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TILLMON- DISCUSSION 3

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Donna Tillmon posted May 20, 2020 3:16 PM

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Merchandising companies have a lot more nuance in how they conduct their business. After all there are returns, discounts, manufacturing costs versus retail price that have to be accounted for. With this in mind, there are two types of income statements that merchandising companies utilize: single step and multi-step. Single step income statements are a very bare or plane income statement. All expenses, including the costs of goods, are listed in a single column. There are no category subtotals displayed. Revenues and expenses are the only major totals displayed on this income statement. A multi-step income statement on the other hand is much more detailed. Instead of one column singular expenses are grouped together and subtotals are displayed. Accounts include gross profit, operating expenses and income, and sales.  

 

Purchase discounts come from the supplier to the buyer based on a pre-arranged payment schedule. For example, a supplier may offer a 10% discount on a good if the balance is paid in full within forty-five days. These terms are typically printed on the invoice, so both parties are aware. If one of these purchased items needs to be returned due to damage or being incorrect this is possible. This type of transaction is known as a purchase return. An item that was purchased has to be returned because it was incorrect or it became damaged at some point. Prepaid and collect the two shipping methods that are utilized when merchandise is being shipped between supplier and buyer. With prepaid orders are paid for once they are booked, but before they are shipped. With collect shipping orders are paid for once the items have been delivered or on some other payment terms.

 

If I ran a company that purchased products form a manufacturer and resold them to consumers, a sample journal entry might look like this:

 

Purchase from Vendor

 

Accounts Payable                   $12,000 (Debit)

            Cash                                                    $12,000 (credit)

 

Recording Cost of Goods Sold to Consumer

 

Costs of Goods Sold                $12,000 (Debit)

            Merchandise Inv.                                $12,000 (credit)

 

 

 

References

 

Graybeal, P., Cooper, D., & Mitchell Franklin. (2018, July 24). Describe and Prepare Multi-Step and Simple Income Statements for Merchandising Companies. Retrieved from  https://opentextbc.ca/principlesofaccountingv1openstax/chapter/describe-and-prepare-multi-step-and-simple-income-statements-for-merchandising-companies/

Discussion 3

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Aaron Marrero posted May 18, 2020 4:03 PM

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There are two formats that go with the income statement of a merchandising company. The first one is a Single step income statement, and the second is a Multi-step income statement. The Single step income statement ties in the revenue as well as the expenses together without the subtotal.

The Multi-step income statement provides the subtotals along with gross profits and operating income.

Accounts found in each income statement include operating Income- which helps to measure the results companies ongoing activities, other income and expenses- which records any revenue or expenses that happen outside of the “normal” operation of the company. This includes and gains on sales or even loss of sails of assets or interest expenses. Income tax expense- are the business incurred income tax be it federal or state

Purchase discounts are when a business offers discount to the buy or purchaser that is making an early payment.

Purchase returns are when a business allows the return of a product from the purchaser if the product is damaged, defective or is not suitable for the purchaser.

Purchase allowances is a set amount that allows the purchaser to keep any goods that are not as they ordered as an incentive.

 

The two shipping term methods companies use when they deliver products are FOB Shipping point, and FOB destination.

FOB shipping is when the goods leave the sellers place of business which makes the buy have ownership of the good and the buy pays for the freight.

FOB destination means the buyer will take ownership of the goods at the delivery point and makes the seller responsible in paying the freight.

The fright costs are accounted for by using Freight in and Freight out. Freight in included the transportation costs when shipping good to the buyer’s warehouse making it freight on purchased goods.

Fright out is when the cost of the transportation comes from shipping goods to the seller’s warehouse as well as the customers this becomes freight on goods sold to a customer.

 

Purchased products from a Vendor

 

                                      Debit                            Credit

Purchases                    20,000      

Cash or Vendor                                                20,000

Sales

Unknown Customer       20,000

Sales                                                                 20,000

Collecting Payment

Cash                             20,000

To unknown Customer                                        20,000

  

References

Miller-Nobles, T. L., Mattison, B. L., & Horngrens, E. M. (n.d.). Financial & Managerial Accounting 6th edition.