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Chapter Summary

Section 6.1: Define and Describe Merchandising Operations​

  • Merchandising businesses buy and resell finished goods
  • Different from service businesses (have inventory and COGS)
  • Income statement includes: Sales - COGS = Gross Profit - Expenses = Net Income
  • Inventory is a key asset (PCN Class 3)
  • Common in Luxembourg: retail, wholesale, e-commerce, mixed businesses

Section 6.2: Compare and Contrast Perpetual vs. Periodic Inventory Systems​

  • Perpetual: Inventory updated continuously, COGS at sale time
  • Periodic: Inventory updated at period end, COGS calculated at period end
  • Perpetual is preferred for most modern businesses
  • Luxembourg businesses typically use perpetual system
  • Both systems acceptable under PCN

Section 6.3: Analyze and Record Transactions for Merchandise Purchases​

  • Purchases recorded in Inventory account (perpetual) or Purchases account (periodic)
  • Must record VAT Recoverable separately
  • Purchase returns and allowances reduce inventory
  • Purchase discounts reduce inventory cost
  • Different VAT rates require separate tracking

Section 6.4: Analyze and Record Transactions for Merchandise Sales​

  • Sales recorded: Revenue and VAT Payable
  • COGS recorded: Cost of Goods Sold and reduction in Inventory
  • Sales returns and allowances reduce revenue
  • Sales discounts reduce revenue
  • Different VAT rates on sales require careful tracking

Section 6.5: Discuss and Record Transactions for Freight-In​

  • Freight-in is part of inventory cost (not separate expense)
  • Two methods: Include in Inventory or separate Freight-In account
  • Method 1 (include in inventory) is generally preferred
  • Freight-out is an operating expense (not inventory cost)
  • VAT on freight is usually recoverable

Section 6.6: Describe and Prepare Income Statements for Merchandising Companies​

  • Multi-step format shows: Net Sales - COGS = Gross Profit - Expenses = Net Income
  • Simple format: Revenues - Expenses = Net Income
  • Multi-step preferred for better analysis
  • Gross profit margin is key metric
  • Must follow PCN format for Luxembourg filing

Section 6.7: Periodic Inventory System (Appendix)​

  • Purchases recorded in Purchases account
  • COGS calculated at period end: Beginning + Purchases - Ending
  • Requires physical inventory count
  • Less common in modern businesses
  • Still acceptable under PCN

Section 6.8: Luxembourg Retail/Hospitality Inventory Accounting​

  • PCN Class 3: Inventory accounts
  • 321000: Merchandise (retail)
  • 300000: Raw Materials (ingredients)
  • Must use consistent valuation method (FIFO, weighted average)
  • Must comply with PCN requirements

Section 6.9: Luxembourg VAT on Merchandise​

  • Four VAT rates: 3%, 8%, 14%, 17%
  • Different rates for different merchandise types
  • Must track VAT by rate for VAT return
  • Must record VAT separately (not in inventory cost)
  • Critical for eCDF filing compliance