1 6 accounting for merchandising businesses - … a merchandising business. 4 ... property, plant,...

1

6

Accounting for Accounting for Merchandising Merchandising BusinessesBusinesses

1

BusinessesBusinesses

2

1. Distinguish between the activities and

financial statements of service and

merchandising businesses.

After studying this chapter, you should

be able to:

2


2. Describe and illustrate the financial

statements of a merchandising

business.

3

3. Describe and illustrate the accounting for

merchandise transactions including:� sale of merchandise

After studying this chapter, you should

be able to:

3

� sale of merchandise

� purchase of merchandise

� transportation costs, sales taxes, trade discounts

� dual nature of merchandising transactions.

4. Describe the adjusting and closing process

for a merchandising business.

4

Distinguish between the

Objective 1Objective 1

6-1

4

activities and financial

statements of service and


5

Service Business

Fees earned $XXX

6-1

5

Fees earned $XXX

Operating expenses –XXX

Net income $XXX

6

Merchandising Business

Sales $XXX

Cost of Merchandise Sold –XXX

6-1

6

Cost of Merchandise Sold –XXX

Gross Profit $XXX

Operating Expenses –XXX

Net Income $XXX

7

When merchandise is sold, the

revenue is reported as sales, and

its cost is recognized as an

6-1

7

its cost is recognized as an

expense called cost of

merchandise sold.

8

The cost of merchandise sold is

subtracted from sales to arrive at

gross profit. This amount is

called gross profit because it is

6-1

8

called gross profit because it is

the profit before deducting the

operating expenses.

9

Merchandise on hand (not

sold) at the end of an

accounting period is called

6-1

9

accounting period is called

merchandise inventory.

10

On August 25, Gallatin Repair Service extended an offer of

$125,000 for land that had been priced for sale at $150,000. On

September 3, Gallatin Repair Service accepted the seller’s

counteroffer of $137,000. On October 20, the land was assessed

at a value of $98,000 for property tax purposes. On December 4,

1-2

During the current year, merchandise is sold for $250,000

cash and for $975,000 on account. The cost of the

merchandise sold is $735,000. What is the amount of the

gross profit?

6-1

Example Exercise 6-1

10

at a value of $98,000 for property tax purposes. On December 4,

Gallatin Repair Service was offered $160,000 for the land by a

national retail chain. At what value should the land be recorded

in Gallatin Repair Service’s records?

Follow My Example 1-1

$137,000. Under the cost concept, the land should be recorded at

the cost to Gallatin Repair Service.31

gross profit?


The gross profit is $490,000 ($250,000 + $975,000 –

$735,000).

10For Practice: PE 6-1A, PE 6-1B

11

6-1

1111

12

Describe and illustrate the


6-2

12

financial statements of a

merchandising business.

13

The multiple-step

income statement

contains several sections,

6-2Multiple-Step Income Statement

13

contains several sections,

subsections, and

subtotals.

14

The Sales account

provides the total amount

charged to customers for

6-2

14

charged to customers for

merchandise sold,

including cash sales and

sales on account.

15

Sales returns and

allowances are granted by

the seller to customers for

6-2

15

the seller to customers for

damaged or defective

merchandise.

16

Sales discounts are granted

by the seller to customers

for early payment of

6-2

16

for early payment of

amounts owed.

17

Net sales is determined by

subtracting sales returns

and allowances and sales

6-2

17

and allowances and sales

discounts from sales.

