What is merchandising business?

an enterprise or a business which deals with BUYING

and SELLING of goods/merchandise to the customers
to earn a profit.

BUYING and
SELLING

BUSINESS DOCUMENTS
BUYING
1. Purchase Order/Purchase Vouchers
- The number of units to be purchased
- The specifications
- The Unit Price

3. The Request for Payment
4. Check Vouchers/ Check

SELLING
1. Sales Voucher
- The name /address/TIN of the customers
- The number of units sold
- The selling price
- Terms of payments
- Delivery terms
2. Official Receipt issued by the business/ Cash
Register Tapes
3. Delivery Receipt
4. Statement of Accounts

The accounting for merchandise depends on the kind
of merchandise or goods you are selling

- You could use (1) Perpetual Inventory System
or (2) Periodic Inventory System
- depending on the kind of product
INVENTORY SYSTEMS OF MERCHANDISING
ACTIVITY
(1)PERPETUAL
- expensive and slow moving goods
- continuous monitoring of inventory
- account title used is recording is
Merchandise Inventory
- no need to conduct an inventory count
of merchandise at the end of the period
- examples of the goods under perpetual
inventories are cars, electronics,
signature leather goods, high priced
accessories

Journal entry for Purchase:
Merchandise Inventory 10000
Cash 10000
Purchased merchandise

Journal Entry for Sales:
Cost of Good Sold 5,000
Merchandise Inventory 5,000
2. PERIODIC INVENTORY SYSTEM
- for low priced and slow moving goods
- the inventory is not continuously
monitored
- the account title used in recording
transaction are Purchases, Sales ,
Purchase Returns and Allowances,
Sales Returns and Allowances
Merchandise Inventory (beg) P 21,000
Add: Net Cost of Purchases 40,000
-----------
Total P 61,000
Less: Merchandise Inventory (end) 30,000
------------
Cost of Goods Sold P 31,000
========
- an inventory count is conducted at the end
of the period to determine the number of
items remaining on hand at the end of the period
and the number of units sold during the year.

- examples of goods under inventory system
are goods being sold in the supermarkets,
department stores, bookstores, hardware..
THE SELLING ACTIVITIES goes like..
from the WHOLESALERS
to the RETAILERS
to the END USERS/ CUSTOMERS

ACCOUNT TITLES
BUYING
(1) PURCHASES
- the cost of merchandise purchased
- it is an asset = therefore, the entry is DEBIT


Transaction:

On May 1, 2013, ABC Company purchased
merchandise to DEF Company amounting to
P10,000 on terms 2/10, n/30.
(2) FREIGHT- IN
- account titles used from transportation
cost of merchandise purchased.

- it is a cost on the part of the buyer.
- since it is a COST = therefore , the entry is DEBIT
Transaction:

On May 1, 2013, ABC Company paid P1,000 for the
transportation cost of the merchandise
purchased.


(3) PURCHASE RETURNS AND ALLOWANCES
- the account title used for the returns of
goods to the supplier due to the following
reasons:

a. Damages or defects on the items
b. the goods delivered were not in
accordance with the specifications.
c. The goods delivered were of inferior
quality

Debit memo a written notice issued by the buyer to
confirm return of goods purchased or adjustment of his
account or liability with the seller because of defective,
damaged goods.








ABC COMPANY
DEBIT MEMO
May 2, 2013
To DEF Company
Return of defective merchandise (TWO THOUSAND ONLY)
P2,000

Approved

ABC Company








- the business document which supports the
return of goods is called DEBIT MEMO.
(debit on the point of view of Accounts Payable)

- Debit memo is issued by the buyer to the seller.

- since it is return of items, therefore it is a
deduction on asset = the entry is CREDIT

Transaction:

On May 2, ABC Company issued a Debit Memo to
the DEF for the defective items returned, P2,000.
(4) PURCHASE DISCOUNT
- this is the account title to use when recording
the cash discounts availed by the business
for paying to account within the discount
period.
What is a Cash Discount?
What is a Discount Period?
What is paying within discount period?

