ACCOUNTING FOR

MERCHANDISING
OPERATION
 Learning Objective

0
Accounting For Merchandising
1 Operation

0 Inventory system
2

0 Perpetual Inventory System

3

0 Financial Statements
4
Accounting For
Merchandising Learning
Operation Objective 1
 MERCHANDISER
Merchandiser is a person or enterprise that buys and sells
goods and earned revenue.

Wholesalers 2 types of Retailer

Buy goods from merchandiser Buy goods from
manufacturer in manufacturer or
order to provide wholesaler in
(sell) goods to order to provide
retailer. goods to
consumer.
 DIFFERENT BETWEEN SERVICE AND MERCHANDISING BUSINESS
SERVICE MERCHANDISING
BUSINESS BUSINESS
Primary Source of Service Revenue Sales Revenue
Revenue

Calculation of Net Service Revenue Sales Revenue

Income/Net Loss Less: Expenses Less: Cost of Goods Sold
Net Income/Net Loss Gross Profit/Loss
Add: Other Income/Revenue
Less: Operating Expenses
Net Income/Net Loss

Note: Merchandising business has TWO types expenses: COGS & Operating Expense
Inventory
Learning
System Objective 2
Inventory Eg: Ali Enterprise bought 100 units boxes A4
A.k.a stock, is an asset paper from Double A Company for the purpose of
bought or owned by resale to customers.
business that purposely
for sale in order to gain 100 units of boxes A4 paper = Inventory of Ali Ent
profit.
•Classification of inventory
•Merchandiser / retailer
•Complete/Finished Goods

•Manufacturer
•Finished Goods
•Work in Process/Progress
•Raw Material
 TWO SYSTEM USED IN ACCOUNTING FOR INVENTORY
Perpetual System Periodic System

Maintained detailed records of the cost of Do not keep detailed records of the
each inventory purchase and sale. goods on hand.

Records continuously show inventory Cost of goods sold determined by count

that should be on hand for every item. at the end of the accounting period.

Calculation of Cost of Goods Sold only

Company determines Cost of Goods
determined at the end of the accounting
Sold each time a sale occurs.
period.
 Journal entries
Perpetual Learning
Inventory System Objective 3
 RECORDING PURCHASES
Transactions Journal Entries

Purchases merchandise Dr. Merchandising Inventories

inventory Cr. Account Payable/Cash
Purchase return and allowance Dr. Account Payable/Cash
Cr. Merchandise Inventory
Purchase discount Dr. Account Payable
Cr. Merchandise Inventory
Cr. Cash
 Transactions Journal Entries
Purchases
(When the merchandise is purchased) Purchases Dr. Merchandising Inventories
merchandise Cr. Account Payable/Cash
inventory
Purchase return Dr. Account Payable/Cash
On May 11, Star Enterprise and allowance Cr. Merchandise Inventory
bought merchandise (goods)
RM4,000 on account with term Purchase discount Dr. Account Payable
discount 2/10, n/30. Cr. Merchandise Inventory
Cr. Cash

Date Account Debit Credit

11 May Dr. Merchandising Inventories 4,000
Cr. Account Payable 4,000
 Transactions Journal Entries
Purchases Return & Allowance
(Dissatisfied with merchandise Purchases Dr. Merchandising Inventories
received, return to the seller)
merchandise Cr. Account Payable/Cash
inventory
Purchase return Dr. Account Payable/Cash
On May 12, Star Enterprise and allowance Cr. Merchandise Inventory
returns RM500 of defective
merchandise purchased on Purchase discount Dr. Account Payable
May 11. Cr. Merchandise Inventory
Cr. Cash

Date Account Debit Credit

12 May Dr. Account Payable 500
Cr. Merchandise Inventory 500
 Purchases Discount
(When purchased on account, seller may give discount to encourage prompt payment)

Star Enterprise pay the balance CREDIT TERMS

due of RM3,500 with Permit buyer to claim a cash
discount 2/10, n/30 on May 14.
discount for prompt payment.