18

Revenue from sales:Sales $720,185

NetSolutionsNetSolutionsIncome StatementIncome Statement

For the Year Ended December 31, 2009For the Year Ended December 31, 2009

6-2Multiple-Step Income Statement

1818(Continued)

Sales $720,185Less: Sales returns and allowances $ 6,140

Sales discounts 5,790 11,930Net sales $708,255

Cost of merchandise sold 525,305

Gross profit $182,950

19

Operating expenses:Selling expenses:

Sales salaries expense $53,430Advertising expense 10,860Depr. Expense–store equipment 3,100Delivery Expense 2,800Miscellaneous selling expense 630

Total selling expenses $ 70,820Administrative expenses:

19

Administrative expenses:Office salaries expense $21,020Rent expense 8,100Depr. expense–office equipment 2,490Insurance expense 1,910Office supplies expense 610Misc. administrative expense 760

Total admin. expenses 34,890Total operating expenses 105,710

Income from operations $ 77,24019

(Continued)

20

Other income and expenses:Rent revenue $ 600Interest expense (2,440) (1,840)

Net income $75,400

6-2

20(Concluded) 20

21

Cost of merchandise sold

was discussed earlier. It is

the cost of the merchandise

6-2

21

the cost of the merchandise

sold to customers.

22

As we discussed in Slide 16,

sellers may offer customers

sales discounts for early

payment of their bills. From

6-2

22

payment of their bills. From

the buyer’s perspective, such

discounts are referred to as

purchase discounts.

23

The buyer may return merchandise

to the seller (a purchase return),

or the buyer may receive a

6-2

23

or the buyer may receive a

reduction in the initial price at

which the merchandise was

purchased (a purchase allowance).

24

Cost of Merchandise

Sold

6-2

2424

25

6-2Single-Step Income Statement

An alternative form of income

statement is the single-step

income statement. As shown in

the next slide, the income

25

the next slide, the income

statement for NetSolutions

deducts the total of all expenses

in one step from the total of all

revenues.

26

Revenues:Net sales $708,255Rent revenue 600

NetSolutionsNetSolutions

Income Statement Income Statement For the Year Ended December 31, 2009For the Year Ended December 31, 2009

6-2Exhibit 3: Single-Step Income Statement

2626

Rent revenue 600

Total revenues $708,855Expenses:

Cost of merchandise sold $525,305Selling expenses 70,820Administrative expenses 34,890Interest expense 2,440

Total expenses 633,455

Net income $ 75,400

27

6-2Exhibit 4: Statement of Owner’s Equity

NetSolutionsNetSolutionsStatement of Owner’s EquityStatement of Owner’s Equity

For the Year Ended December 31, 2009For the Year Ended December 31, 2009

2727

Chris Clark, capital, 1/1/09 $153,800Net income for year $75,400Less withdrawals 18,000Increase in owner’s equity 57,400Chris Clark, capital, 12/31/09 $211,200

28

NetSolutionsNetSolutionsBalance SheetBalance Sheet

December 31, 2009December 31, 2009

Assets

Current assets:

6-2Exhibit 5: Report Form of Balance Sheet

2828

Current assets:Cash $52,950Accounts receivable 91,080Merchandise inventory 62,150Office supplies 480Prepaid insurance 2,650

Total current assets $209,310

(Continued)

29

Property, plant, and equip.: Land $20,000Store equipment $27,100

Less accumulated

depreciation 5,700 21,400


29

Office equipment $15,570Less accumulated

depreciation 4,720 10,850Total property, plant, and equipment 52,250

Total assets $261,560

29(Continued)

30

LiabilitiesCurrent liabilities:

Accounts payable $22,420Note payable (current portion) 5,000Salaries payable 1,140Unearned rent 1,800


3030

Unearned rent 1,800Total current liabilities $ 30,360

Long-term liabilities:Note payable (final pmt. due 2017) 20,000

Total liabilities $ 50,360Owner’s Equity

Chris Clark, capital 211,200

Total liabilities and owner’s equity $261,560

(Concluded)

31

6-2


Based upon the following data, determine the cost of

merchandise sold for May. Use the format seen in

Exhibit 2.

