accounting for merchandising operations,ss
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Chapter 5-1
Accounting for Merchandising
Operations
Accounting for Merchandising
Operations
Financial Accounting, Sixth Edition
Chapter Chapter 55Chapter Chapter 55
Chapter 5-2
1. Identify the differences between service and merchandising companies.
2. Explain the recording of purchases under a perpetual inventory system.
3. Explain the recording of sales revenues under a perpetual inventory system.
4. Explain the steps in the accounting cycle for a merchandising company.
5. Distinguish between a multiple-step and a single-step income statement.
6. Explain the computation and importance of gross profit.
7. Determine cost of goods sold under a periodic system.
Study ObjectivesStudy ObjectivesStudy ObjectivesStudy Objectives
Chapter 5-3
Accounting for Merchandising Accounting for Merchandising OperationsOperations
Accounting for Merchandising Accounting for Merchandising OperationsOperations
Freight costsFreight costs
Purchase Purchase returns and returns and allowancesallowances
Purchase Purchase discountsdiscounts
Summary of Summary of purchasing purchasing transactionstransactions
MerchandisingMerchandising
OperationsOperations
MerchandisingMerchandising
OperationsOperations
Recording Recording
Purchases of Purchases of
MerchandiseMerchandise
Recording Recording
Purchases of Purchases of
MerchandiseMerchandise
Recording Recording
Sales of Sales of
MerchandiseMerchandise
Recording Recording
Sales of Sales of
MerchandiseMerchandise
Completing the Completing the
Accounting Accounting
CycleCycle
Completing the Completing the
Accounting Accounting
CycleCycle
Forms of Forms of
Financial Financial
StatementsStatements
Forms of Forms of
Financial Financial
StatementsStatements
Operating Operating cyclescycles
Inventory Inventory systems—systems—perpetual and perpetual and periodicperiodic
Sales returns Sales returns and and allowancesallowances
Sales Sales discountsdiscounts
Adjusting Adjusting entriesentries
Closing entriesClosing entries
Summary of Summary of merchandising merchandising entriesentries
Multiple-step Multiple-step income income statementstatement
Single-step Single-step income income statementstatement
Classified Classified balance sheetbalance sheet
Determining Determining cost of goods cost of goods sold under a sold under a periodic systemperiodic system
Chapter 5-4
Merchandising OperationsMerchandising OperationsMerchandising OperationsMerchandising Operations
SO 1 Identify the differences between service and merchandising SO 1 Identify the differences between service and merchandising companies.companies.
Merchandising CompaniesMerchandising Companies
Buy and Sell Goods
Wholesaler Retailer Consumer
The primary source of revenues is referred to as sales revenue or sales.
Chapter 5-5
Merchandising OperationsMerchandising OperationsMerchandising OperationsMerchandising Operations
SO 1 Identify the differences between service and merchandising SO 1 Identify the differences between service and merchandising companies.companies.
Income MeasurementIncome Measurement
Illustration 5-1
Cost of goods sold is the total cost of merchandise
sold during the period.
Not used in a Service business.
Net Income (Loss)
Less
LessEquals
Equals
SalesRevenue
Cost of Goods Sold
Gross Profit
Operating Expenses
Chapter 5-6
The operating cycle of a merchandising company ordinarily is longer than that of a service company.
Operating CyclesOperating CyclesOperating CyclesOperating CyclesIllustration 5-2
SO 1 Identify the differences between service and merchandising SO 1 Identify the differences between service and merchandising companies.companies.
Chapter 5-7
Features:
Perpetual SystemPerpetual System
1. Purchases increase Merchandise Inventory.
2. Freight costs, Purchase Returns and Allowances and Purchase Discounts are included in Merchandise Inventory.
3. Cost of goods sold is increased and Merchandise Inventory is decreased for each sale.
4. Physical count done to verify Inventory balance.
The perpetual inventory system provides a continuous record of Inventory and Cost of Goods Sold.
