Ch04 4th Ed Financial Accounting Narayanaswamy

Financial Accounting: A Managerial Perspective Fourth Edition Prepared by R. Narayanaswamy Indian Institute of Management Bangalore

28 June 2011

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Chapter 4 Accounting for Merchandising Transactions

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Flow of Merchandise from Manufacturer to Consumer

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Income Measurement for a Merchandising Organization








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Revenue from sales Cost of goods sold Gross profit Operating expenses Operating profit (or PBIT) Interest expense or income Profit before tax (or PBT) Tax Net profit © PHI Learning Private Limited New Delhi

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Revenue from Sales







Importance of sales Conditions for sales revenue recognition Invoice Sales returns and allowances




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Credit note

Trade discounts Sales discounts © PHI Learning Private Limited New Delhi

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Cost of Goods Sold


Merchandise inventory








Beginning Ending

Cost of goods available for sale Cost of goods sold Periodic inventory continued

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Cost of Goods Sold, continued






Net cost of purchases Purchases Purchases returns and allowances Purchases discounts Freight on purchases


FOB terms




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Shipping point Destination

Inventory losses © PHI Learning Private Limited New Delhi

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Operating Expenses




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Importance of operating expenses Administrative expenses Marketing expenses

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Worksheet for a Merchandising Organization









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Trial balance Adjustments Adjusted trial balance Profit and loss account, statement of retained earnings, and balance sheet Inventory Closing entries © PHI Learning Private Limited New Delhi

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Classified Financial Statements



Schedule VI, Companies Act Classified profit and loss account





Classified balance sheet



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Key relationships Major groups Contingent liabilities

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End of Chapter 4 Accounting for Merchandising Transactions

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