Retail Merchandising TMH Swapna Pradhan Retail Merchandising 1 CHAPTER 3.
Merchandising
description
Transcript of Merchandising
![Page 1: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/1.jpg)
![Page 2: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/2.jpg)
MERCHANDISINGMERCHANDISING
Service Businesses - Make money by providing a service- Services can’t be created and stockpiled for later sale.- An advantage is usually less Rs. needed to start and
operate business.- A disadvantage relates to staffing employees during
erratic demand periods.
3 BASIC TYPES OF COMPANIES
![Page 3: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/3.jpg)
MERCHANDISINGMERCHANDISING
Merchandiser- Make money by selling a product. - Usually more Rs. needed to start and operate business because inventory must be available for sale.- Bigger risk also due to obsolescence, theft,
competition on price.- Inventory is purchased from a supplier. Merchandiser
doesn’t “add value” to product.
3 BASIC TYPES OF COMPANIES
![Page 4: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/4.jpg)
MERCHANDISINGMERCHANDISING
Manufacturer - Convert a raw material to a finished good.- Direct labor and manufacturing processes used in
conversion.- 3 types of inventories: Raw materials
Work in processFinished goods
3 BASIC TYPES OF COMPANIES
![Page 5: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/5.jpg)
INCOME STATEMENT
SERVICERevenues
- Expenses--------------------Net Income===========
MERCHANDISINGSales- Contra Sales Net Sales- Cost of Goods Sold (CGS or COGS)Gross Profit- Operating ExpensesIncome from operations+ or - other income or expenseNet Income==================================
![Page 6: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/6.jpg)
Inventory MethodsInventory Methods - 2 GAAP options:
EXAMPLE Perpetual EXAMPLE Perpetual : : InventoryInventory C G SC G S
• 1 - PERPETUALPERPETUAL records CGS for each sale.
Start 10 units, cost = Rs.1 each 10Sell 2 units 2 2Sell 5 units 5 5Purchase 10 units 10Sell 8 units 8 8 . Balances 5 15
![Page 7: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/7.jpg)
• 2 - PERIODICPERIODIC doesn’t record CGS at all!
EXAMPLE Periodic EXAMPLE Periodic : : InventoryInventory Purchases CGSCGSStart 10 units 10Sell some No recording Inv/CGS (record revenue but not CGS)
Sell some more No recording Inv/CGS Purchase 10 units 10 (must record purchase)Sell some more No recording Inv/CGS
What is needed to compute amount CGS?
![Page 8: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/8.jpg)
COMPARISON OF SYSTEMSCOMPARISON OF SYSTEMS• PERPETUAL
- On-Line Inventory Info- Control over theft amount, errors.- Lots of inventory record keeping.
• PERIODIC- Ease of use. Much less records. Count inventory once per year and Record inventory purchases only. - No ongoing record of inventory amounts.- No direct calculation of theft
![Page 9: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/9.jpg)
Computers and electronic scanning Computers and electronic scanning equipment make perpetual inventory cost equipment make perpetual inventory cost
effectiveeffective!!Scans be used to create
automated journal entries with no human accounting.
![Page 10: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/10.jpg)
SALES & Cost of Goods Sold (CGS)• Revenue Recognition Principle • requires revenue be recorded at point of sale.
- When “legal ownership” changes from seller to buyer.
- Goods must be transferred to buyer (shipped).
• Matching Principle also requires the expense of the sale be recorded at the same time as revenue.
![Page 11: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/11.jpg)
Recording a Sale• Two things need to be recorded for each sale:1. Revenue Dr. Cash (or A/R) xxxx
Cr. Sales xxxx2. Expense (Perpetual method only) Dr. Cost of Goods Sold (or CGS) xxxx
Cr. Inventory xxxx
![Page 12: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/12.jpg)
Inventory costComponents of Full inventory cost:• Purchase price from vendor
• plus Freight cost if paid separately by purchasing company
• less Discounts allowed by vendor (Generally based on credit terms)
![Page 13: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/13.jpg)
Example: Recording a saleKonk Co. Sold 10 units of inventory for Rs.100 each.• The units were purchased last month for Rs.60 each. - Freight charges on the purchase were Rs.5 each. - Discounts granted on the purchase were Rs.2 each.Journal entry to record the sale?
Cash (or A/R) 1000 Sales
1000For perpetual method also:Cost of Goods Sold 630
Inventory 630To record sale (10 x 100) and cost [10 x (60+5-2)]
![Page 14: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/14.jpg)
Sales & Sales Discounts text p. 227, also see purchase discounts on p 223• Most business to business sales are on
account. (competition, business practice, etc)- Credit terms are listed on invoice.
• Seller’s often provide an incentive for buyers to pay before the normal due date.- Called a cash discount- Usually a % reduction in payment
- Why would they do this?- What is the cost to do this?
![Page 15: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/15.jpg)
Example: Sales DiscountsKonk Co. had a sale of Rs.1000, terms 2 / 10, n / 30.
This means : Buyer gets 2 % price reduction IF buyer pays within 10
days of the sale, OTHERWISE the entire net (full price) is due within 30 days of the sale.
Record sale as before. See previous example.
