merchandising

• Merchandising business


  A business engaged in purchasing or buying and selling of products. No changes are made to the products or goods you are going to sell.
• Inventory or merchandise


  The products the business bought for resell in merchandising business
• Merchandising business


  • They do not make any changes in the product nor produce their own for sale
  • Selling is the primary source of revenue
• Merchandising business may sell


  • Food items (grocery, supermarket, sari-sari store)
  • Non-food items (appliances, school supplies)
• Major activities in Merchandising business


  • Purchasing
  • Selling
• Normal operating cycle of Merchandising business


  1. Buying merchandise

  2. Selling to customer

  3. Using cash to buy more merchandise
• Cash sales merchandise


  Can easily be converted into cash
• Merchandise sold on account


  Cycle will only end if the accounts receivable are collected
• Transaction


  A particular kind of event that involves the transfer of something of value between two entities
• Purchase of merchandise


  Purchases of assets other than merchandise like equipment, machinery or supplies intended for the use in the operation are not recorded as purchases
• Sales of merchandise


  Only sales of merchandise held for resale are recorded in the sales account. Sale of an asset other than merchandise is not included in sales account.
• Terms of payment for purchases and sales


  • Cash
  • On account or "utang muna"
  • Both cash and on account
• Related transactions to purchases and sales


  • Payment of transportation cost or freight
  • Merchandise return
  • Discounts
• Freight-in


  Account title used for the transportation cost paid and recorded by the buyer
• Freight-out


  Account title used for transportation cost paid and recorded by the seller
• Merchandise return


  A merchandise can be returned to the seller if it is defective or damaged, incorrect specification in terms of brand name, model type or other details indicated in buyer's purchase order
• Purchase return and allowances


  Account title used in recording the merchandise return of the buyer
• Sales return and allowances


  Account title used in recording the merchandise return of the seller
• Types of discounts


  • Cash discount
  • Trade discount
• Cash discount


  Given to encourage the buyer to pay promptly for their purchases on account. It is the amount deducted from the invoice price if it is paid within the specified period or within the terms of payments.
• Purchase discount


  Account title used in recording cash discount availed by the buyer
• Sales Discount


  Account title used by the seller in recording cash discount granted to the customers or buyers
• Trade discount


  Offered to attract buyers to make bulk buying or volume purchases. It is the amount deducted from the list price of the seller.
• Trade discounts are never recorded in the books of both parties
• Cash Discount


  Reduces the acquisition price of merchandise purchased
• Cash discount


  Recorded in the books of the buyer and seller
• Purchase Discount


  Account title used by the buyer to record cash discount availed
• Sales Discount


  Account title used by the seller to record cash discount granted to customers or buyers
• Trade discount


  Amount deducted from the list price of the seller to attract buyers to make bulk or volume purchases
• Credit term


  Commonly stated as 2/10, n/30
• Credit period


  Number of days given to the buyer to pay its account from the date of purchase
• 2/10, n/30


  Seller will give 2% discount if the buyer pays within 10 days, otherwise the net amount (n) without the 2% discount must be paid within 30 days
• EOM


  End of the month
• 3/10 EOM


  Seller will give 3% discount if the buyer pays within 10 days from the end of the month
• Determining the date that falls within the discount period


  1. Step 1: Date of sale

  2. Step 2: Analyze the terms of payment

  3. Step 3: Count 10 days from the date of sale
• Determining the maturity date when the buyer fails to pay within the discount period


  1. Step 1: Date of sale

  2. Step 2: Terms of payment: 2/10, n/30

  3. Step 3: Count 30 days from the date of sale
• Trade discount


  Computed upon the issuance of invoice by the seller, automatically deducted from the list price to give the invoice price
• Trade discount stated


  • 5%, 2/10, n/30
• Computing invoice price with trade discount


  1. Step 1: Multiply the trade discount with the list price

  2. Step 2: Deduct the trade discount amount from list price
• Computing invoice price with multiple trade discounts


  Step 1: Deduct each trade discount from the list price sequentially