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Operating Cycle of Merchandising company
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Perpetual inventory System
- Inventory balance and COGS is always updated
- Journal Entries are reguired upon sale of goods
- Improved inventory Control
- Facilitated by bar code system
- high cost to maintain
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Periodic inventory system
- Inventory balance is updated at the end of the period
- COGS is recorded at the end of the period
- journal entries are required upon the end of the period
- smaller companies
- low-cost inventory
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Multiple step income statement
A form of income statement that contains several sections, subsections and subtotals
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Sales
the total amount charged to customers for merchandise sold, including cash sales and sales on account
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Sales returns and allowences
are granted by the seller to customers for damaged or defective merchandise
contra revenue
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Sales discounts
granted by the seller to customers for early payment of amounts owed
contra revenue
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Net income
determined by subtracting sales returns and allowances and sales discounts from sales
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merchandise available for sale
The cost of merchandise available for sale to customers calculated by adding the begining merchandise inventory to net purchases
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Income from operations
determined by subtracting operating expenses from gross profit
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Selling expenses
incurred directly in the selling of merchandise
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Administrative Expenses
incurred in the administration of general operations of the business
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Other income
revenue from sources other than the primary operating activity of a business
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Other expense
is an expense that cnnot be traced directly to the normal operations of the business
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Freight
The cost to get the product to us
Included in cost for the perpetual system
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New Accounts for Perpetual System
- Merchandise inventory - A
- Sales - R
- Sales returns and allowances - CR
- Sales Discounts - CR
- Cost of Merchandise Sold - COGS - E
- Delivery Expense - E
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Cost of Goods Sold
COGS
The cost of finished goods available for sale minus the ending finished goods inventory
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New accounts for Periodic System
- Purchases - E
- Purchases returns and allowances - E
- Purchases Discounts - E
- Freight in - E
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Freight In
Cost of transportation
Periodic System
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FOB Shipping Point
Ownership changes when goods are shipped
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FOB destination
Ownershop changes when they reach the buyers
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Consignment
selling goods on someone else's behalf
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Internal Control
defined as the procedures and processes used by a company to:
- safegaurd its assets
- process information accurately
- ensure compliance with laws and regulations
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Employee Fraud
the intentional act of decieving and employer for personal gain
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Elements of internal control
- control environment
- risk assessment
- control procedures
- monitoring
- information and communication
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control environment
overall attitude of management and employees about the importance of controls, factors infulencing a company's control environment are:
- management's philosophy and operating style
- the company's organizational structure
- the company's personnel policies
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Control Procedures
- 1. Competent personnel, rotating duties, and mandatory vacations
- 2. seperating responsibilities for related operations
- 3. seperating operations, custody of assets, and accouting
- 4. proofs and security measures
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