2% discount if paid within

Advantages:
10 days. Otherwise, net 1. Purchaser saves money
amount due within 30 2. Sales shortens the operating
days.
cycle by converting the account
receivable to cash earlier.
 Transactions Journal Entries

Star Enterprise pay the balance

Purchases Dr. Merchandising Inventories
due of RM3,500 with
merchandise Cr. Account Payable/Cash
discount 2/10, n/30 on May 14. inventory

Purchase return and Dr. Account Payable/Cash

allowance Cr. Merchandise Inventory
Purchases = 11 May Purchase discount Dr. Account Payable
Pay Full = 14 May Cr. Merchandise Inventory
Cr. Cash
Therefore, the payment made within the
discount period of 14 days. Date Account Debit Credit
Discount calculation: 14 May Dr. Account Payable 3,500
= % x (Purchases – Purchases Return) Cr. Merchandise Inventory 70
= 2% x (RM4,000 – RM500) Cr. Cash 3,430
= RM70
 RECORDING SALES
Transactions Journal Entries

Sales merchandise inventory i. Dr. Account Receivable/Cash

Cr. Sales

ii. Dr. Cost of Goods Sold

Cr. Merchandise Inventory
Sales return and allowance i. Dr. Sales return and allowance
Cr. Account Receivable/Cash
ii. Dr. Merchandise Inventory
Cr. Cost of Goods Sold
Sales discount Dr. Cash
Dr. Sales Discount
Cr. Account Receivable
 Transactions Journal Entries
Sales Sales merchandise i. Dr. Account Receivable/Cash
inventory Cr. Sales
(When the merchandise is sold)
ii. Dr. Cost of Goods Sold
Cr. Merchandise Inventory
On 13 June, SOONG
Enterprise sells merchandise Sales return and i. Dr. Sales return and allowance
allowance Cr. Account Receivable/Cash
on account RM2,500 with term
2/10, n/30 to Maring Utang ii. Dr. Merchandise Inventory
Enterprise. The cost of Cr. Cost of Goods Sold
merchandise sold was Sales discount Dr. Cash
RM2,000. Dr. Sales Discount
Cr. Account Receivable
Date Account Debit Credit
13 June Dr. Account Receivable 2,500
Cr. Sales 2,500

Dr. Cost of Goods Sold 2,000

Cr. Merchandise Inventory 2,000
Sales Returns & allowances Transactions Journal Entries
When customer dissatisfied with Sales merchandise i. Dr. Account Receivable/Cash
merchandise received (due to damage, inventory Cr. Sales
defective or did not meet specification)
and return to the company. ii. Dr. Cost of Goods Sold
Cr. Merchandise Inventory
On 17 June, Maring Utang Sales return and i. Dr. Sales return and allowance
Enterprise return merchandise allowance Cr. Account Receivable/Cash
RM500 for damage ii. Dr. Merchandise Inventory
merchandise to SOONG Cr. Cost of Goods Sold
Enterprise with cost of Sales discount Dr. Cash
merchandise return RM300. Dr. Sales Discount
Cr. Account Receivable

Date Account Debit Credit

13 June Dr. Sales return and allowance 500
Cr. Account Receivable 500

Dr. Merchandise Inventory 300

Cr. Cost of good sold 300
Sales Discount Transactions Journal Entries
Company usually offer credit term to Sales merchandise i. Dr. Account Receivable/Cash
encourage buyers to make prompt inventory Cr. Sales
payment.
ii. Dr. Cost of Goods Sold
On 20 June, SOONG Cr. Merchandise Inventory
Enterprise received Sales return and i. Dr. Sales return and allowance
allowance Cr. Account Receivable/Cash
RM2,000 from Maring
Utang Enterprise for ii. Dr. Merchandise Inventory
Cr. Cost of Goods Sold
balance due, from 13 June
Sales discount Dr. Cash
credit sales with term 2/10, Dr. Sales Discount
n/30. Cr. Account Receivable
Date Account Debit Credit
Get discount (within 10 days)
Discount = % x (Sales – Sales Return) 13 June Dr. Cash (2,000 – 40) 1,940
= 2% x (RM2,500 – RM500) Dr. Sales Discount 40
= RM40 Cr. Account Receivable 2,000
 RECORDING FREIGHT COST
Freight cost indicates whether the buyer or seller of goods has taken possession,
and who is paying for transport. Ideally, either the seller or the buyer should record
goods in transit in its accounting records. The rule for doing so is based on the
shipping terms associated with the goods.