Inventory SystemsInventory SystemsInventory SystemsInventory Systems
SO 1 Identify the differences between service and merchandising SO 1 Identify the differences between service and merchandising companies.companies.
Chapter 5-8
Features:
Periodic SystemPeriodic System
1. Purchases of merchandise increase Purchases.
2. Ending Inventory determined by physical count.
3. Calculation of Cost of Goods Sold:
Inventory SystemsInventory SystemsInventory SystemsInventory Systems
Beginning inventory
$ 100,000Add: Purchases, net
800,000Goods available for sale
900,000Less: Ending inventory
125,000Cost of goods sold
$ 775,000
SO 1 Identify the differences between service and merchandising SO 1 Identify the differences between service and merchandising companies.companies.
Chapter 5-9
Made using cash or credit (on account).
Normally recorded when goods are received.
Purchase invoice should support each credit purchase.
Recording Purchases of Recording Purchases of MerchandiseMerchandiseRecording Purchases of Recording Purchases of MerchandiseMerchandise
SO 2 Explain the recording of purchases under a perpetual inventory SO 2 Explain the recording of purchases under a perpetual inventory system.system.
Illustration 5-4
Chapter 5-10
E5-2E5-2 Information related to Steffens Co. is presented below. Prepare the journal entry to record the transaction under a perpetual inventory system.
1. On April 5, purchased merchandise from Bryant Company for $25,000 terms 2/10, net/30, FOB shipping point.
Merchandise inventory 25,000April 5
Accounts payable 25,000
Recording Purchases of Recording Purchases of MerchandiseMerchandiseRecording Purchases of Recording Purchases of MerchandiseMerchandise
SO 2 Explain the recording of purchases under a perpetual inventory SO 2 Explain the recording of purchases under a perpetual inventory system.system.
Chapter 5-11
Not all purchases increase Merchandise Inventory.
E5-2E5-2 Prepare the journal entry to record the transaction under a perpetual inventory system.
3. On April 7, purchased equipment on account for $26,000.
Equipment 26,000April 7
Accounts payable 26,000
Recording Purchases of Recording Purchases of MerchandiseMerchandiseRecording Purchases of Recording Purchases of MerchandiseMerchandise
SO 2 Explain the recording of purchases under a perpetual inventory SO 2 Explain the recording of purchases under a perpetual inventory system.system.
Chapter 5-12
Terms
FOB shipping point - seller places goods Free On Board the carrier, and buyer pays freight costs.
FOB destination - seller places the goods Free On Board to the buyer’s place of business, and seller pays freight costs.
Freight CostsFreight Costs
Recording Purchases of Recording Purchases of MerchandiseMerchandiseRecording Purchases of Recording Purchases of MerchandiseMerchandise
SO 2 Explain the recording of purchases under a perpetual inventory SO 2 Explain the recording of purchases under a perpetual inventory system.system.
Freight costs incurred by the seller on outgoing merchandise are an operating expense to the seller (Freight-out or Delivery Expense).
Chapter 5-13
E5-2E5-2 Continued Continued Prepare the journal entry to record the transaction under a perpetual inventory system.
2. On April 6, paid freight costs of $900 on merchandise purchased from Bryant.
Merchandise inventory 900April 6
Cash 900
Recording Purchases of Recording Purchases of MerchandiseMerchandiseRecording Purchases of Recording Purchases of MerchandiseMerchandise
SO 2 Explain the recording of purchases under a perpetual inventory SO 2 Explain the recording of purchases under a perpetual inventory system.system.
Chapter 5-14
Purchaser may be dissatisfied because goods damaged or defective, of inferior quality, or do not meet specifications.
Purchase Returns and Purchase Returns and AllowancesAllowances
Recording Purchases of Recording Purchases of MerchandiseMerchandiseRecording Purchases of Recording Purchases of MerchandiseMerchandise
Return goods for credit if the sale was made on
credit, or for a cash refund if the purchase
was for cash.
