Merchandising

• Merchandising


  • Reporting service income for a service company
  • Selling services, not a thing but service
  • It is easy to compute for net income for service type of business
• Reporting Income for Merchandiser

  • Always involve in buying and selling activities
  • Retailing is another term for merchandising
  • Involve in 2 activities: Buyer and Seller
  • Sell products to earn revenue
  • It's quiet challenging to get the net income
• Sales


  The income account for merchandising, a revenue account
• Cost of Goods Sold and Gross profit

  • Not present in other financial statement
  • Net Sales – Cost of Goods Sold = Gross Profit
  • Gross profit are the total without deduction
  • Gross Profit – Expenses = Net Income
• Operating cycle for merchandiser

  1. Purchase

  2. Merchandise Inventory

  3. Credit Sales

  4. Accounts Receivable

  5. Cash collection
• Merchandise Inventory


  • There's an account title merchandise inventory in merchandise type of company
  • Goods to be sold
  • In service type, there is no merchandise inventory, you only have supplies
  • Supplies are intended to be use but not to sell
• Credit Sales


  You have cash sales or credit sales
• Allowance for Doubtful Accounts


  It will appear here the Allowance for Doubtful Accounts
• Inventory System


  1. Net purchase + Beginning Inventory = Merchandise Available for Sale/ Goods Available for Sale

  2. Cost of Goods Sold/Cost of Sales + Ending Inventory = Merchandising Available for Sale

  3. Merchandise Available for Sale are the goods that are not been sold or ready to be sold

  4. Cost of Goods Sold is the cost to purchase the goods that you sell
• Perpetual Inventory System


  • Updates accounting records for each purchase and each sale of inventory
  • Merchandise Inventory is the account you use in this system
• Periodic Inventory System


  • Updates records for purchases and sales of inventory only at the end of a period
  • Purchases is the account you use in this system
• Credit Terms


  • Sellers can grant a cash discount to encourage buyers to pay earlier
  • If you pay earlier, the creditor will give you cash discount
• Tag Price


  Referred as list price or Tag price
• Trade Discount


  • Called as Trade Discount
  • Not recorded in either the seller or buyer's book
  • Also referred as volume discount or rebates
  • It's a marketing strategy of the company
• There is a buyer and seller first person view
• Input the company name if you are recording in merchandising since there are a lot of company involve in running merchandising
• FOB Shipping Point


  Buyer will shoulder the shipping cost/fee
• Freight in


  Transportation in
• FOB Destination


  Seller will shoulder the shipping cost/free
• Freight Collect


  The payment of shipping is on the place where the goods will be delivered (Buyer)
• Freight Prepaid


  The payment of shipping fee is to the person who deliver goods (Seller)
• Sale and Purchase title often included in account title
• Don't include freight that are added into payable when computing the Trade Discount
• Periodic Inventory System


  • The following accounts are presented in this inventory system: Purchases, Purchase Returns and Allowances, Purchase Discount, Freight in/out
  • You need to physically counting inventory to determine the merchandise inventory
  • You count your inventory manually in this inventory system to know the balance of your merchandise inventory
• Perpetual Inventory System


  • Only one account, Merchandise Inventory
  • You can track the in and out of your inventory because you have a specific ledger (t-account)
  • You count your inventory manually to know if your merchandise inventory is balance to the actual count of inventory
  • If it's not balance, find the difference of merchandise inventory and actual count of inventory
  • The difference of it will be adjusted to cost of sales
  • In every sale entry you have, you must have another entry (corollary entry) which is recognizing the cost of goods sold and adjusting the merchandise inventory
• Sample


  • You purchased 100 pcs bed sheet with unit cost P 200/pc and the transportation expense back and forth is equal to 500
• Inventoriable Cost


  • Expenses that you add to the price of your goods before you come up with your selling price for your goods
  • Transportation expense and the likes
• Sales Returns


  There's an actual return of goods
• Sales Allowance


  There's no actual return of goods but instead you give the buyer an allowance or discount because of the damaged goods
• If the problem is silent, look for the chart of accounts of the company to determine the inventory system
• If the problem is totally silent (no clue), thus, the company will use periodic system
• If the problem stated a cost of goods sold you will use perpetual system
• Perpetual and Periodic Comparison

  • Purchase of Inventory
  • Payment of Freight on the purchase
  • Return on inventory purchase from supplier
  • Paid inventory purchase less 1% discount
  • Sale of Merchandise costing 10,000 on account for 15,000 terms 1/10, n/30
  • Return on Inventory sold from customer P 1,500 the cost of interview P 1,000
  • Received payment from customer within discount period
  • Sale of equipment costing 100,000 for 150,000
• Cost of Goods Available for Sale are items of unsold merchandise inventory at the year-end
• Cost of Goods Sold are items sold to customers
• Merchandise inventory that was unsold is shown in asset on the balance sheet while merchandise inventory that was sold is shown as expense in the Income Statement
• Cost of Inventory include all cost incurred in bringing inventories to their present location and condition
• Consignment


  A way of selling goods in which the owner is called the consignor transfer goods to the consignee (who sells the goods) for a commission
• Trade Discount


  Deducted from the list price or catalog price in order to arrive at the invoice price. No accounting entry
• Cash Discounts


  Deducted from the invoice price when payment is made within the discount period (credit term) and recorded as purchase discounts