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Accounting for Merchandising
Businesses
Chapter 03
McGrawHill/Irwin Copyright © 2012 by The McGrawHill Companies, Inc. All rights reserved.
3-2
Learning Objectives
1. Identify and explain the primary features of the perpetual inventory system.
2. Show the effects of inventory transactions on financial statements.
3. Explain the meaning of terms used to describe transportation costs, cash discounts, returns or allowances, and financing costs.
4. Explain how gains and losses differ from revenues and expenses.
5. Compare and contrast single and multistep income statements.
6. Show the effect of lost, damaged, or stolen inventory on the financial statements.
7. Use common size financial statements to evaluate managerial performance.
8. Identify the primary features of the periodic inventory system. (Appendix)
3-3
Merchandising Businesses
Merchandising businesses generate revenue by selling goods. The goods
purchased for resale are called merchandise inventory.
Sale
3-4
Product Costs Versus Selling and Administrative Costs
Product Costs
Costs that are included in inventory.
Selling & Admin. Costs
Costs that are not included in inventory. They are sometimes called period costs.
3-5
Allocating Inventory Cost Between Asset and Expense Accounts
Beginning Inventory +
Balance
Inventory Purchased During the
Period
=
Cost of Goods Available
for Sale
Cost of Goods Available for Sale
Merchandise Inventory (Balance Sheet)
Cost of Goods Sold (Income Statement)
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