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Accounting For A Merchandising Business

A merchandising business earns income by buying and selling products. The income statement has three parts: revenue from sales, cost of goods sold, and operating expenses. Gross profit is the difference between revenue and cost of goods sold. Special journals are used to record sales, purchases, cash receipts and payments. Accounting for inventories involves perpetual or periodic inventory systems to track the quantity and cost of goods.

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Angelique Faye Calucin
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413 views3 pages

Accounting For A Merchandising Business

A merchandising business earns income by buying and selling products. The income statement has three parts: revenue from sales, cost of goods sold, and operating expenses. Gross profit is the difference between revenue and cost of goods sold. Special journals are used to record sales, purchases, cash receipts and payments. Accounting for inventories involves perpetual or periodic inventory systems to track the quantity and cost of goods.

Uploaded by

Angelique Faye Calucin
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ACCOUNTING FOR A MERCHANDISING ● TRADE DISCOUNTS

BUSINESS
-Not reflected in journal entries

-Granted to customers such as for


● MERCHANDISING
buying frequently in large quantities
-They earn income by buying and
● SALES RETURNS AND
selling products or merchandise
ALLOWANCES
● MERCHANDISE
-Sales returns - return of
merchandise if its defective or poor
-Represents goods or items
quality or erroneous.
intended for sale by a merchandiser
-Sales allowance - reduction in the
INCOME STATEMENT FOR
invoice price because its defective or
MERCHANDISE HAS THREE PARTS: poor quality.
-Revenue from sales - arise from - contra revenue account
sales of goods or merchandise by
the merchandising business ● SALES DISCOUNT
-Cost of goods sold - tells how much -Discount given if payments are
the merchandiser paid for the received within a certain number of
merchandise sold days.
-Operating expenses - are those -Cash discount
expenses other than cost of goods
sold that are incurred in the running ● PURCHASES
business
-In periodic inventory system, used
● GROSS PROFIT only for merchandise purchased for
sale
-The difference between revenue
from sales and cost of goods sold.

● SALES

-Is a revenue account that is used ● PURCHASE RETURNS AND


for recording sales of merchandise ALLOWANCES
whether the sale is made for cash or
on account -Returns and allowances on goods
purchased
● INVOICE
-Debit memorandum - inform seller
-Is a document prepared by the that accounts payable is debited
seller
-Credit memorandum - inform buyer
-Seller calls in sales invoice that accounts receivable is credited

-Buyer calls in purchase invoice ● PURCHASE DISCOUNT


-Cash discount from a buyer’s point -Refers to the cost of merchandise
of view sold to customers.

-Represents the largest single


TRANSPORTATION COSTS deduction in a company’s income
statement
● FOB SHIPPING POINT

-Buyer agreed to shoulder all the ACCOUNTING FOR INVENTORIES


transportation costs from shipment
● PERPETUAL INVENTORY
-Buyer owns the good at shipping SYSTEM
point
-Provides detailed records of the
● FOB DESTINATION quantity and cost of each item of
inventory and always shows the cost
-Seller agreed to shoulder all of goods sold at hand
transportation costs from shipment
-High value and low volume items
● FREIGHT PREPAID
● PERIODIC INVENTORY SYSTEM
-Seller paid the transportation costs
at the time of shipment -Count of physical inventory is done
periodically, usually at the end of the
● FREIGHT COLLECT accounting period

-Buyer paid the transportation costs -Low value and high volume items
upon receipt of the goods.
SPECIAL JOURNALS
● FREIGHT IN
● SALES JOURNAL
-Account used to record freight costs
incurred by the buyer in acquiring -Used to record all sales of
merchandise merchandise on account

-Adjunct account (added in ● CASH RECEIPTS JOURNAL


purchases)
-Used to record all inflows of cash
-Transportation in into business

● FREIGHT OUT ● PURCHASES JOURNAL

-Account used to record shipping -Used to record all purchases of


costs shouldered by the buyer merchandise and other items on
account
-Shown in the selling expense in the
income statement ● CASH DISBURSEMENT JOURNAL

-Delivery expense -Used to record all payments of cash


by the business
● COST OF GOODS SOLD

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