Record cash received if within 10 days of sale? Cash 980 Sales Discounts 20
Accounts Receivable 1000
![Page 16: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/16.jpg)
SALES RETURNS & ALLOWANCES text p226 • Use to record returns of merchandise from buyer,
or a special allowance.Dr. Sales R & A xxxx
Cr. A/R (or Cash) xxxxNote: If inventory is returned (not just an
allowance), also record (perpetual only):Dr. Inventory xxxx
Cr. Cost of Goods Sold xxxx
![Page 17: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/17.jpg)
INCOME STATEMENT PRESENTATION
SALES 1000. Less: Sales Discounts 20. Sales Returns & Allowances 100.
(120.) Net Sales 880. Less: Cost of Goods Sold (630.)Gross Profit 250.
These sales accounts are called CONTRA-REVENUE accounts (not EXPENSES).
![Page 18: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/18.jpg)
Other issues for Purchaser• Purchase Discounts - Buying company that pays
early records discount effect in inventory.Example: Buy Rs.1000 of inventory on terms 2/10, n/30
On date of purchase: Inventory (perpetual method only) 1000
Accounts Payable 1000
If paid within 10 days of purchase Accounts Payable 1000
Inventory (perpetual method only) 20 Cash 980
![Page 19: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/19.jpg)
Other issues for Purchaser• Purchase Returns & Allowances - Company that returns or gets allowance
reduces inventory.Dr. A/P (or Cash) xxxx Cr. Inventory (perpetual method only) xxxx
![Page 20: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/20.jpg)
Other issues for Purchaser• Freight on purchases - Buying company adds freight they pay to inventory cost.Dr. Inventory
(perpetual method only) xxxx Cr. A/P (or Cash) xxxxNote: If seller agrees to pay freight, record operating expense called freight out on seller’s books:
Dr. Freight- out expense xxxx Cr. A/P (or Cash) xxxx
![Page 21: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/21.jpg)
Inventory Account (Perpetual)Beginning Balance
Purchase InventoryFreight on purchase
Purchase DiscountsPurchase R & ACost of Inventory sold
Cost of Sale Returns
Ending Balance
![Page 22: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/22.jpg)
Data needed for PERIODIC methodData needed for PERIODIC method1 Start with beginning inventory amount – Count it!
2 Keep track of full costs of inventory bought during the year. Don’t record in inventory, but use the following periodic accounts:
• Purchases• Freight-In• Purchase discounts• Purchase returns & allowances
3 Subtract inventory left over at year end – Count it!Note an AJE will be needed at period end to update the
inventory account to reflect the ending physical count balance! (We won’t worry about in this class.)
![Page 23: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/23.jpg)
Inventory Account (Periodic)Beginning Balance
Additional periodic accounts for:- Purchases- Freight in on purchase- Purchase R & A- Purchase discounts
Year end adjustment (debit or credit) to physical count
Ending Balance
![Page 24: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/24.jpg)
CGS on PERIODIC Income Statement
COST OF GOODS SOLD: Beginning Inventory 100. Purchases 700. Less: Purchase Discounts -50. Purchase R & A -10. Add: Freight In 30. Cost of goods purchased 670. Cost of Goods Available for Sale 770. Less: Ending Inventory -150. Cost of Goods Sold 620.
![Page 25: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/25.jpg)
Operating cycle of a company is...
the average time it takes to go from cash to cash in producing revenues.
TO
![Page 26: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/26.jpg)
Merchandising Company Operating Cycle
Cash
AccountsReceivable
MerchandiseInventory
Buy Inventory
Sell Inventory
Receive Cash
![Page 27: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/27.jpg)
Gross Profit Rate=Gross ProfitNet Sales
Company’s gross profit expressed as a percentage
x (100)
![Page 28: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/28.jpg)
Reasons Gross Profits Rates ChangeReasons Gross Profits Rates Change
•Selling products with a lower “mark-up” Selling products with a lower “mark-up”
• Increased competition can lower sale pricesIncreased competition can lower sale prices
•Paying higher prices to suppliersPaying higher prices to suppliers
•Sales MixSales Mix
![Page 29: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/29.jpg)
Profitability - Profit Margin Ratio Measures the percentage of each dollar of sales that results in net income
Profit Margin Ratio = Net IncomeNet Sales
Similar to gross profit ratio except it considers ALL costs, including operating expenses (not just CGS).
![Page 30: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/30.jpg)
General Journal- Perpetual7/1 Inventory (70 units @ Rs.30 each) 2100
A/P 21007/3 A/R (40 units @ Rs.50 each) 2000
Sales 2000CGS (40 x Rs.30) 1200
Inventory 1200
P5-2B text p 255 - First 2 transactions only, Perpetual, then periodic
• On 7/1, buy 70 suitcases for Rs.30 each. On 7/3 sell 40 cases for Rs.2,000.
On income statement: Sales 2000 -CGS -1200 Gross profit 800
On balance sheet: Inventory balance = 900 (2100 dr and 1200 cr)
![Page 31: Merchandising](https://reader036.fdocuments.us/reader036/viewer/2022070502/56814c97550346895db9a9d8/html5/thumbnails/31.jpg)
General Journal – P E R I O D I C7/1 Purchases 2100
A/P 21007/3 A/R 2000
Sales 2000NOTE: To prepare statements, inventory must be counted and cost
calculated (30 units @ Rs.30 = Rs.900).On income statement: Sales 2000
-CGS: BI 0 Purchases 2100
Cost Available 2100 - EI - 900 -1200 Gross profit 800
On balance sheet: Inventory = 900 (adj made to physical count)