31

Merchandise Inventory, May 1 $121,200

Merchandise Inventory, May 31 142,000

Purchases 985,000

Purchases Returns and Allowances 23,500

Purchases Discounts 21,000

Transportation In 11,30031

32


Merchandise Inventory, May 1 $ 121,200

Purchases $985,000

Less: Purchases returns and allowances $23,500

Purchases discounts 21,000 44,500

Net purchases $940,500

6-2

3232

Net purchases $940,500

Add transportation in 11,300

Cost of merchandise purchased 951,800

Merchandise available for sale $1,073,000

Less merchandise inventory, May 31 142,000

Cost of merchandise sold $ 931,000

For Practice: PE 6-2A, PE 6-2B

33

Describe and illustrate the accounting

for merchandise transactions including:


6-3

33

for merchandise transactions including:

sale of merchandise; purchase of

merchandise; transportation costs, sales

taxes, trade discounts; dual nature of

merchandise transactions.

34

6-3Cash Sales

3434

On January 3, NetSolutions sold

$1,800 of merchandise for cash.

35

6-3Cash Sales (continued)

3535

Using a perpetual inventory, the $1,200

cost of the inventory must be recorded.

36

6-3Credit Card Sales

3636

At the end of the month, $48 was

sent to pay the service charge on

credit card sales.

37

6-3Sales on Account Using a Perpetual

Inventory

Jan. 12 Accounts Receivable—Sims Co. 510 00

Sales 510 00

Invoice No. 7172

12 Cost of Merchandise Sold 280 00

3737

On January 12, NetSolutions sold Sims Company

merchandise on account, $510. The cost of the

merchandise to the seller was $280.


Merchandise Inventory 280 00

Cost of merchandise sold on

Invoice No. 7172.

38

The terms for when payments for

merchandise are to be made, agreed

on by the buyer and the seller, are

6-3Sales Discounts

38

on by the buyer and the seller, are

called credit terms. If buyer is

allowed an amount of time to pay, it

is known as the credit period.

39

If invoice is

paid within

10 days of

Invoice for

$1,500

Terms:

6-3Credit Terms

3939

invoice dateTerms:

2/10, n/30

$1,470 paid

($1,500 less a

2% discount)

40

If invoice is

NOT paid

within 10 Invoice for

$1,500

6-3

4040

within 10

days of

invoice date

$1,500

Terms:

2/10, n/30

Full amount ($1,500)

is due within 30 days

of invoice date

41

Sales Discounts 6-3

Jan. 22 Cash 1 470 00

Accounts Receivable–Omega Tech. 1 500 00

Sales Discounts 30 00

Collection of Invoice No.

4141

On January 22, NetSolutions receives the

amount due, less the 2 percent discount.

106-8, less 2% discount.

42

Jan. 13 Sales Returns and Allowances 225 00

Accounts Receivable—Krier Co. 225 00

Credit Memo No. 32

13 Merchandise Inventory 140 00

6-3

42


Cost of Goods Sold 140 00

Cost of merchandise returned.

Credit Memo No. 32.

42

On January 13, issued Credit Memo 32 to Krier

Company for merchandise returned to

NetSolutions. Selling price, $225; cost to

NetSolutions, $140.

43

1-2

Journalize the following merchandise transactions:

a. Sold merchandise on account, $7,500 with terms of

2/10, n/30. The cost of the merchandise sold was

$5,625.

6-3


43

$5,625.

b. Received payment less the discount.

43

44


a. Accounts Receivable 7,500

Sales 7,500

Cost of Merchandise Sold 5,625

Merchandise Inventory 5,625

6-3

4444


b. Cash 7,350

Sales Discounts 150

Accounts Receivable 7,500


45

Purchase Transactions (Perpetual

Inventory)

6-3

JOURNAL

Date DescriptionPost.

Ref. Dr Cr.

PAGE 24

Jan. 3 Merchandise Inventory 2 510 002009

Cash 2 510 00

4545

On January 3, NetSolutions purchased merchandise

for cash from Alden Company, $2,510.

Purchased inventory from

Bowen Co.

46

6-3

Jan. 4 Merchandise Inventory 9 250 00

Accounts Payable—Thomas Corp. 9 250 00

Purchased inventory on

account.

4646

account.

