Chapter 11 - Accounting for a Merchandising Business

Article: http://www.vancouversun.com/news/Ferries+reduce+fares+cent/3609604/story.html

Summary:

This article was written by Jeff Lee, and it discusses BC Ferries' plan to reduce ferry fares by two percent. It is part of a deal that will see the federal government return $119.4 million in excise duties. Also, a portion of the rebated taxes will be used to finance a long-term maintenance structure program for the fleet. It was also announced that the federal government will remove the 25 percent excise tax on large ferries, tankers, and general cargo ships import into Canada. Stockwell Day, federal Treasury Board and minister for Asia-Pacific Gateway, says that the removal of the excise tax for ships will help maintain an efficient shipping industry. The province had also agreed to use a portion of the savings to lower ferry fares on the minor, northern and Sunshine Coast routes. David Hahn, president of the BC Ferries, claims that the rebate is good news and will stabilize ferry fares across the entire fleet. Northern Coastal mayors have also applauded the situation, but Canadian ship-builders have been further angered by the BC Ferries' decision, since BC Ferries had already angered Canadian ship-builders before by choosing to manufacture their ships overseas.

Connections:

I think this article connects well to Chapter 11 because it relates to the Freight-in account. Shipping costs which merchandise businesses pay would be recorded in the Freight-in account. The Freight-in account is used to calculate the cost of goods sold, and the cost of goods sold is used to calculate gross profit. The article discusses that excise tax on cargo ships will be removed, thus lowering the shipping costs and creating a more efficient shipping industry. Shipping companies would benefit from this because since their shipping costs are lowered, they will attract more merchandise companies to order goods from them. With lowered shipping costs, merchandise companies can order more stock to increase their merchandise inventory. With more inventory, the companies could lower their prices and sell more goods, which would increase the company's gross profit and net earnings.

Reflections:

The article shows that it is important for business owners and accountants to keep up with current events such as this one. By understanding the underlying messages tax excise and similar topics have, accountants would be able to advise business owners what the best ways are to make profits out of these situations. If a merchandising business can find a shipping company that ships for less, then why not take advantage of the opportunity? This is especially beneficial for wholesalers such as Costco because they normally purchase goods in bulk. What I've noticed about Costco is that the company usually has limited amounts of popular items and doesn't restock certain goods once they sell out. If they had lower shipping costs, they could order more goods and sell more of it, thus increasing their profits.