Merchandising Operations and the Accounting Cycle - Pearson
Merchandising Operations and the Accounting Cycle - Pearson
Merchandising Operations and the Accounting Cycle - Pearson
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Panel A<br />
Panel B<br />
Beginning inventory<br />
+ Net purchases<br />
+ Freight in<br />
= Cost of goods available for sale<br />
– Ending inventory<br />
= Cost of goods sold<br />
Beginning<br />
Inventory<br />
Cost of Goods Available for Sale<br />
Ending<br />
Inventory<br />
Net<br />
Purchases<br />
<strong>and</strong> Freight In<br />
Cost of<br />
Goods Sold<br />
AUSTIN SOUND CENTRE INC.<br />
Income Statement<br />
For <strong>the</strong> Year Ended December 31, 2004<br />
Purchases of inventory<br />
– Purchase discounts<br />
– Purchase returns <strong>and</strong> allowances<br />
= Net purchases<br />
It is <strong>the</strong> residual left when we subtract ending inventory from <strong>the</strong> cost of goods<br />
available for sale.<br />
Exhibit 5S-3 summarizes <strong>the</strong> first half of this Supplement by showing Austin<br />
Sound’s net sales revenue, cost of goods sold—including net purchases <strong>and</strong> freight in—<br />
<strong>and</strong> gross margin on <strong>the</strong> income statement for <strong>the</strong> periodic system. (All amounts are<br />
assumed.)<br />
PANEL A—Detailed Gross Margin Section—Often Required by Management<br />
Sales revenue ........................................................... $169,300<br />
Less: Sales discounts........................................... $ 1,400<br />
Sales returns <strong>and</strong> allowances ................. 2,000 3,400<br />
Net sales .............................................................. $165,900)<br />
Cost of goods sold:<br />
Beginning inventory........................................... 38,600<br />
Purchases ............................................................. 91,400<br />
Less: Purchase discounts ................................. $3,000<br />
Purchase returns <strong>and</strong> allowances ......... 1,200 4,200<br />
Net purchases ................................................... 87,200<br />
Freight in ........................................................... 5,200<br />
Cost of goods available for sale ............................. 131,000<br />
Less: Ending inventory.................................... 40,200<br />
Cost of goods sold.................................................... 90,800<br />
Gross margin............................................................. $ 75,100<br />
PANEL B—Summary Gross Margin Section—Most Common in<br />
Annual Reports to Outsiders<br />
Net sales......................... $165,900<br />
Cost of goods sold ........ 90,800<br />
Gross margin................. $ 75,100<br />
EXHIBIT 5S-2<br />
Measuring Cost of Goods<br />
Sold in <strong>the</strong> Periodic Inventory<br />
System<br />
WORKING IT OUT<br />
Assume:<br />
Purchases ..................... $265,000<br />
Sales............................. 463,000<br />
Gross Margin................ 200,000<br />
Purchase Returns<br />
<strong>and</strong> Allowances ....... 2,600<br />
Beginning<br />
Inventory .................. 12,000<br />
Sales Returns<br />
<strong>and</strong> Allowances ....... 4,500<br />
Purchase<br />
Discounts ................. 2,400<br />
Ending Inventory........... ?<br />
Sales Discounts............ 8,500<br />
How much is Ending Inventory?<br />
A: $22,000. (Net sales: $463,000 –<br />
$4,500 – $8,500 = $450,000;<br />
Cost of goods sold: $450,000 –<br />
$200,000 = $250,000;<br />
Ending inventory: $12,000 +<br />
$265,000 – $2,600 – $2,400 –<br />
$250,000 = $22,000).<br />
EXHIBIT 5S-3<br />
Partial Income Statement<br />
Chapter Five <strong>Merch<strong>and</strong>ising</strong> <strong>Operations</strong> <strong>and</strong> <strong>the</strong> <strong>Accounting</strong> <strong>Cycle</strong> 281