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| amounts owed to vendors for goods & services |
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| amounts that customers owe the retailer for goods & services |
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the second statement used in financial reporting & shows the financial condition of a retailer's business at a particular point in time. The basic equation for it is:
assests=liabilities + net worth |
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| based on the cost of the most recently purchased inventory, while the older inventory is regarded as the unsold inventory. |
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| concerned with the planning & control involved in the buying & selling of goods & services to help the retailer realize its objectives. Hence, this term is only one of the many retailing activities. |
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| operating profit +/- (plus or minus) other income or expenses; the figure upon which the retailer pays taxes and thus is usually referred to as _______ before taxes. It is important to point out that Generally Accepted Accounting Principles (GAAP) allow for variations in how retailers report certain expenses. Thus, when comparing the financial statements of different retailers, it is important to know how each retailer treated these and other expenses. |
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| represent the amount of merchandise the retailer actually sold during the time period; gross sales less returns & allowances |
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| make up merchandise that the retailer has in the store or in storage & is available for sale |
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values merchandise at current retail prices; overcomes the disadvantages of the other method by keeping detailer records of inventory based on the retail value of the merchandise. 3 basic steps to compute an ending inventory value:
(1) calculate the cost complement, where
c.c.=total cost valuation/total retail valuation,
(2) calculate the reductions from retail value (which includes markdowns, discounts, & stock shortages) by taking a physical count of inventory,
(3) convert adjusted retail book inventory to cost, approximated by using the formula
closing inventory @ cost=adjusted retail x cost complement book inventory
ADVANTAGES-accounting systems can be drawn up at any time (inventories needn't be taken); physical inventories using retail prices are less subject to error & can be completed in a shorter amt of time; the retail method provides an automatic, conservative valuation of ending inventory levels thruout the season.
LIMITATIONS- its a "method of averages" due to the fact that the closing inventory is valued at the avg relationship b/t cost & retail, and larger retailers offer many diff classifications & lines w/ diff relationships; theres a heavy burden place of bookkeeping activites, the true ending book inventory value can be correctly calculate only if there are no errors forund in the other entries. |
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| method that assumes that the oldest merchandise is sold before the more recently-purchased merchandise. During inflationary periods, this method allows the retailer to realize "inventory profits" (by selling the less expensive, earlier inventory, not the more expensive, newer inventory) |
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| method that is designed to cushion the impact of inflationary pressures by matching current costs against current revenues. cost of goods sold is based on the cost of the most recently purchased inventory, while the older inventory is regarded as the unsold inventory. In times of inflation most retailers use this method which results in not only lower profits on the income statement, but also lower income taxes. They also prefer this method for planning purposes, since it accurately reflects replacement costs. |
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| an intangible asset, usually based on customer loyalty, which a retailer pays for when buying an existing business |
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| the difference b/t net sales and cost of goods sold or the amt available to cover operating expenses & produce a profit |
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| represent the total of all cash & credit sales |
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| provides a summary of the sales & expenses for a given time period; referred to as the profit & loss statement |
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| all the expenses that a retailer incurs during the normal course of operating the business other than the cost of the merchandise sold (i.e., payroll, rent, utilities, advertising, depreciation, supplies, taxes, interest paid, repairs, & insurance). |
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| the difference b/t gross margin & operating expenses |
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