Lakeshore Tea Company: Merchandising Operations

At month’s end in May 2021, the owner of Lakeshore Tea Company Inc. (Lakeshore) located in Mississauga, Ontario, Canada, was reviewing her company’s merchandising operations for the preceding month. Lakeshore operated as an herbal tea processor and supplier, importing herbs and tea leaves from a variety of sources across the globe. Over its first two years of operations Lakeshore had experienced significant growth and had begun supplying a variety of restaurants, health food stores, and small grocery outlets in the Greater Toronto Area. The owner was now tasked with recording all accounting entries relating to Lakeshore’s merchandising operations for the past month.

This exercise is best positioned within a merchandising inventory module in an introductory-level financial accounting course. The exercise brings together concepts related to sales and accounts receivable and those related to merchandising inventory to allow students to fully grasp the accounting for merchandising operations. The exercise is best taught once students have been able to learn and practice these topics. This exercise is designed to demonstrate key concepts relating to the accounting for retail inventories, requiring students to practically apply their knowledge and understanding. After working through the exercise and assignment questions, students will be able to do the following:<ul><li>Apply understanding of how to account for cash and credit sales, sales returns and allowances, and sales discounts.</li><li>Identify accounting entries with the periodic inventory system.</li><li>Differentiate between the purchase and sale of goods for a merchandising company.</li> <li>Correctly apply key introductory merchandising inventory concepts.</li><li>Calculate cost of goods sold.</li></ul>

• financial accounting
• merchandise inventory
• retail inventory
• cost of goods sold
• periodic inventory system
• T-accounts
• purchasing