{"id":3580,"date":"2020-10-21T15:51:20","date_gmt":"2020-10-21T15:51:20","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-financialaccounting\/?post_type=chapter&p=3580"},"modified":"2020-11-19T18:31:27","modified_gmt":"2020-11-19T18:31:27","slug":"putting-it-together-merchandising-operations","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/chapter\/putting-it-together-merchandising-operations\/","title":{"raw":"Putting It Together: Merchandising Operations","rendered":"Putting It Together: Merchandising Operations"},"content":{"raw":"\"A\r\n\r\nIt\u2019s worth looking one last time at how a merchandising company prepares the first part of an income statement. When we were looking at a service business, we had one line called Service Revenue. Now, with merchandising companies, we have the following basic calculation:\r\n

Net revenue\u00a0\u2212 COGS = Gross Profit<\/strong><\/p>\r\nFor a company using a periodic inventory system, the calculation is expanded like this:\r\n

\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
Geyer Co.\r\nIncome Statement (partial)\r\nFor the year ended December 31, 20XX<\/caption>\r\n
Sales Revenue, net<\/th>\r\n<\/td>\r\n<\/td>\r\n$2,548,959<\/td>\r\n<\/tr>\r\n
Subcategory, <\/span>Cost of goods sold <\/strong><\/td>\r\n<\/tr>\r\n
\u00a0 Merchandise inventory, January 1, 20XX<\/th>\r\n$457,897<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
\u00a0 Purchases, net<\/th>\r\n1,456,222<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
\u00a0 Freight in<\/th>\r\n66,231<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
\u00a0 Goods available for sale<\/th>\r\nSingle Line<\/span><\/td>\r\n$1,980,350<\/td>\r\n<\/td>\r\n<\/tr>\r\n
\u00a0 Less merchandise inventory, December 31, 20XX<\/th>\r\n<\/td>\r\n238,687<\/td>\r\n<\/td>\r\n<\/tr>\r\n
\u00a0 \u00a0 \u00a0 \u00a0 Cost of goods sold<\/th>\r\n<\/td>\r\nSingle Line<\/span><\/td>\r\n1,741,663<\/td>\r\n<\/tr>\r\n
Gross profit<\/th>\r\n<\/td>\r\n<\/td>\r\nSingle Line<\/span>$807,296Double Line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nWhere net sales is equal to Gross Sales (the invoiced amount) minus Sales Returns and Allowances and minus Sales Discounts.<\/span>\r\n\r\n<\/div>\r\nCompare the above calculation to one from the same company if it used the perpetual system where all inventory transactions run through only two accounts\u2014Merchandise Inventory and COGS\u2014and inventory is being updated constantly for both purchases and sales:\r\n\r\n\r\n\r\n\r\n
Geyer Co.\r\nIncome Statement (partial)\r\nFor the year ended December 31, 20XX<\/caption>\r\n
Sales Revenue, net<\/th>\r\n$2,548,959<\/td>\r\n<\/tr>\r\n
Costs of goods sold<\/th>\r\n1,741,663<\/td>\r\n<\/tr>\r\n
Gross profit<\/th>\r\nSingle Line<\/span>$807,296Double Line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nThe results are the same, as long as all other assumptions are the same, but the method is completely different.\r\n\r\nIn the next module, we\u2019ll study how to come up with the item cost per unit when costs are changing all the time.","rendered":"

\"A<\/p>\n

It\u2019s worth looking one last time at how a merchandising company prepares the first part of an income statement. When we were looking at a service business, we had one line called Service Revenue. Now, with merchandising companies, we have the following basic calculation:<\/p>\n

Net revenue\u00a0\u2212 COGS = Gross Profit<\/strong><\/p>\n

For a company using a periodic inventory system, the calculation is expanded like this:<\/p>\n

\n\n\n\n\n\n\n\n\n\n\n\n
Geyer Co.
\nIncome Statement (partial)
\nFor the year ended December 31, 20XX<\/caption>\n
Sales Revenue, net<\/th>\n<\/td>\n<\/td>\n$2,548,959<\/td>\n<\/tr>\n
Subcategory, <\/span>Cost of goods sold <\/strong><\/td>\n<\/tr>\n
\u00a0 Merchandise inventory, January 1, 20XX<\/th>\n$457,897<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
\u00a0 Purchases, net<\/th>\n1,456,222<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
\u00a0 Freight in<\/th>\n66,231<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
\u00a0 Goods available for sale<\/th>\nSingle Line<\/span><\/td>\n$1,980,350<\/td>\n<\/td>\n<\/tr>\n
\u00a0 Less merchandise inventory, December 31, 20XX<\/th>\n<\/td>\n238,687<\/td>\n<\/td>\n<\/tr>\n
\u00a0 \u00a0 \u00a0 \u00a0 Cost of goods sold<\/th>\n<\/td>\nSingle Line<\/span><\/td>\n1,741,663<\/td>\n<\/tr>\n
Gross profit<\/th>\n<\/td>\n<\/td>\nSingle Line<\/span>$807,296Double Line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Where net sales is equal to Gross Sales (the invoiced amount) minus Sales Returns and Allowances and minus Sales Discounts.<\/span><\/p>\n<\/div>\n

Compare the above calculation to one from the same company if it used the perpetual system where all inventory transactions run through only two accounts\u2014Merchandise Inventory and COGS\u2014and inventory is being updated constantly for both purchases and sales:<\/p>\n\n\n\n\n\n
Geyer Co.
\nIncome Statement (partial)
\nFor the year ended December 31, 20XX<\/caption>\n
Sales Revenue, net<\/th>\n$2,548,959<\/td>\n<\/tr>\n
Costs of goods sold<\/th>\n1,741,663<\/td>\n<\/tr>\n
Gross profit<\/th>\nSingle Line<\/span>$807,296Double Line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

The results are the same, as long as all other assumptions are the same, but the method is completely different.<\/p>\n

In the next module, we\u2019ll study how to come up with the item cost per unit when costs are changing all the time.<\/p>\n\n\t\t\t

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Candela Citations<\/h3>\n\t\t\t\t\t
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CC licensed content, Original<\/div>