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Chapter 7
Inventory: Merchandising Transactions
Merchandising Businesses
A company that sells a product has a number of similarities to a company that sells a service. Both
companies will incur expenses to market and sell their product or service. If the businesses have
employees, then both will have salaries expenses. Both companies will buy items that are classified
as property, plant and equipment, and both companies will likely incur debt and pay it off. Thus,
most of the transactions of a service company will be similar to those of a merchandising business.
A
merchandising business
, or merchandiser, is any business that buys and sells products for the
purpose of making a profit.
The main difference between a merchandising business and a service company is that the
merchandising business holds an asset called inventory for sale.
Inventory
is a collection of physical
goods that a company has purchased or manufactured to sell to its customers. Inventory is listed
learning outcomes
1
Define a merchandising business
2
Differentiate between the perpetual and the
periodic inventory systems
3
Record journal entries related to inventory
purchases under the perpetual inventory system
4
Record journal entries related to inventory sales
under the perpetual inventory system
5
Calculate gross profit and gross margin percentage
6
Prepare a multistep income statement and
classified multistep income statement
7
Prepare closing entries for a merchandising
business under the perpetual inventory system
8
Identify inventory controls
Appendix
9
Record journal entries related to inventory
purchases under the periodic inventory system
10
Record journal entries related to inventory sales
under the periodic inventory system
11
Calculate cost of goods sold under the periodic
inventory system
12
Prepare closing entries for a merchandising
business under the periodic inventory system
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