May choose to keep the merchandise if the seller will grant an
allowance (deduction) from the purchase
price.
Purchase Return Purchase Allowance
SO 2 Explain the recording of purchases under a perpetual inventory SO 2 Explain the recording of purchases under a perpetual inventory system.system.
Chapter 5-15
In a perpetual inventory system, a return of defective merchandise by a purchaser is recorded by crediting:
a. Purchases
b. Purchase Returns
c. Purchase Allowance
d. Merchandise Inventory
Review QuestionReview Question
Recording Purchases of Recording Purchases of MerchandiseMerchandiseRecording Purchases of Recording Purchases of MerchandiseMerchandise
SO 2 Explain the recording of purchases under a perpetual inventory SO 2 Explain the recording of purchases under a perpetual inventory system.system.
Chapter 5-16
E5-2E5-2 Continued Continued Prepare the journal entry to record the transaction under a perpetual inventory system.
4. On April 8, returned damaged merchandise to Bryant Company and was granted a $4,000 credit for returned merchandise.
Accounts payable 4,000April 8
Merchandise inventory 4,000
Recording Purchases of Recording Purchases of MerchandiseMerchandiseRecording Purchases of Recording Purchases of MerchandiseMerchandise
SO 2 Explain the recording of purchases under a perpetual inventory SO 2 Explain the recording of purchases under a perpetual inventory system.system.
Chapter 5-17
Credit terms may permit buyer to claim a cash discount for prompt payment.
Advantages:
Purchaser saves money.
Seller shortens the operating cycle.
Purchase DiscountsPurchase Discounts
Recording Purchases of Recording Purchases of MerchandiseMerchandiseRecording Purchases of Recording Purchases of MerchandiseMerchandise
Example: Credit terms of 2/10, n/30, is read “two-ten, net thirty.” 2% cash discount if payment is made within 10 days.
SO 2 Explain the recording of purchases under a perpetual inventory SO 2 Explain the recording of purchases under a perpetual inventory system.system.
Chapter 5-18
Purchase DiscountsPurchase Discounts TermsTerms
Recording Purchases of Recording Purchases of MerchandiseMerchandiseRecording Purchases of Recording Purchases of MerchandiseMerchandise
2% discount if paid within 10
days.
1% discount if paid within
first 10 days of next month.
2/10 1/10 EOM
Net amount due in 30
days, 60 days, or within the first 10 days of the next
month.
n/30, n/60, or n/10 EOM
SO 2 Explain the recording of purchases under a perpetual inventory SO 2 Explain the recording of purchases under a perpetual inventory system.system.
Chapter 5-19
E5-2E5-2 Continued Continued Prepare the journal entry to record the transaction under a perpetual inventory system.
5. On April 15, paid the amount due to Bryant Company in full.
Accounts payable 21,000April 15
Merchandise inventory 420
Recording Purchases of Recording Purchases of MerchandiseMerchandiseRecording Purchases of Recording Purchases of MerchandiseMerchandise
Cash 20,580
(Discount = $21,000 x 2% = $500)
SO 2 Explain the recording of purchases under a perpetual inventory SO 2 Explain the recording of purchases under a perpetual inventory system.system.
Chapter 5-20
E5-2E5-2 Continued Continued Prepare the journal entry to record the transaction under a perpetual inventory system.
5. On April 15, paid the amount due to Bryant Company in full.
Accounts payable 21,000April 16 or later Cash
21,000
Recording Purchases of Recording Purchases of MerchandiseMerchandiseRecording Purchases of Recording Purchases of MerchandiseMerchandise
What entry would be made if the company failed to pay within 10 days?
SO 2 Explain the recording of purchases under a perpetual inventory SO 2 Explain the recording of purchases under a perpetual inventory system.system.
Chapter 5-21
Should discounts be taken when offered?