Ownership transfer to the Ownership transfers to the

buyer as soon as the buyer as soon as the
shipment departs the seller. shipment arrives at the
buyer’s place.
FOB SHIPPING POINT FOB DESTINATION
 Ali (buyer) bought merchandise inventories on
credit from Bala (seller) with term n/30. the
inventories exclude freight charge RM150.

FOB Shipping Point (Buyer pay) FOB Destination (seller pay)

Dr. Merchandise inventory RM150 Dr. Freight out RM150

Cr. Cash RM150 Cr. Cash RM150
 Financial
Learning
Statement
Objective 4
 SIMPLE FORMAT FINANCIAL STATEMENTS
Statement of Statement of Financial
Comprehensive Income Position

Non Current Assets xx

Revenue xx
(+) Current Assets xx
(-) Cost of Goods Sold (x)
TOTAL ASSETS XX
GROSS PROFIT/(LOSS) XX/(XX)
Owner’s Equity xx
(+) Other Revenues and Gains xx
(+) Non Current Liabilities xx
(-) Expenses (xx)
(+) Current Liabilities xx
NET PROFIT/(LOSS) XX
TOTAL OWNER EQUITY + LIABILITIES XX
 NAME OF BUSINESS
Statement of Comprehensive Income for the year ended DD/MM/YY
RM RM RM
Revenue
Sales xxx
(-) Sales Return and allowance (xx)
(-) Sales Discount (xx)
Net Sales xxx

Less: Cost Of Goods Sold

Opening/Beginning Inventories xx
Purchases xxx
(-) Purchases Return and allowance (xx)
(-) Purchases Discount (xx)
Net Purchases xxx
(+) Custom Duty/Import Duty xx
Cost of Goods Available for Sale xxx
(-) Closing/Ending Inventories (xx)
Cost of Goods Sold (xxx)
GROSS PROFIT/(GROSS LOSS) XXX
GROSS PROFIT/(LOSS) XXX/(XXX)
Add: Other Revenues and Gains
Interest Revenue/Received xx
Rent Revenue/Received xx
Commission Revenue/Received xx
Fees Revenue xx
Subscription Fees xx
Total Revenue xxx

Less: Expenses
Salaries Expense xx
Rent Expense xx
Insurance Expense xx
Advertising Expense xx
Utilities Expense xx
Freight Out xx
Administrative Expense xx
Depreciation Expense xx
Stationeries Expense xx
General Expense/Miscellaneous Expense xx
Maintenance Expense xx
Wages Expense xx
Interest on Loan Expense/Rates Expense xx
Bad Debt Expense xx
Loss on Disposal xx
Total Expense (xxx)
 NAME OF BUSINESS
Statement of Financial Position as at DD/MM/YY
RM RM RM
ASSETS
Non Current Assets
Land and Building xxx
Motor Vehicle xxx
(-) Accumulated Depreciation – Motor Vehicle (xx) xxx
Equipment xxx
(-) Accumulated Depreciation – Equipment (xx) xxx
Fixtures and Fittings xxx
(-) Accumulated Depreciation – Fixtures and Fittings (xx) xxx
Investment xx
Goodwill xx
Patent xx
Copyright xx
Trademark xx
Franchise xx
Total Non Current Assets xxx

Current Assets
Cash xx
Bank xx
Prepaid Expenses xx
Accrued Revenues xx
Note Receivable xx
Account Receivable xx
Closing/Ending Inventory xx
Total Current Assets xxx
TOTAL ASSETS XXXX
OWNER’S EQUITY AND LIABILITIES
OWNERS’S EQUITY
Beginning/Opening Capital xxx
Add: Net Income/Net Profit xx
Add: Additional Capital xx
Less: Net Loss (xx)
Less: Drawing (xx)
Ending/Closing Capital xxx

LIABILITIES
Non Current Liabilities
Loan xx
Mortgage xx
Debenture xx
Total Non Current Liabilities xxx

Current Liabilities
Short Term Loan xx
Account Payable xx
Note Payable xx
Unearned Revenues xx
Accrued Expenses xx
Total Current Liabilities xxx
TOTAL OWNER’S EQUITY AND LIABILITIES XXXX
THANK YOU