Accounting for Retail
Inventory
• Goods or property purchased and held for sale in the operating cycle of a
business
• Other assets may be sold from time to time but these are not inventory
Income Statement for a Retailer
• Sales is the most important revenue (income)
• Cost of sales represents inventory sold during the period
o COS is subtracted from net sales revenue to arrive at gross profit
• Expenses are grouped by function:
o Selling and Distribution Expenses
o Administrative Expenses
o Finance Expenses
Accounting for Sales Transactions
• Recorded when inventory is transferred to the customer
• The entry to record a sales return is as follows:
o Sales Returns and Allowances is a contra-revenue account
o Will be subtracted from sales in the income statement
• Cash settlement discounts can be offered if paid within a certain amount of
time
o 2/10, n/30 – 2% discount if paid within 10 days, otherwise 30 days
