Accounting for Merchandising Business Activities

• Merchandising entity

  earns its revenue by selling products, called merchandise or merchandise inventory.
• merchandising firm may be


  A wholesaler & Retailer
• wholesaler

  buys goods for resale to retailers
• retailer


  buys goods for resale to find customers.
• merchandise

  The goods purchased and held for resale, whether wholesale or retail
• Service businesses


  earn revenue by providing intangible services to customers.
• Merchandising businesses 


  earn revenue by selling tangible goods or merchandise.
• manufacturing company


  purchases materials and transforms them into finished product
• merchandise firm

  must account for the cost of the goods that it sells in a given accounting period.
• Merchandise firm


  • Must account for the cost of the goods that it sells in a given accounting period
• Adjustments that must be made


  • Cost of transportation in
  • Freight in
  • Purchase returns and allowances
  • Purchase discounts
• periodic and perpetual


  two systems for accounting for merchandise
• PERIODIC inventory system


  the inventory records do not show the amount available forsale or sold during the period
• physical inventory


  used to determine the cost of the merchandise on hand at theend of the period and the cost of the merchandise sold during the period.
• PERPETUAL inventory system


  each purchase and sale of merchandise is recordedin an inventory account.