Accounting for a Accounting for a Merchandising BusinessMerchandising Business

Merchandising Inventory

Unit 4 Quest will be on Friday December 12.

How do you get the ending inventory number in Balance Sheet?

Someone does physical count of the inventory on December 31. Then they must make an adjusting entry, which would change the value of the ending inventory.

“Merchandise Inventory” account, which shows up on trial balance is beginning inventory or ending inventory?

MI is beginning inventory number in trial balance.

The Purchase account

This is usually the first account, which shows up in the expense section of the ledger.

When Bestbuy purchases 100 laptop ($500 each) from Apple corporation, the journal entry would be:

Dr CrPurchases 50,000HST Recoverable 6500

Bank 56,500

Note: 100 laptop X $500 = 50,000

The Sales account

When Bestbuy sells its products, we do not record the changes in inventory accounts.

Let’s say we sell those 100 laptops at $600 per unit.

We simply record the sales: Dec 31 Dr CrBank 67800

HST Payable 7800 Sales - laptop 60000

Instead of decreasing inventory account every time we sell them, we just wait until December 31.

At the end of the year, we will just obtain the ending inventory and make an adjusting entry.

The Freight-in AccountThe Freight-in Account

The Freight in account is used to accumulate any transportation charges on incoming goods.

These charges are kept separate from transportation charges on outgoing goods, which are recorded in Delivery Expense. (expense category)

Frieight In account must be included in the calculation of the cost of goods sold, so it is usually placed right after the Purchase account in the ledger.

CGS = BI + (Purchase + Freight-in) – EI

Duty AccountDuty Account

Canadian government charges duty (or tarriff or border tax) on goods which are imported from a foreign country at the border.

Duty charges are handled in the same way as freight-in and debited to Duty account.

CGS = BI + (Purchase + Freight-in + Duty) – EI

ClassworkClasswork

HW: P406 Ex #1, #2, #3