Merchandising operation and merchandise inventory

Merchandising operation and merchandise inventory

Businesses

that sell a product to customers

Inventory
 Merchandise

held for sale
 Asset account

3

Describe and illustrate merchandising operations and the two types of inventory systems 4

Balance Sheet

Inventory
 Asset

Income Statement
Sales

revenue
Cost of goods sold
 Expense

5

Cash

Purchase inventory Collect cash from customers

Accounts receivable Sell inventory Inventory

6

PERIODIC
 Goods

counted periodically to determine quantity
 Used by small businesses  Less popular now because of computerized inventory systems PERPETUAL
 Record

of quantity of goods is constantly updated  Better control of inventory  Popular now due to bar codes and computer scanning 7

Learning Objective 2
Distinguish between merchandising and manufacturing

Difference between Merchandising and
Manufacturing
Manufacturing

converts raw materials to finished goods for sale

Merchandising

merchandising companies purchases finished goods for sale. 

In the Income Statement,
Cost of goods sold =
Beginning finished goods inventory plus cost of goods manufactured minus ending finished goods inventory



In the Income Statement,
Cost of goods sold =
Beginning merchandise inventory plus cost of goods purchased minus ending merchandise inventory.



In the Balance Sheet, three inventory accounts : finished goods, work in process, and raw materials.



In the Balance Sheet, only merchandise inventory

Manufacturing Cost Flows
Costs

Balance Sheet
Inventories

Material Purchases

Raw Materials

Direct Labor

Work in
Process

Manufacturing
Overhead

Selling and
Administrative

Finished
Goods

Period Costs

Income
Statement
Expenses

Cost of
Goods
Sold
Selling and
Administrative

The Income Statement
Cost of goods sold for manufacturers