On January 4, NetSolutions purchased

merchandise on account from Thomas

Corporation, $9,250.

47

Alpha Technologies issues

an invoice for $3,000 to

Purchases Discounts 6-3

47

an invoice for $3,000 to

NetSolutions dated March

12, with terms 2/10, n/30.

48

NetSolutions borrows cash at an annual interest

rate of 6%. Should the firm borrow cash to pay

the invoice within the discount period?

6-3

YES

48

Discount of 2% on $3,000 $60.00

Interest for 20 days at the rate

of 6% on $2,940 – 9.80

Savings from borrowing $50.20

YES

49

Mar. 12 Merchandise Inventory 3 000 00

Accounts Payable—Alpha Tech. 3 000 00

Purchased inventory on

account.

6-3Purchase Transactions (Perpetual

Inventory)

4949

account.

On March 12, NetSolutions purchased

merchandise on account from Alpha

Technologies, $3,000.

50

Mar. 22 Accounts Payable—Alpha Technol. 3 000 00

Cash 2 940 00

Merchandise Inventory 60 00Paid Alpha Technologies for

March 12 purchase.

6-3

50

March 12 purchase.

If payment is made by March 22, NetSolutions

records the discount as a reduction in cost. Notice

that Merchandise Inventory is credited because

NetSolutions maintains a perpetual inventory.50

51

Apr. 11 Accounts Payable—Alpha Technol. 3 000 00

Cash 3 000 00

Paid Alpha Technologies for

March 12 purchase.

6-3

51

March 12 purchase.

51

If NetSolutions does not pay the invoice until

April 11, it would pay the full amount.

52

A purchases return involves actually

returning merchandise that is

Purchases Return 6-3

52

returning merchandise that is

damaged or does not meet the

specifications of the order.

53

When the defective or incorrect

merchandise is kept by the

buyer and the vendor makes a

6-3Purchases Allowance

53

buyer and the vendor makes a

price adjustment, this is a

purchases allowance.

54

NetSolutions receives the delivery

from Maxim Systems and

determines that $900 of the items

6-3

54

determines that $900 of the items

are not the merchandise ordered.

Debit memorandum #18 (also

called a debit memo) is issued to

Maxim Systems.

55

Mar. 7 Accounts Payable—Maxim Systems 900 00

Debit Memo No. 18


6-3

5555

On March 7, NetSolutions records the

return of the merchandise indicated in

Debit Memorandum No. 18.

56

On May 2, NetSolutions purchased

$5,000 of merchandise from Delta Data

Link, subject to terms 2/10, n/30.

May 2 Merchandise Inventory 5 000 00

6-3

5656

May 2 Merchandise Inventory 5 000 00

Purchased merchandise.

Accounts Payable—Delta Data 5 000 00

57

On May 4, NetSolutions returns

$3,000 of the merchandise.

6-3

4 Accounts Payable—Delta Data Link 3 000 00

5757

4 Accounts Payable—Delta Data Link 3 000 00

Returned portion of the

merchandise purchased.

Merchandise Inventory 3 000 00

58

On May 12, NetSolutions pays the amount due,

$1,960 [$2,000 – ($5,000 –$3,000) x 2%)].

12 Accounts Payable—Delta Data Links 2 000 00

6-3

5858

12 Accounts Payable—Delta Data Links 2 000 00

Paid invoice [($5,000 –

$3,000) x 2% = $40;

$2,000 – $40 = $1,960]

Cash 1 960 00


59

6-3

Rofles Company purchased merchandise on account from a

supplier for $11,500, terms 2/10, n/30. Rofles Company

returned $3,000 of the merchandise and received full credit.


59

a. If Rofles Company pays the invoice within the

discount period, what is the amount of cash required

for the payment?

b. Under a perpetual inventory system, what account is

credited by Rofles Company to record the return?

59

60


a. $8,330. Purchase of $11,500 less the return of

$3,000 less the discount of $170 [($11,500 –

$3,000) x 2%].