Purchase DiscountsPurchase Discounts
Recording Purchases of Recording Purchases of MerchandiseMerchandiseRecording Purchases of Recording Purchases of MerchandiseMerchandise
Discount of 2% on $25,000 500.00$ $25,000 invested at 10% f or 20 days 136.99
Savings by taking the discount 363.01$
Example: 2% for 20 days = Annual rate of 36.5% (365/20 = 18.25 twenty-day periods x 2% = 36.5%)
Passing up the discount offered equates to paying an interest rate of 2% on the use of $25,000 for 20 days.
SO 2 Explain the recording of purchases under a perpetual inventory SO 2 Explain the recording of purchases under a perpetual inventory system.system.
Chapter 5-22
Merchandise I nventory
Debit Credit
$25,000 8th - Return$4,000
Balance
5th - Purchase
$21,480$21,480
420 15th - Discount
Recording Purchases of Recording Purchases of MerchandiseMerchandiseRecording Purchases of Recording Purchases of MerchandiseMerchandiseSummary of Purchasing Summary of Purchasing TransactionsTransactions
9006th – Freight-in
E5-2E5-2
SO 2 Explain the recording of purchases under a perpetual inventory SO 2 Explain the recording of purchases under a perpetual inventory system.system.
Chapter 5-23
Made for cash or credit (on account).
Normally recorded when earned, usually when goods transfer from seller to buyer.
Sales invoice should support each credit sale.
Recording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of Merchandise
SO 3 Explain the recording of sales SO 3 Explain the recording of sales revenues under a perpetual revenues under a perpetual inventory system.inventory system.
Illustration 5-4
Chapter 5-24
Two Journal Entries to Record a SaleTwo Journal Entries to Record a Sale
Cash or Accounts receivable XXX
Sales XXX
Recording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of Merchandise
SO 3 Explain the recording of sales SO 3 Explain the recording of sales revenues under a perpetual revenues under a perpetual inventory system.inventory system.
#1
Cost of goods sold XXX
Merchandise inventory XXX
#2
Selling
Price
Cost
Chapter 5-25
E5-5E5-5 Presented are transactions related to Wheeler Company.
1. On December 3,Wheeler Company sold $500,000 of merchandise to Hashmi Co., terms 2/10, n/30, FOB shipping point. The cost of the merchandise sold was $350,000.
2. On December 8, Hashmi Co. was granted an allowance of $27,000 for merchandise purchased on December 3.
3. On December 13,Wheeler Company received the balance due from Hashmi Co.
Instructions: Prepare the journal entries to record these transactions on the books of Wheeler Company using a perpetual inventory system.
Recording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of Merchandise
SO 3 Explain the recording of sales SO 3 Explain the recording of sales revenues under a perpetual revenues under a perpetual inventory system.inventory system.
Chapter 5-26
E5-5E5-5 Prepare the journal entries for Wheeler Company .
1. On December 3, Wheeler Company sold $500,000 of merchandise to Hashmi Co., terms 2/10, n/30, FOB shipping point. Cost of merchandise sold was $350,000.
Recording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of Merchandise
SO 3 Explain the recording of sales SO 3 Explain the recording of sales revenues under a perpetual revenues under a perpetual inventory system.inventory system.
Accounts receivable 500,000Dec. 3
Sales500,000
Cost of goods sold 350,000
Merchandise inventory350,000
Chapter 5-27
“Flipside” of purchase returns and allowances.
Contra-revenue account (debit).
Sales not reduced (debited) because:
would obscure importance of sales returns and allowances as a percentage of sales.
could distort comparisons between total sales in different accounting periods.
Sales Returns and AllowancesSales Returns and Allowances
Recording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of Merchandise
SO 3 Explain the recording of sales SO 3 Explain the recording of sales revenues under a perpetual revenues under a perpetual inventory system.inventory system.
Chapter 5-28
E5-5E5-5 Prepare the journal entries for Wheeler Company.
