Question

-Describe and illustrate the accounting for merchandise transactions.

-Describe and illustrate the adjusting process for a merchandising business.

-Describe and illustrate the financial statements of a merchandising business.

-Describe and illustrate the use of asset turnover in evaluating a company’s operating performance.

Answer 1

- Merchandise Transactions: It is related to wholesaler / retailer / distributor deals in ready to sell goods to the ultimate customers by simply transfer of title of goods / ownership. Accounting followed is double entry book keeping.

eg: purchase of inventory / purchase of furniture for office purpose:

Furniture A/c Dr. XXX

To Cash / Sundry creditor A/c XXX

( Being Table purchased for office)

eg. Purchases A/c Dr. XXX

To Cash / Sundry Creditor A/c XXXX

( Being child toys 1200 packet purchased)

2. Depreciation expenses: Expenses need to be allocated over the tenure of the accounting period. Prepaid expenses cash paid  before the expenses incurred.

Depreciation A/c Dr. XXX

To Furniture A/c XXX

( Being Depreciation expenses charged)

Prepaid expenses A/c Dr. XXX

To cash A/c XXX

(Being rent expenses incurred for the month of March 2021)

3. Financial Statement of Merchandise business:  

- Income statement ( Showing exact Profit / loss during the period)

- Statement of Retained earnings ( reflect the reserve / profit transfered to reserve during the period)

- Balance Sheet: ( Reflect the Asset and liability as on date)

- Cash flow statement: ( Reflect the cash outflow and inflow during the period)

4. Asset turnover ration: It is financial ration which shows the turning efficiency of asset to generate revenue i. e production into sale. Higher the ratio better the efficiency of asset.