6-3

6060

b. Merchandise Inventory.


61

If ownership of the merchandise

passes to the buyer when the seller

delivers the merchandise to the

6-3Transportation Costs

61

delivers the merchandise to the

freight carrier, it is said to be FOB

(free on board) shipping point.

62

June 10 Merchandise Inventory 900 00

Purchased merchandise,

terms FOB shipping point.

Accounts Payable—Magna Data 900 00


6-3

6262

On June 10, NetSolutions buys merchandise from

Magna Data on account, $900, terms FOB shipping

point and pays the transportation cost of $50.


Cash 50 00

Paid shipping cost .

63

If ownership of the merchandise

passes to the buyer when the

buyer receives the merchandise,

6-3Transportation Costs

63

buyer receives the merchandise,

the terms are said to be FOB

(free on board) destination.

64

On June 15, NetSolutions sells

merchandise to Kranz Company on

6-3FOB Destination

64

merchandise to Kranz Company on

account, $700, terms FOB

destination. The cost of the

merchandise sold is $480.

65

6-3

June 15 Accounts Receivable—Kranz Co. 700 00

Sold merchandise, terms

FOB destination.

Sales 700 00

6565



Record cost of merchandise

sold to Kranz Company.

66

6-3

June 15 Delivery Expense 40 00

Cash 40 00

Paid shipping cost on

6666

On June 15, NetSolutions pays the

transportation cost of $40.

merchandise sold.

67

On June 20, NetSolutions sells

merchandise to Planter Company

on account, $800, terms FOB

6-3FOB Shipping Point

67

on account, $800, terms FOB

shipping point. The cost of the

merchandise sold is $360.

68

6-3

June 20 Accounts Receivable—Planter Co. 800 00

Sold merchandise, terms

FOB shipping point.

Sales 800 00

6868



Record cost of merchandise

sold to Planter Company.

69

6-3

June 20 Accounts Receivable—Planter Co. 45 00

Cash 45 00

Prepaid shipping cost on

6969

NetSolutions pays the transportation

cost of $45 and adds it to the invoice.

merchandise sold.

70

6-3

Determine the amount to be paid in full settlement of each

of invoices (a) and (b), assuming that credit for returns and

allowances was received prior to payment and that all

invoices were paid within the discount period.


70

invoices were paid within the discount period.

70

Transportation Returns and

Merchandise Paid by Seller Transportation Terms Allowances

a. $4,500 $200 FOB shipping point, $800

1/10, n/30

b. $5,000 $60 FOB destination, $2,500

2/10, n/30

71


a. $3,863. Purchase of $4,500 less return of $800

less the discount of $37 [($4,500 – $800) x 1%]

plus $200 of shipping.

6-3

7171

b. $2,450. Purchase of $5,000 less return of

$2,500 less the discount of $50 [($5,000 –

$2,500) x 2%].


72

6-3

721872

73

Aug. 12 Accounts Receivable—Lemon Co. 106 00

Sales 100 00

Sales Taxes Payable 6 00

Invoice No. 339

Sales Taxes 6-3

731873

On August 12, merchandise is sold

on account to Lemon Company,

$100. The state has a 6% sales tax.

74

Sept. 15 Sales Tax Payable 2 900 00

Cash 2 900 00

Payment for sales taxes

collected during August.

6-3

741874

On September 15, the seller sends in a

payment of $2,900 to the taxing unit for

the August taxes collected.

75

When wholesalers offer special

discounts to certain classes of buyers

Trade Discounts 6-3

75

discounts to certain classes of buyers

that order large quantities, these

discounts are called trade discounts.

76

Dual Nature of Merchandise

Transactions6-3

Each merchandising transaction affects a buyer

and a seller. In the following illustrations, we

show how the same transactions would be

recorded by both the seller and the buyer.

76

recorded by both the seller and the buyer.

July 1. Scully Company sold merchandise on

account to Burton Co., $7,500, terms

FOB shipping point, n/45. The cost of

the merchandise sold was $4,500.