2. On December 8, Hashmi Co. was granted an allowance of $27,000 for merchandise purchased on December 3.
Recording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of Merchandise
SO 3 Explain the recording of sales SO 3 Explain the recording of sales revenues under a perpetual revenues under a perpetual inventory system.inventory system.
Sales returns and allowances 27,000Dec. 8
Accounts receivable27,000
Chapter 5-29
E5-5E5-5 Prepare the journal entries for Wheeler Company.
2. Variation On Dec. 8, Hashmi Co. returned merchandise for credit of $27,000. The original cost of the merchandise to Wheeler was $19,800.
Recording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of Merchandise
SO 3 Explain the recording of sales SO 3 Explain the recording of sales revenues under a perpetual revenues under a perpetual inventory system.inventory system.
Sales returns and allowances 27,000Dec. 8
Accounts receivable27,000
Merchandise inventory 19,800
Cost of goods sold19,800
Chapter 5-30
The cost of goods sold is determined and recorded each time a sale occurs in:
a. periodic inventory system only.
b. a perpetual inventory system only.
c. both a periodic and perpetual inventory system.
d. neither a periodic nor perpetual inventory system.
Review QuestionReview Question
Recording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of Merchandise
SO 3 Explain the recording of sales SO 3 Explain the recording of sales revenues under a perpetual revenues under a perpetual inventory system.inventory system.
Chapter 5-31
Offered to customers to promote prompt payment.
“Flipside” of purchase discount.
Contra-revenue account (debit).
Sales DiscountSales Discount
Recording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of Merchandise
SO 3 Explain the recording of sales SO 3 Explain the recording of sales revenues under a perpetual revenues under a perpetual inventory system.inventory system.
Chapter 5-32
E5-5E5-5 Prepare the journal entries for Wheeler Company .
3. On December 13, Wheeler Company received the balance due from Hashmi Co.
Recording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of Merchandise
SO 3 Explain the recording of sales SO 3 Explain the recording of sales revenues under a perpetual revenues under a perpetual inventory system.inventory system.
Cash 463,540Dec. 13
Accounts receivable473,000
Sales discounts 9,460
** [($500,000 – $27,000) X 2%]
**
*** ($500,000 – $27,000)
***
*
* ($473,000 – $9,460)
Chapter 5-33
E5-5E5-5 Variation Prepare the sales revenue section of the income statement for Wheeler Company.
Recording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of MerchandiseRecording Sales of Merchandise
SO 3 Explain the recording of sales SO 3 Explain the recording of sales revenues under a perpetual revenues under a perpetual inventory system.inventory system.
Sales revenue
Sales 500,000$ Less: Sales returns and allowances (27,000)
Sales discounts (9,460) Net sales 463,540
I ncome Statement (Partial)
For the Month Ended Dec. 31,
Wheeler Company
Chapter 5-34
Generally the same as a service company.
One additional adjustment to make the records agree with the actual inventory on hand.
Involves adjusting Merchandise Inventory and Cost of Goods Sold.
Adjusting EntriesAdjusting Entries
Completing the Accounting CycleCompleting the Accounting CycleCompleting the Accounting CycleCompleting the Accounting Cycle
SO 4 Explain the steps in the accounting cycle for a merchandising SO 4 Explain the steps in the accounting cycle for a merchandising company.company.
Chapter 5-35
Close all accounts that affect net income.
Closing EntriesClosing Entries
Completing the Accounting CycleCompleting the Accounting CycleCompleting the Accounting CycleCompleting the Accounting Cycle
SO 4 Explain the steps in the accounting cycle for a merchandising SO 4 Explain the steps in the accounting cycle for a merchandising company.company.
E5-8E5-8 Presented is information related to Rogers Co. for the month of January 2008. Rogers uses the perpetual inventory method.Ending inventory per books 21,600$ Rent expense 20,000$
Ending inventory per count 21,000 Salary expense 61,000
Cost of goods sold 218,000 Sales discount 10,000
Freight-out 7,000 Sales returns 13,000
I nsurance expense 12,000 Sales 350,000
Required: (a) Prepare the necessary adjusting entry for inventory.
