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4.5 b Journalizing Merchandising Transactions (1)

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2 views

4.5 b Journalizing Merchandising Transactions (1)

Uploaded by

nasty0cruz
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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MERCHANDISING

TRANSACTIONS
There are several new accounts that a merchandising business uses.
Here we see some of these accounts used by a merchandising business.
Inventory
 The inventory account reports the cost of unsold merchandise.

 The inventory account of a trading business contains


merchandise held for resale.

 Only merchandise held for sale are reported as inventories,


which means that items that are to be used in the day-to-day
activities of the company are supplies and not inventories.

 A manufacturing company will have more complex inventories


composed of raw materials, unfinished inventories in the
middle of the manufacturing process (may also be called work
in process), and unsold finished goods.
Classification of items
ITEM BUSINESS MERCHANDI PPE SUPPLIES/
SE EXPENSE
INVENTORY
Land Filinvest
Real Estate
Company
ABC
Manufacturi
ng Company
(for plant
site)
Gasoline GMA Trading
Company
(for
company
vehicles)
Petron
Gasoline
Station (for
sale)
Classification of items
ITEM BUSINESS MERCHANDIS PP SUPPLIES/
E INVENTORY E EXPENSE
Office National
supplies Bookstore (for
sale)
IBC Corporation
(for use in
busines
operations)
Delivery Toyota Motors (for
van sale)
Dunkin Donuts
(for use in
delivering donuts)
Furniture Blims Furniture
(for sale)
Okada Hotel (for
hotel use)
Inventory Systems

a. Perpetual inventory system – under this


system, the “Inventory” account is updated
each time a purchase or sale is made. Thus,
the “Inventory” account shows a continuing
or running balance of the goods on hand.
b. Periodic inventory system – under this
system, the “Inventory” account is updated
only when a physical count is performed.
Thus, the amounts of inventory and cost of
goods sold are determined only periodically.
Perpetual Periodic
• Used normally for expensive • Used for inexpensive items
items

• More costly to implement • Cheaper to implement

• Record exists in every • No record is kept for transactions


movement of inventory. involving inventory movement

• Inventory physical count is • Inventory physical count is made at


made at least once a year. yearend to establish ending
inventory amounts.
Perpetual vs Periodic
Inventory
Car dealer Cellular
phone Department store
accessories store
Luxury bag store
Jewelry store Appliance center
Convenience store
Hardware store
Drug store
Furniture shop
Accounts used under Periodic System

• Purchases – the account used to record


purchases of inventory under the periodic
system.
• Freight-in (Transportation-in) – the account used
to record the shipping costs incurred on
purchases of inventory under the periodic
system.
• Purchase returns – the account used to record
returns of purchased goods to the supplier.
• Purchase discounts – the account used to
record cash discounts availed of on the
purchased goods.
Purchasing Procedures

• The Sales Department


• sends an authorized purchase requisition to the Purchasing
Department
• The Purchasing Department
• issues an authorized purchase order and sends it to the
selected supplier
• A receiving report is prepared when the merchandise is
received
• The Accounting Department
• receives the invoice and copies of the purchase order and
receiving report
Invoices

• This is a purchase invoice for the


customer.
• This is a sales invoice for the
seller.
The Purchases Account

• QUESTION:
• What is the
Purchases • Purcha
account?
• ANSWER: ses
• The Purchases
account is an
account used to
record cost of goods
bought for resale
during a period.
Account Classifications
• Recall the major account classifications from earlier
chapters:
• Assets.
• Liabilities.
• Owner’s Equity.
• Revenue.
• Expenses.

• The Purchases account is under a different


classification:
• Cost of Goods Sold.
The Freight In Account

• QUESTION:
• What is the Freight
In account? • Freight
• ANSWER: In
• The Freight In
account is an
account showing
transportation
charges for items
purchased. It is also
called the
Cost of Goods Sold Accounts

Price of goods (debit Purchases) $550.00


Freight charge (debit Freight In) 50.00

Total invoice (credit Accounts Payable) $600.00

• The cost of goods sold accounts have


normal debit balances.

15
Journalizing purchases transactions

PURCHASE JOURNAL

• These four
general journal
entries require
twelve separate
postings to
general ledger
accounts. It
takes a great
deal of time and
effort to post
them.
16
Beginning inventory ₱xx
Add: Net cost of purchases xx
Cost of goods available for sale ₱xx
Less: Ending inventory xx
Cost of Goods Sold ₱xx
===
To compute for Net cost of purchases:
Purchases ₱xx
Less: Purchase returns & allow ₱xx
Purchase discount xx
Net Purchases ₱xx
Add: Freight-in xx
Net Cost of Purchases ₱xx
===
Journal Entries
Purchased goods worth Php10,000 on account.
Purchases
10,000
Accounts Payable
10,000
Paid shipping costs of Php1,000 on the purchase above.

Freight-in 1,000
Cash
1,000
Purchases Returns and Allowances

• Record purchase returns and allowances


in the general journal and post them to
the general ledger.
• A purchase
return is a
return of • A purchase
unsatisfactory allowance is a
Goods seller granting
previously an allowance
purchased for towards the
resale. purchase
Journal Entries

Returned damaged goods that were purchased on


account worth Php2,000 to the supplier.

Accounts Payable 2,000


Purchase Returns
2,000
Record purchases returns and allowances in the general journal
and post them to the general ledger

• A credit to the Purchases Returns and


Allowances account is made when a
vendor returns something to a supplier
or receives an allowance against an
• Purchases Returns and
amount owed. Allowances

Returns and
Allowances

• A complete record of returns and


allowances.
• A contra cost of goods sold account.
• Normal credit balance.
Credit Memo Transaction

• On January 30 Maxx-Out Sporting Goods


received a credit memorandum for $100
from International Sportsman as an
allowance for damaged merchandise.

23
Purchases Returns and Allowances
• Accounts Payable will be debited for
$100 and Purchases Returns and
Allowances will be credited for $100.
• Here is the effect on the T accounts.
• Accounts Payable • Purchases Returns and
Allowances

100 100
Journal Entries
Sold goods costing Php5,000 for Php20,000 on account.

Accounts Receivable
20,000
Sales
20,000
Record sales returns and allowances in
the general journal.

• A sale is entered in the accounting records when


the goods are sold or the service is provided.

• If something is wrong with the goods or service,


the firm may
• allow a sales return, or
• give a sales allowance.
Business Transaction
On January 23, Maxx-Out Sporting Goods issued Credit
Memorandum 101 for a sales allowance to Fred Wu for
merchandise purchased on account. The merchandise
was damaged but still usable.

150
Record sales returns and allowances in the general
journal.

• A debit to the Sales Returns and Allowances


account is preferred to making a direct debit to
Sales.

• NEW!
Contra-revenue
account
Journal Entries

A credit customer returned goods with sale price of


Php800 and cost of Php200.

Sales Returns
800
Accounts Receivable
800
NET SALES

Sales xxx
Less: Sales Discount xxx
Sales Returns & Allowances xxx
xxx
NET SALES xxx

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