Objectives Merchandising Operations

Management Issues   
Cash Flow Management
Profitability Management – are you on budget?
Choice of Inventory System –
Perpetual?
Periodic?

Perpetual Inventory System   
Continuous “perpetual” accounting records are kept to track the Sales transaction AND the Cost of the Goods Sold.
-Better tracking of item availability, on hand, on order
-2 journal entries for a sale
Periodic Inventory System   
-No tracking
-Inventory just counted “periodically” to see what is on hand.
-1 journal entry for sale

•-ONLY 1 entry is  made for each sale

–one to record sale 

 the Sales Returns and Allowances Account is...
Contra Revenue Account to sales
Used to show how much came in on returns and allowances

Excessive returns and allowances suggest:

zinferior merchandise

zinefficiencies in filing orders

zerrors in billing customers

zmistakes in delivery or shipment of goods

the Sales Discount Account is....
Contra Revenue Account to sales
Used to disclose amount of cash discounts taken by customers

Key difference between periodic and perpetual  inventory…

"is the point at which   the costs of goods sold is computed"

No attempt is made on date of sale to record the cost of merchandise sold...

"Companies that use periodic inventory take a physical count to determine ending inventory and compute cost of goods sold" 

 Companies that use perpetual inventory must take a physical  inventory to check accuracy of  “book inventory” to actual inventory