77

Scully Company (Seller)

Accounts Receivable—Burton Co. 7,500Sales 7,500

Cost of Merchandise Sold 4,500Merchandise Inventory 4,500

6-3

771877


Burton Company (Buyer)

Merchandise Inventory. 7,500Accounts Payable—Scully Co. 7,500

78

July 2 Burton Company paid

transportation charges of $150 on

July 1 purchase from Scully

6-3

78

July 1 purchase from Scully

Company.

79


No entry.

6-3

791879


Merchandise Inventory 150Cash 150

80

July 5 Scully Company sold merchandise

on account to Burton Co., $5,000,

terms FOB destination, n/30. The

6-3

80

terms FOB destination, n/30. The

cost of the merchandise sold was

$3,500.

81




6-3

811881



Merchandise Inventory. 5,000Accounts Payable—Scully Co. 5,000

82

July 7. Scully Company paid

transportation costs of $250 for

delivery of merchandise sold to

6-3

82

delivery of merchandise sold to

Burton Company on July 5.

83


Delivery Expense 250Cash 250

6-3

831883


No entry.

84

July 13. Scully Company issued Burton

Company a credit memorandum

for $1,000 of merchandise

6-3

84

for $1,000 of merchandise

returned from a July 5 purchase

on account. The cost of the

merchandise was $700.

85


Sales Returns and Allowances 1,000Accounts Receivable—Burton Co. 1,000

Merchandise Inventory 700Cost of Merchandise Sold 700

6-3

851885

Cost of Merchandise Sold 700


Accounts Payable—Scully Co. 1,000Merchandise Inventory 1,000

86

July 15. Scully Company received

payment from Burton Company

6-3

86

payment from Burton Company

for purchase of July 5.

87


Cash 4,000Accounts Receivable—Burton Co. 4,000

6-3

871887


Accounts Payable—Scully Co. 4,000Cash 4,000

88

July 18. Scully Company sold

merchandise on account to

Burton Company, $12,000, terms

FOB shipping point, 2/10, n/eom.

6-3

88

FOB shipping point, 2/10, n/eom.

Scully prepaid transportation

costs of $500, which were added

to the invoice. The cost of the

merchandise sold was $7,200.

89



Accounts Receivable—Burton Co. 500Cash 500

Cost of Merchandise Sold 7,200

6-3

891889



Merchandise Inventory 12,500Accounts Payable—Scully Co. 12,500

90

July 28. Scully Company received payment

from Burton Company for purchase

of July 18, less discount (2% x

6-3

90

$12,000).

91


Cash 12,260Sales Discounts 240

Accounts Receivable—Burton Co. 12,500

6-3

911891


Accounts Payable—Scully Co. 12,500Merchandise Inventory 240Cash 12,260

92

1-2

Sievert Co. sold merchandise to Bray Co. on account,

$11,500, terms 2/15, n/30. The cost of the merchandise sold

is $6,900. Sievert Co. issued a credit memorandum for

$900 for merchandise returned and later received the

6-3


92

$900 for merchandise returned and later received the

amount due within the discount period. The cost of the

merchandise returned was $540. Journalize Sievert Co.’s

and Bray Co.’s entries for the receipt of the check for the

amount due from Bray Co.

92

93


6-3

Sievert Company Journal Entries:

Cash ($11,500 – $900 – $212) 10,388Sales Discounts [($11,500 – $900) x 2%] 212

Accounts Receivable—Bray Co.($11,500 – $900) 10,600

9393For Practice: PE 6-6A, PE 6-6B

Bray Company Journal Entries:

Accounts Payable—Sievert Co. ($11,500 –$900) 10,600

Merchandise Inventory [($11,500 – $900)x 2%] 212

Cash ($11,500 – $900 – $212) 10,388

94

Describe the adjusting and


6-4

94

Describe the adjusting and

closing process for a

merchandising business.

