACCT 201  Main Source, Inc. 614 Tech Avenue Nashville, TN 37651 ACCT 201  P.O. 167 Item AC417 S o l d T o Sales: 25  Invoice   Name: Barbee, Inc. Attn: Tom Bell Address: One Willow Plaza Cookeville, Tennessee 38501  Terms 2/10,n/30 Description 250 Backup System ACCT 201 We appreciate your business! Date 5/4/02 Number 358-BI Seller Seller Invoice Invoice date Purchaser Order Order number number Credit terms terms Freight Freight terms terms Goods Goods Invoice Invoice amount amount  Ship: FedEx Prepaid Quanity Price Amount 500 $ 54.00 $ 27,000 Sub Total Ship Chg. Tax Total $ 27,000 27,000 
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Slide #24.

ACCT 201 Trade Discounts ACCT 201 Used by manufacturers and wholesalers to change selling prices without republishing their catalogs. Example ACCT 201 JenCo, Inc. offers a 30% trade discount on orders of 1,000 units or more of their popular product Racer. Each Racer has a list price of $5.25.
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Slide #25.

Purchase Discounts A deduction from the invoice price granted to induce early payment of the amount due. Terms Time Due Discount Period Credit Period Full amount less discount Full amount due Purchase or Sale Exhibit 4-7
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Slide #26.

Purchase Discounts 2/10,n/30 Discount Discount Percent Percent Number Number of of Days Days Discount Discount Is Is Available Available Otherwise, Otherwise, Net Net (or (or All) All) Is Is Due Due Credit Credit Period Period
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Slide #27.

ACCT 201 Purchase Discounts ACCT 201 On May 7, Martin, Inc. purchased $27,000 of Merchandise Inventory on account, credit terms are 2/10, n/30. GENERAL JOURNAL ACCT 201 Date May Description 7 Merchandise Inventory Accounts Payable Page 49 PR Debit Credit 27,000 27,000
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Slide #28.

ACCT 201 Purchase Discounts ACCT 201 On May 15, Martin, Inc. paid the amount due on the purchase of May 7. GENERAL JOURNAL Date Description May 15 Accounts payable Page 55 PR Debit Credit 27,000 Cash ACCT 201 Merchandise inventory $27,000 × 2% = $540 discount 26,460 540
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Slide #29.

ACCT 201 Purchase Discounts ACCT 201 After we post these entries, the accounts involved look like this: Merchandise Inventory 5/7 27,000 5/15 ACCT 201 Bal. 26,460 540 Accounts Payable 5/15 27,000 5/7 27,000 Bal. 0
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Slide #30.

ACCT 201 Managing Discounts Annual Rate ACCT 201 If we fail to take a 2/10, n/30 discount, is it really expensive? 365 / 20 ACCT 201 Days in Year X 36.5 2% = % Percent paid to keep money Number of additional days before payment
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Slide #31.

ACCT 201 Purchase Returns and Allowances ACCT 201 Purchase Return . . . Merchandise returned by the purchaser to the supplier. Purchase Allowance . . . ACCT 201 A reduction in the cost of defective merchandise received by a purchaser from a supplier.
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Slide #32.

ACCT 201 Purchase Returns and Allowances ACCT 201 On May 9, Barbee, Inc. purchased $20,000 of Merchandise Inventory on account, credit terms are 2/10, n/30. GENERAL JOURNAL ACCT 201 Date May Description 9 Merchandise Inventory Accounts Payable Page 34 PR Debit Credit 20,000 20,000
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Slide #33.

ACCT 201 Purchase Returns and Allowances ACCT 201 On May 10, Barbee, Inc. returned $500 of defective merchandise to the supplier. GENERAL JOURNAL JOURNAL Date Description Description ACCT 201 May 10 Accounts payable Merchandise Inventory Page Page 37 37 PR PR Debit Debit Credit Credit 500 500
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Slide #34.

ACCT 201 Purchase Returns and Allowances ACCT 201 On May 18, Barbee, Inc. paid the amount owed for the May 9 purchase. GENERAL JOURNAL Date Description May 18 Accounts payable Merchandise inventory ACCT 201 Cash Page 61 PR Debit Credit 19,500 390 19,110
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Slide #35.

Transportation Costs Buyer Seller FOB shipping point (buyer pays) Merchandise FOB destination (seller pays)
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Slide #36.

ACCT 201 Transportation Costs ACCT 201 On May 12, Barbee, Inc. purchased $8,000 of Merchandise for cash and also paid $100 transportation costs. GENERAL JOURNAL Date Description ACCT 201 May 12 Merchandise Inventory Cash Page 39 PR Debit Credit 8,100 8,100
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Slide #37.

ACCT 201 Recording Purchases Information ACCT 201 ACCT 201 Matrix, Inc. Total Cost of Merchandise Purchases For Year Ended December 31, 2002 Invoice cost of merchandise purchases $ 692,500 Less: Purchase discounts received (10,388) Purchase returns and allowances (4,275) Add: Cost of transportation-in 4,895 Total cost of merchandise purchases $ 682,732
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Slide #38.

ACCT 201 ACCT 201 ACCT 201
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Slide #39.

ACCT 201 Sales Transactions ACCT 201 On March 18, TwoCom sold $25,000 of merchandise on account. The merchandise was carried in inventory at a cost of $18,000. GENERAL JOURNAL Date Description Mar. 18 Accounts Receivable Page 3 PR Debit 25,000 ACCT 201 Sales Cost of Goods Sold Merchandise Inventory Credit 25,000 18,000 18,000
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Slide #40.

ACCT 201 Sales Discounts ACCT 201 On June 8, Borey Co. sold merchandise costing $3,500 for $6,000 on account. Credit terms were 2/10, n/30. GENERAL JOURNAL Date Jun Description 8 Accounts Receivable Page 3 PR Debit Credit 6,000 ACCT 201 Sales Cost of Goods Sold Merchandise Inventory 6,000 3,500 3,500
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Slide #41.

ACCT 201 Sales Discounts ACCT 201 On June 17, Borey Co. received a check for $5,880 in full payment of the June 8 sale. ACCT 201
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Slide #42.

ACCT 201 Sales Returns and Allowances ACCT 201 On June 12, Borey Co. sold merchandise costing $4,000 for $7,500 on account The credit terms were 2/10, n/30. GENERAL JOURNAL Date Description Jun 12 Accounts Receivable Page 4 PR Debit Credit 7,500 Sales ACCT 201 Cost of Goods Sold Merchandise Inventory 7,500 4,000 4,000
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Slide #43.

ACCT 201 Sales Returns and Allowances ACCT 201 On June 14, merchandise with a sales price of $800 and a cost of $470 was returned to Borey. The return is related to the June 12 sale. GENERAL JOURNAL Date Description Jun 14 Sales Returns and Allowances Page 3 PR Debit Credit 800 ACCT 201 Accounts Receivable Merchandise Inventory Cost of Goods Sold 800 470 470
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Slide #44.

ACCT 201 Sales Returns and Allowances ACCT 201 On June 20, Borey received the amount owed to it from the sale of June 12. GENERAL JOURNAL Date Description Jun 20 Cash ACCT 201 Sales Discounts Account Receivable Page 6 PR Debit Credit 6,566 134 6,700
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Slide #45.

ACCT 201 Exh. 6-11 Recording Sales Information ACCT 201 ACCT 201 Sales Sales discounts discounts and and returns returns and and allowances allowances are are Contra Contra Revenue Revenue accounts. accounts.
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