Merchandise Business

This is a business that buys goods and sells them for a profit

Types of Merchandising Businesses

Wholesaler

Buys goods from manufacturers and sells to retailer

Retailer

Buys from wholesaler and sells them to the public

New Aspects

There is now a new account for inventory

It appears on the balance sheet (current asset)
It also appears on the income statement

There is a cost associated to the purchase of inventory

Inventory Systems

Periodic Inventory

The cost of the inventory is determined at the end of the fiscal period

Perpetual Inventory

Inventory is accounted for every time it is purchased and/or sold

Inventory Cycle

Beginning Inventory is calculated for the period
Merchandise is sold and moves out
Merchandise is purchased to replace sold merchandise
Inventory is calculated at the end of the period

Cost of Goods Available for Sale (COGAS)

Beginning Inventory

Cost of Merchandise Purchased

Cost of Goods Available for Sale

Ending Inventory

Cost of Beginning Inventory

Cost of Merchandise Purchased

Cost of Merchandise Sold

Cost of Ending Inventory

Example

Joe Inc had a beginning inventory of $42 500. During the period, he made purchases of $143 000 and sold merchandise worth $149 100.

Determine his COGAS

42,500 + 143,000 = 185,500

Determine the ending inventory

42,500 + 143,500 – 149,100 = 36,400

On the Statements

Balance Sheet

Current Asset
More liquid that supplies (after bank and AR)

Income Statement

New Cost of Goods Sold Section (COGS)
Listed after revenue

Inventory at beginning of period
+ Purchases
= Cost of Goods Available for Sale
- Inventory at end of period
= Cost of Goods Sold

The new section determines Gross Profit

Revenue – COGS = Gross Profit

Accounting

Start Accounting