(b) Prepare the necessary closing entries.
Chapter 5-36
E5-8E5-8 (a) Prepare the necessary adjusting entry for inventory.
Completing the Accounting CycleCompleting the Accounting CycleCompleting the Accounting CycleCompleting the Accounting Cycle
SO 4 Explain the steps in the accounting cycle for a merchandising SO 4 Explain the steps in the accounting cycle for a merchandising company.company.
Cost of goods sold 600
Merchandise inventory 600
Ending inventory per books 21,600$
Ending inventory per count 21,000
Overstatement of inventory 600$
Chapter 5-37
Sales 350,000Income summary 350,000
Income summary 341,600Cost of goods sold 218,600Freight-out 7,000Insurance expense 12,000
Income summary 8,400Retained earnings 8,400
Rent expense 20,000
E5-8E5-8 (b) Prepare the necessary closing entries.
Completing the Accounting CycleCompleting the Accounting CycleCompleting the Accounting CycleCompleting the Accounting Cycle
SO 4 Explain the steps in the accounting cycle for a merchandising SO 4 Explain the steps in the accounting cycle for a merchandising company.company.
Salary expense 61,000Sales discounts 10,000Sales returns 13,000
Chapter 5-38
Shows several steps in determining net income.
Two steps relate to principal operating activities.
Distinguishes between operating and non-operating activities.
Multiple-Step Income Multiple-Step Income StatementStatement
Forms of Financial StatementsForms of Financial StatementsForms of Financial StatementsForms of Financial Statements
SO 5 Distinguish between a multiple-step and a single-step income SO 5 Distinguish between a multiple-step and a single-step income statement.statement.
Chapter 5-39
SO 5 Distinguish between a multiple-step and a single-step income SO 5 Distinguish between a multiple-step and a single-step income statement.statement.
SO 6 Explain the computation and importance of gross profit.SO 6 Explain the computation and importance of gross profit.
Forms of Forms of Financial Financial StatementStatementss
Forms of Forms of Financial Financial StatementStatementss
Illustration 5-11
Key Items:Key Items:
Net salesNet sales
Gross profitGross profit
Gross profit Gross profit raterate
Illustration 5-8
Chapter 5-40 SO 5 Distinguish between a multiple-step and a single-step income SO 5 Distinguish between a multiple-step and a single-step income
statement.statement.
Forms of Forms of Financial Financial StatementStatementss
Forms of Forms of Financial Financial StatementStatementss
Illustration 5-11
Key Items:Key Items:
Net salesNet sales
Gross profitGross profit
Gross profit Gross profit raterate
Operating Operating expensesexpenses
Chapter 5-41
Forms of Forms of Financial Financial StatementStatementss
Forms of Forms of Financial Financial StatementStatementss
SO 5 Distinguish between a multiple-step and a single-step income SO 5 Distinguish between a multiple-step and a single-step income statement.statement.
Key Items:Key Items:
Net salesNet sales
Gross profitGross profit
Gross profit Gross profit raterate
Operating Operating expensesexpenses
Nonoperating Nonoperating activitiesactivities
Net incomeNet income
Illustration 5-11
Chapter 5-42
The multiple-step income statement for a merchandiser shows each of the following features except:
a. gross profit.
b. cost of goods sold.
c. a sales revenue section.
d. investing activities section.
Review QuestionReview Question
Forms of Financial StatementsForms of Financial StatementsForms of Financial StatementsForms of Financial Statements
SO 5 Distinguish between a multiple-step and a single-step income SO 5 Distinguish between a multiple-step and a single-step income statement.statement.
Chapter 5-43
Subtract total expenses from total revenues
Two reasons for using the single-step format:
1) Company does not realize any type of profit until total revenues exceed total expenses.
