Is the term used for the expense of buying and preparing merchandise for sale?
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The multi-step income statement is used to report revenue and expense activities for a merchandising business. It is an expanded, more detailed version of the single-step income statement. The most significant cost that a merchandise business incurs is the cost of acquiring the inventory that is sold. It is important to match what was paid for an item to what it sells for. The multi-step income statement presents financialinformation so this relationship may easily be seen. Here is a basic income statement for a merchandising business. Notice that Cost of Merchandise Sold, an expense account, is matched up with net sales at the top of the statement. There are three calculated amounts on the multi-step income statement for a merchandiser - net sales, gross profit, and net income.
Net sales is the actual sales generated by a business. It represents everything that “went out the door” in sales minus all that came back in returns and in the form of sales discounts. Gross profit is the same as “markup.” It is the difference between what a company paid for a product and what it sells the product for to its customer. Net income is the business’s profit after all expenses have been deducted from the net sales amount. A more complex manufacturing business may break out its operating expenses into two categories on the income statement: selling expenses and administrative expenses. Selling expenses are related to the people and effortsused to market and promote the product to customers. Administrative expenses relate to the general management of the business and may include costs such as the company president’s office and the human resources and accounting departments. An example is shown below. This page titled 3.2: Merchandising Income Statement is shared under a CC BY-SA 4.0 license and was authored, remixed, and/or curated by Christine Jonick (GALILEO Open Learning Materials) via source content that was edited to the style and standards of the LibreTexts platform; a detailed edit history is available upon request. For retailers, wholesalers and distributors, efficient inventory management is one of the keys to business success. These companies often have considerable amounts of money invested in stock that’s intended for sale to customers. For many companies, this inventory of goods for sale — known as merchandise inventory — is their most valuable asset; automobile dealers, for example, may have millions of dollars tied up in vehicle inventory. A company’s ability to manage its merchandise inventory can affect its profitability, competitiveness, customer satisfaction and, ultimately, its survival. What Is Merchandise Inventory?Merchandise inventory is so called because retailers, wholesalers and distributors make money by buying goods from manufacturers or other suppliers and then merchandizing — that is, marketing and selling — those products to customers. Merchandise inventory is the manifestation of the value of the goods a retailer or other reseller intends to sell to customers. It includes the goods the company holds in all locations — including storage facilities, warehouses and retail stores. Key Takeaways
Merchandise Inventory ExplainedMerchandise inventory includes the amount the retailer or other reseller paid for the items themselves, as well as additional costs incurred by the company such as shipping, insurance and storage. Merchandise inventory includes all unsold stock that is ready for sale, whether it’s located in stores or warehouses. What is another term for merchandise sales?Cost of goods sold: -Is another term for merchandise sales. -Is the term used for the expense of buying and preparing merchandise for sale.
Is a merchandise sales an expense?Cost of Merchandise Sold (also referred to as Cost of Goods Sold) - At the time of the sale, this account is debited for the cost of the goods that were sold. This is a major expense account, and usually represents the largest expense of a merchandiser.
What is an expense account used by merchandising businesses?Merchandising Income Statement
For a merchandising company, cost of goods sold or COGS is an expense account that refers to the cost of purchasing the inventory and shipping it to the appropriate locations for selling to customers.
What is the name of the account that is used to record the purchase of merchandise intended to be resold?Under the periodic system, a temporary expense account named merchandise purchases, or simply purchases, is used to record the purchase of goods intended for resale.
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