Fabm

• Merchandising Business


  Business that engages in the buying and selling of goods or merchandise
• Merchandising Business


  • Its normal operations consist of buying merchandise, selling merchandise, billing customers, and collecting customer accounts
  • The cash collected from customers would be used to buy a new set of merchandise so the process repeats
• Merchandise


  An item bought by a business for the purpose of reselling it
• Merchandise Inventory, End


  Merchandise that remains unsold at the end of the accounting period
• Merchandise Inventory, Beginning


  Merchandise that remains unsold from the previous accounting period and is expected to be sold this period
• Computation of Cost of Goods Sold

  1. Merchandise Inventory, Beginning

  2. Add: Net Cost of Purchases

  3. Cost of Goods Available for Sale

  4. Less: Merchandise Inventory, End

  5. Cost of Goods Sold
• Income Statement for Merchandising Business

  • Revenues
  • Less: Cost of Goods Sold
  • Gross Profit
  • Less: Operating Expenses
  • Net Income (Loss)
• Multi-Step Income Statement


  Classifies costs and expenses according to their function or use
• Single-Step Income Statement


  Classifies costs and expenses according to their nature
• Sales Revenue


  The amount of merchandise sold by a business for a specific period of time
• Gross Profit


  The difference between net sales revenue and cost of goods sold
• Operating Expenses


  Expenses incurred by businesses in their day-to-day operations
• Distribution Costs/Selling Expenses


  Expenses incurred by the seller in order to place the merchandise in the hands of the buyer
• Administrative Expenses/General Expenses


  Expenses incurred by the seller from day-to-day operations of the business but are not directly related to selling activities
• Transactions in a Merchandising Business include: purchase of merchandise, purchase returns and allowances, payment of freight, partial payment of account with supplier, full payment of account with supplier, sale of merchandise, sales returns and allowances, partial collection of customer account, full collection of customer account, purchase of supplies, purchase of property, plant, and equipment, incurrence of expenses, payment of expenses, owner's investment of merchandise, owner's withdrawal of merchandise
• Purchase of Merchandise


  Buying merchandise from suppliers in order to generate revenue
• Periodic Inventory System


  Updating of inventory is done periodically, usually once or twice a year through physical counting
• Perpetual Inventory System


  Updating of inventory is done every time there are changes in the quantity of the goods
• The effect of purchased merchandise on the accounting equation is a decrease in owner's equity
• There is no investment of merchandise made by the owner. The business has to purchase the merchandise from a supplier in order to make a sale.
• Suppliers


  Provide the business with merchandise that can be sold to its customers. These can be manufacturers of the merchandise, wholesalers, or retailers.
• Wholesalers


  Sell only in large quantity
• Retailers


  May sell in smaller quantity
• Both wholesalers and retailers are into merchandising businesses.
• Examples of wholesalers and retailers

  • Wholesalers
  • Retailers
• Purchase


  (in accounting) To buy
• Inventory systems

  • Periodic
  • Perpetual
• Periodic inventory system


  Traditionally used by businesses selling many inexpensive goods. Inventory is updated periodically, usually once or twice a year through physical counting.
• Perpetual inventory system


  Inventory is updated every time there are changes in the quantity of the goods. Traditionally used by businesses selling few expensive goods.
• A supermarket, which sells many inexpensive goods, can also make use of the perpetual inventory system if it uses computer applications and barcode scanners.
• Majority of the sole proprietorship merchandising businesses in the Philippines are using the periodic inventory system.
• Purchase of merchandise


  Increases the net cost of purchases, which then increases the cost of goods sold, decreasing net income and owner's equity.
• Source document


  Provides evidence that a business transaction has occurred. It includes details of the transaction such as the names and addresses of the parties involved, when the transaction happened, description of goods, terms and conditions, amount of the transaction and applicable signatures.
• Commonly used source documents in a merchandising business

  • Sales and purchase invoices
  • Sales and purchase orders
  • Delivery receipts
  • Debit and credit memoranda
  • Vouchers
  • Official receipts
• Invoice


  Issued by the seller to the buyer to indicate that merchandise has been delivered, therefore, the buyer is requested to pay the amount due. This is the basis for recording sales revenue in the seller's books and purchases in the buyer's books.
• The sales invoice and purchase invoice refer to the same document.
• Information typically included in an invoice

  • Name and contact details of the seller
  • Tax details of the seller
  • The word "Invoice"
  • Invoice number
  • Name and contact details of the buyer
  • Date of the invoice
  • Credit terms
  • Number of units delivered
  • Unit of measure for the goods delivered
  • Description of goods
  • Unit selling price of the goods
  • Total amount of goods
  • Authorized signature
• Delivery receipt


  A document issued by the seller to confirm if merchandise has been delivered to the billing address or the buyer's place of business. An authorized signature from the buyer's end is proof that merchandise has been received in good condition by the buyer and that the information on the document matches the merchandise received.
• Information typically included in a delivery receipt


  • Name and contact details of the seller
  • Tax details of the seller
  • The word "Delivery Receipt"
  • Receipt number
  • Name and contact details of the buyer
  • Date of the receipt
  • Credit terms
  • Number of units delivered
  • Unit of measure for the goods delivered
  • Description of the goods
  • Authorized buyer signature
• Debit memorandum/Debit note


  Issued by the buyer to notify the supplier that there is a reduction in the Accounts Payable maintained by the buyer and, therefore, to tally, the supplier has to also reduce the related Accounts Receivable.