2) Format is simpler and easier to read.
Single-Step Income StatementSingle-Step Income Statement
Forms of Financial StatementsForms of Financial StatementsForms of Financial StatementsForms of Financial Statements
SO 5 Distinguish between a multiple-step and a single-step income SO 5 Distinguish between a multiple-step and a single-step income statement.statement.
Chapter 5-44
SingleSingle-Step-Step
Forms of Financial StatementsForms of Financial StatementsForms of Financial StatementsForms of Financial Statements
SO 5 Distinguish between a multiple-step and a single-step income SO 5 Distinguish between a multiple-step and a single-step income statement.statement.
Illustration 5-12
Chapter 5-45
Forms of Financial StatementsForms of Financial StatementsForms of Financial StatementsForms of Financial Statements
Illustration 5-13
Classified Balance SheetClassified Balance Sheet
SO 5 Distinguish between a multiple-step and a single-step income SO 5 Distinguish between a multiple-step and a single-step income statement.statement.
Chapter 5-46
Periodic System
Separate accounts used to record purchases, freight costs, returns, and discounts.
Company does not maintain a running account of changes in inventory.
Ending inventory determined by physical count.
Determining Cost of Goods Sold Determining Cost of Goods Sold Under a Periodic SystemUnder a Periodic SystemDetermining Cost of Goods Sold Determining Cost of Goods Sold Under a Periodic SystemUnder a Periodic System
SO 7 Determine cost of goods sold under a periodic system.SO 7 Determine cost of goods sold under a periodic system.
Chapter 5-47
Determining Cost of Goods Sold Determining Cost of Goods Sold Under a Periodic SystemUnder a Periodic SystemDetermining Cost of Goods Sold Determining Cost of Goods Sold Under a Periodic SystemUnder a Periodic System
SO 7 Determine cost of goods sold under a periodic system.SO 7 Determine cost of goods sold under a periodic system.
Calculation of Cost of Goods Calculation of Cost of Goods SoldSold
$316,000
Illustration 5-14
Chapter 5-48
“When is a sale not really a sale?”
“Why does it matter?”
All About YouAll About YouAll About YouAll About You
When Is a Sale a Sale?When Is a Sale a Sale?
Some Facts:
In early 2005 the shareholders of Krispy Kreme Doughnuts filed a lawsuit against management, alleging the company was shipping twice as many doughnuts to wholesale customers than ordered.
The SEC investigated claims that Harley-Davidson was shipping motorcycles to dealers in excess of dealer requests, to give appearance of strong sales.
Chapter 5-49
All About YouAll About YouAll About YouAll About You
When Is a Sale a Sale?When Is a Sale a Sale?
Some Facts:
In a recent lawsuit settlement, pharmaceutical company Bristol-Myers Squibb paid a $150 million fine for an alleged channel stuffing scheme.
An SEC investigation concluded that The Coca-Cola Company shipped $1.2 of excessive beverage concentrate to bottlers in Japan during a three-year period. The bottlers’ inventories surged 62% during this time, while their sales increased only 11%.
Chapter 5-50
All About YouAll About YouAll About YouAll About You
Chart to illustrate that revenue recognition issues often require companies to correct—restate—their financial statements.
Source: Terry Baldwin and Daniel Yoo, Restatements—Traversing Shaky Ground: An Analysis for Investors,” Glass Lewis & Co., June 2, 2005, p. 9, Graph 7.
Chapter 5-51
What Do You Think?What Do You Think?
“Is channel stuffing an ethical business practice?”
All About YouAll About YouAll About YouAll About You
YES: Motorcycles and pharmaceuticals can’t be sold if they are sitting in the manufacturer’s warehouse.
NO: If goods are intentionally shipped to customers when the customer hasn’t requested them, and the seller has a high expectation that the goods will be returned, then this clearly is not a real sale.
X
Chapter 5-52
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