Notes

Merchandising:
Merchandising involves purchasing products (also called merchandise inventory or just inventory) to resell to customers.

The steps in the accounting cycle for a merchandising company ARE THE SAME as the steps for a service company. However, merchandising companies need additional accounts and entries in order to record merchandising transactions.

Measuring profit for a merchandising company is basically the same as for a service company. That is, profit (or loss) is equal to revenues minus expenses.

In a merchandising company, the main source of revenues is the sale of merchandise.
• These revenues are called sales revenue, or simply sales.

Expenses for a merchandising company are divided into two categories:
1. Cost of Goods Sold
2. Operating Expenses

Cost of goods sold is the total cost of merchandise sold during the period. This expense is directly related to the revenue earned from the sale of the goods, as a merchandiser must purchase the goods to be able to sell them to its customers.
• Sales revenue minus cost of goods sold is called gross profit.
• They are reported on the income statement.

Inventory:
Beginning inventory (inventory on hand at the beginning of the period) plus the cost of goods purchased is the cost of goods available for sale. As goods are sold, the cost of these goods becomes an expense (cost of goods sold).

Those goods not sold by the end of the accounting period represent ending inventory. The ending inventory is reported as a current asset on the balance sheet.

EX: Business has 320 burgers in their inventory at the start of April. They sold 31, had 2 go missing, threw out 6. Ending inventory is 281.

In a perpetual inventory system, the company keeps detailed records of each inventory purchase and sale. This system continuously - perpetually - shows the quantity and cost of the inventory that should be on hand for every item.
• When inventory is purchased under a perpetual system, the purchase is recorded by increasing (debiting) the Merchandise Inventory account.
• When inventory items are sold under a perpetual inventory system, the cost of the goods sold is transferred from the Merchandise Inventory account (an asset) to the Cost of Goods Sold account (an expense).
• Under a perpetual inventory system, the company determines and records the cost of goods sold and the reduction in inventory each time a sale occurs.

The Merchandise Inventory account is on the balance sheet.

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1. In a periodic inventory system, companies keep detailed inventory records of the goods on hand throughout the period to have accurate information about the quantity and value of inventory available at any given time. These records enable the company to track the purchases, sales, and returns of merchandise during the accounting period and ensure that the ending inventory is correctly stated.
2. In a periodic inventory system, the cost of goods sold (COGS) is determined at the end of the accounting period when a physical inventory count is taken. The COGS is calculated as the beginning inventory plus purchases made during the period, minus the ending inventory.
3. Periodically means at regular intervals, usually referring to a specific time period such as a month, quarter, or year.
4. To do periodic inventory calculations, a company typically takes a physical count of its inventory at the end of the accounting period and records the quantities and values of each item in the inventory records. This count is used to determine the ending inventory, which is subtracted from the beginning inventory plus purchases to calculate the cost of goods sold.
5. The three steps needed to determine the COGS in a periodic inventory system are:
1. Determine the beginning inventory at the start of the accounting period.
2. Add the purchases made during the accounting period.
3. Subtract the ending inventory count from the total of beginning inventory and purchases to get the COGS.
6. Traditionally, businesses such as small retailers and wholesalers used perpetual inventory systems.
7. In my opinion, perpetual inventory systems would be easier now than in decades past because of advancements in technology that enable real-time tracking of inventory levels and sales. Additionally, barcode scanning and RFID technology make it easier to automate the recording of inventory transactions, reducing the risk of errors and improving efficiency.
8. Advancements in technology, such as affordable point-of-sale systems and barcode scanning, have allowed smaller companies to have a perpetual inventory system. These systems have become more accessible and affordable, even for small businesses.
9. A perpetual inventory system gives better control over inventories as it allows businesses to track inventory levels in real-time, providing accurate and up-to-date information. This helps to reduce inventory errors, minimize stock-outs, and optimize ordering decisions, leading to better inventory management.
10. Inventory records in a perpetual inventory system show the quantity and value of each item of inventory on hand, as well as information about each inventory transaction, including purchases, sales, returns, and adjustments.
11. The term shortage in relation to inventories refers to a situation where the quantity of inventory on hand is less than the amount recorded in the inventory records.
12. A shortage in inventory can be found by taking a physical inventory count and comparing it to the inventory records. Any discrepancies between the two counts could indicate a shortage or an overage.
A perpetual inventory system can also make it easier to answer questions from customers about merchandise availability. Real-time inventory tracking allows businesses to quickly check inventory levels and provide accurate information about product availability to customers.
13. A perpetual inventory system can also make it easier to answer questions from customers about merchandise availability. Real-time inventory tracking allows businesses to quickly check inventory levels and provide accurate information about product availability to customers.

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Celtic vs Rangers Accounting:
• Douglas Park referenced a record 86.8M pounds in revenue in the annual report for 2022. The figure soared from 47.7M pounds last year.
• Celtics made 25 million pounds in net revenue.
• The article discusses a recent financial report released by Celtic Football Club which shows that their merchandise revenue for the first half of the 2021/22 season was higher than that of their rival, Rangers.
• The report revealed that Celtic's merchandise revenue for the six-month period was £17.7 million, compared to Rangers' £16.1 million.
• However, the article notes that this revenue advantage for Celtic is due to an accounting quirk rather than higher merchandise sales.
• The quirk is related to the fact that Celtic accounts for merchandise revenue when it is shipped to retailers, whereas Rangers accounts for revenue when it is sold to customers.
• This means that Celtic's revenue figures include merchandise that is still in stores and has not yet been sold to customers, while Rangers' figures only include revenue from actual sales.
• The article suggests that if both clubs used the same accounting method, Rangers' merchandise revenue would actually be higher than Celtic's.
• The report also revealed that Celtic's overall revenue for the first half of the season was £38.3 million, a decrease of 31% compared to the same period the previous year.
• This decrease was attributed to the impact of the COVID-19 pandemic, which has led to reduced matchday revenue and lower broadcasting income.
• Despite the revenue decrease, Celtic's operating expenses for the first half of the season were only down by 6%, which the article suggests may lead to financial difficulties for the club in the future.
• Overall, the article highlights the importance of accounting methods in determining revenue figures and suggests that fans and investors should be cautious when comparing financial reports from different clubs.