Enterprise which sells goods to customers

The statement also separates operating expenses into selling and administrative expenses. Also called the multiple-step income statement. Consigned goods Goods delivered to another party who attempts to sell the goods for the owner at a commission.

Cost of goods available for sale Equal to beginning inventory plus net cost of purchases. Delivery expense A selling expense recorded by the seller for freight costs incurred when terms are FOB destination.

FOB destination Means free on board at destination; goods are shipped to their destination without charge to the buyer; the seller is responsible for paying the freight charges. FOB shipping point Means free on board at shipping point; buyer incurs all transportation costs after the merchandise is loaded on a railroad car or truck at the point of shipment. Freight collect Terms that require the buyer to pay the freight bill on arrival of the goods.

Freight prepaid Terms that indicate the seller has paid the freight bill at the time of shipment. Gross margin or gross profit Net sales — Cost of goods sold; identifies the number of dollars available to cover expenses other than cost of goods sold. Gross margin percentage Gross margin divided by net sales.

Gross selling price also called the invoice price The list price less all trade discounts. Income from operations Gross margin — Operating selling and administrative expenses.

Invoice A document prepared by the seller of merchandise and sent to the buyer. It contains the details of a sale, such as the number of units sold, unit price, total price billed, terms of sale, and manner of shipment. Manufacturers Companies that produce goods from raw materials and normally sell them to wholesalers. Merchandise in transit Merchandise in the hands of a freight company on the date of a physical inventory.

Merchandise inventory The quantity of goods available for sale at any given time. Service providers have some costs or revenue derived from tangible goods that must be taken into account when pricing their services, but their largest cost categories are more likely to be administrative and personnel costs rather than product costs. With two senior partners and a small staff of accountants and payroll specialists, the majority of the costs they incur are related to personnel.

The value of the accounting and payroll services they provide to their clients is intangible in comparison to goods sold by a merchandiser or produced by a manufacturer but has value and is the primary source of revenue for the firm.

At the end of , Whichard and Klein reported the following revenue and expenses:. Their Income Statement for the period is shown in Figure. The revenue and expenses for a law firm illustrate how the income statement for a service firm differs from that of a merchandising or manufacturing firm. The firm employs several attorneys, paralegals, and office support staff.

In , they reported the following revenue and expenses:. As you can see, the majority of the costs incurred by the law firm are personnel related. They may also incur costs from equipment and materials such computer networks, phone and switchboard equipment, rent, insurance, and law library materials necessary to support the practice, but these costs represent a much smaller percentage of total cost than the administrative and personnel costs.

Margo is the owner of a small retail business that sells gifts and home decorating accessories. Her business is well established, and she is now considering taking over additional retail space to expand her business to include gourmet foods and gift baskets. Based on customer feedback, she is confident that there is a demand for these items, but she is unsure how large that demand really is.

Expanding her business this way will require that she incur not only new costs but also increases in existing costs. Margo has asked for your help in identifying the impact of her decision to expand in terms of her costs. When discussing these cost increases, be sure to specifically identify those costs that are directly tied to her products and that would be considered overhead expenses. Figure Which of the following is the primary source of revenue for a service business?

Figure Which of the following is the primary source of revenue for a merchandising business? Figure Which of the following is the primary source of revenue for a manufacturing business? Figure Which of the following represents the components of the income statement for a service business? Figure Which of the following represents the components of the income statement for a manufacturing business?

Figure Which of the following represents the components of the income statement for a merchandising business? Figure Identify the three primary classifications of businesses and explain the differences among the three.

Answers will vary but should include merchandising, service, and manufacturing businesses. Figure Explain how the income statement of a manufacturing company differs from the income statement of a merchandising company. Describe the types of cost data they would collect and explain the importance of analyzing this cost data.

Answers will vary but should include a discussion of operating costs such as salaries and wages, advertising, rent, and office expenses. They purchase their clothing for resale from specialty distributors and manufacturers.

Figure Magio Company manufactures kitchen equipment used in hospitals. They distribute their products directly to the customer and, for the year ending , they reported the following revenues and expenses. Use this information to construct an income statement for the year Figure Canine Couture is a specialty dog clothing boutique that sells clothing and clothing accessories for dogs.

Figure Winterfell Products manufactures electrical switches for the aerospace industry. For the year ending , they reported these revenues and expenses. Based on the information provided for the year, what was their net operating income? Figure Flip or Flop is a retail shop selling a wide variety of sandals and beach footwear. Figure Ballentine Manufacturing produces and sells lawnmowers through a national dealership network. They purchase raw materials from a variety of suppliers, and all manufacturing and assembly work is performed at their plant outside of Kansas City, Missouri.

They recorded these costs for the year ending December 31, Construct an income statement for Ballentine Manufacturing to reflect their net income for Figure Tom West is a land surveyor who operates a small surveying company, performing surveys for both residential and commercial clients. He has a staff of surveyors and engineers who are employed by the firm. For the year ending December 31, , he reported these income and expenses.

Using this information, construct an income statement to reflect his net income for Figure Just Beachy is a retail business located on the coast of Florida where it sells a variety of beach apparel, T-shirts, and beach-related souvenir items. They purchase all of their inventory from wholesalers and distributors.

For the year ending December 31, , they reported these revenues and expenses. Using this information, prepare an income statement for Just Beachy for Figure Hicks Products produces and sells patio furniture through a national dealership network. They purchase raw materials from a variety of suppliers and all manufacturing, and assembly work is performed at their plant outside of Cleveland, Ohio.

Construct an income statement for Hicks Products, to reflect their net income for They employ several paralegal and administrative support staff in order to provide high-quality legal services at competitive prices. For the year ending December 31, , the firm reported these income and expenses.

They purchase their inventory from local and national wholesale suppliers. Then, write a report to the instructor summarizing the results of the interview. Skip to content Building Blocks of Managerial Accounting.

Merchandising Organizations A merchandising firm is one of the most common types of businesses. To understand merchandising costs, Figure shows a simplified income statement for a merchandising firm: Simplified Income Statement for a Merchandising Firm.

Shopping Mall. Merchandising firms must identify and manage their costs to remain competitive and attract customers to their business. Balancing Revenue and Expenses. Introduction to the Gearhead Outfitters Story. Manufacturing Organizations A manufacturing organization is a business that uses parts, components, or raw materials to produce finished goods Figure.

Manufacturing firms apply direct labor to raw materials in order to produce the finished goods purchased from retailers. Cost Control. Simplified Income Statement for a Manufacturing Firm. The buyer calls this discount a purchase discount. A purchase discount is based on the invoice cost less any returns and allowances granted. Slide 19 Sales Returns occur when customers are dissatisfied with merchandise and are allowed to return the goods to the seller for credit or a refund.

Sales Allowances occur when customers are dissatisfied, and the seller allows a deduction from the selling price. Sales Returns and Allowances is a contra revenue account to the Sales account. The first entry reduces the balance owed by the customer and records the goods returned at retail price. The second entry records the physical return of goods to inventory at cost and removes the goods from the cost of goods sold account. Slide 22 A quantity discount is the offer of a cash discount to a customer in return for a volume sale.

Quantity discounts result in a sales price reduction. They are not separately journalized. Instead the sale is recorded at the reduced price. Similar to Sales Returns and Allowances, Sales Discounts is also a contra revenue account with a normal debit balance. A physical count is an important control feature since a perpetual system indicates what should be there but a count will determine what is actually there. Merchandise Inventory is an asset account and is not closed at the end of the period.

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