95

6-4

Merchandising businesses may experience

some loss of inventory due to shoplifting,

employee theft, or errors in recording or

counting inventory. If the balance of the

Inventory Shrinkage

95

counting inventory. If the balance of the

Merchandise Inventory account is larger than

the total amount of merchandise count, the

difference is often called inventory shrinkage

or inventory shortage.

96

NetSolutions inventory records

indicate that $63,950 of

merchandise should be

6-4

96

merchandise should be

available for sale on December

31, 2009. The physical count

reveals that only $62,150 is

actually available.

97

Dec. 31 Cost of Merchandise Sold 1 800 00

Merchandise Inventory 1 800 00

Adjusting Entry

Inventory shrinkage (63,950

6-4

971897

Inventory records $63,950

Inventory count 62,150

Inventory shortage $ 1,800

Inventory shrinkage (63,950

– $62,150).

98

6-4Step 1: Closing Entries

Close the temporary accounts with credit

balances to Income Summary.

Date Item PR Debit Credit

Closing Entries

98

2009

Closing Entries

Dec. 31 Sales 410 720 185 00

Rent Revenue 610 600 00

Income Summary 312 720 785 00

98

99

6-4

Close the temporary accounts

with debit balances to


9999

with debit balances to

Income Summary.

100

6-46-4Step 2: Closing Entries

31 Income Summary 312 645 385 00Sales Returns and Allow. 411 6 140 00Sales Discounts 412 5 790 00Cost of Merchandise Sold 510 525 305 00Sales Salaries Expense 520 53 430 00Advertising Expense 521 10 860 00Depr. Exp.—Store Equip. 522 3 100 00Delivery Expense 523 2 800 00

100

100

Delivery Expense 523 2 800 00Misc. Selling Expense 529 630 00Office Salaries Expense 530 21 020 00Rent Expense 531 8 100 00Depr. Exp.—Office Equip. 532 2 490 00Insurance Expense 533 1 910 00Office Supplies Expense 534 610 00Misc. Administrative Exp. 539 760 00Interest Expense 710 2 440 00

101


Close Income Summary (the balance represents

a $75,400 profit for NetSolutions in 2009) to

Chris Clark, Capital.

101101

31 Income Summary 312 75 400 00

Chris Clark, Capital 310 75 400 00

102

6-4

Close Chris Clark, Drawing to Chris

Clark, Capital.

Step 4: Closing Entries

102102

31 Chris Clark, Capital 310 18 000 00

Chris Clark, Drawing 311 18 000 00

103

1-2

Pulmonary Company’s perpetual inventory records indicate

that $382,800 of merchandise should be on hand on March

31, 2008. The physical inventory indicates that $371,250 of

merchandise is actually on hand. Journalize the adjusting

entry for the inventory shrinkage for Pulmonary Company

6-4


103

entry for the inventory shrinkage for Pulmonary Company

for the year ended March 31, 2008.

103



Mar. 31 Cost of Merchandise Sold ($382,800 –

($371,250) 11,550


104

The ratio of net sales to assets

measures how effectively a business is

using its assets to generate sales.

Financial Analysis 6-4

104

using its assets to generate sales.

Net sales

Average total assets

Ratio of Net

Sales to Assets =

105

Ratio of Net Sales to AssetsRatio of Net Sales to AssetsRatio of Net Sales to AssetsRatio of Net Sales to Assets

Sears J. C. PenneyTotal revenue (net sales) $19,701* $18,424*

Total assets:

6-4

105105

Total assets:

Beginning of year $6,074 $18,300

End of year $8,651 $14,127

Average $7,362.5 $16,213.5

Ratio of net sales to assetsRatio of net sales to assets 2.68 to 12.68 to 1 1.14 to 11.14 to 1

*in millions

106

6-4Interpretation

Based on these ratios, Sears

appears better than J. C.

106

appears better than J. C.

Penney in utilizing its assets to

generate sales.

1 6 accounting for merchandising businesses - … a merchandising business. 4 ... property, plant,...

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