CASH DISCOUNT the discount given to the buyer
for paying early.

early means the period stated in the discount term..
example 2/10
- 2% discount can be availed
- if paid within 10 days


- So if ABC Company pays its due within 10 days, ABC
Company would be entitled for a 2% cash discount.

-- we name that cash discount in the books of the
Buyer PURCHASE DISCOUNT

- Purchase Discount , in effect will result to a
deduction on the cost of merchandise

- a minus on asset= therefore, the entry is CREDIT


Transaction:
On May 10, ABC Company paid the account
in full with DEF Company

( May 1 10 = 10 days = availing discounts)
SELLING TRANSACTIONS
the goods purchased are sold at a selling price

what is a Selling Price?
Selling Price is cost plus a certain mark- up

what is mark-up ?
Mark- up is the amount added to the cost of
goods to cover the additional expenses on
selling /administrative expense and desired
profit.
Example:
Cost of Good P 100
Add: Mark-up 20
--------------
Selling Price P 120
=========
(1) SALES
- this is the account title to use in
recording sale of merchandise

- it is revenue account title = CREDIT
Transaction:

On May 5, 2013, ABC Company sold
merchandise to GHI Company amounting
to P5,000. on terms 2/10, n/30.

the P5,000 is based on the selling price of the item.
(2) FREIGHT OUT
- this is the account title use when
recording the cost of transporting
merchandise to the place of business of
the customers.

- this is a cost on the part of the seller
- it is selling cost = therefore, the entry is DEBIT


Transaction:

On May 5, 2012, ABC Company paid for the
delivery cost of merchandise sold to GHI
Company, P500
(3) SALES RETURNS AND ALLOWANCE
-the account title to use when recording
the cost of merchandise sold to customer due
to the following reasons:
a. the items has defects and damages
b. the items delivered are not in
accordance to specifications.
c. the items were of inferior quality

- the business document which support the
return of goods by the customer is called the
CREDIT MEMO

- the return of goods would automatically
reduce revenue = a minus on Revenue- DEBIT

Transactions:

On May 7, 2012, ABC Company received
defective goods returned by GHI Company,
P1,000.
(4) SALES DISCOUNT
- this is the account title to used whenever
the customer availed of a CASH
DISCOUNT by paying their account on
time/or within the discount period.






CASH DISCOUNT (in selling transaction) is the
discount given to the customer in paying their
account due within the discount period.

2/10 , it is 2% discount if paid within 10 days

cash discount given on selling activity will
reduce revenue of the business = the entry is DEBIT

Transaction:

On May 15 ABC Company collected the
account of GHI in full.
OTHER IMPORTANT TRANSACTIONS IN
ACCOUNTING FOR MERCHANDISE.
(1) TRADE DISCOUNT
- this is different from CASH DISCOUNT
- remember, Cash Discount is the
discount for early payment.
- Trade discount is the discount given to
the buyer for purchasing items
IN VOLUME or IN BULK.

Ex.
Divisoria: school back pack for kids
if you buy one (1) piece = price is P100
if you buy ten (10) pieces = price is P80
so if you buy 10 pieces, you get a discount
of P20.
. .. The P20 is called the Trade Discount
The P100 is called the List Price
The P80 is called the Invoice Price

Transaction:

Lets say:
On May 1, 2013, ABC Company purchased
merchandise to DEF Company amounting to
P10,000 less 5% Trade Discount , on credit terms
of 2/10, n/30.

(2) CASH DOWNPAYMENT DURING THE POINT OF
BUYING/SELLING.
- This is cash paid at the time of purchase/or the
cash received at the time of sale.
- The downpayment will result to a lower Accounts
Payable/Accounts Receivable

Lets say:
On May 1, 2013, ABC Company purchased
merchandise to DEF Company amounting to
P10,000 less 5% Trade Discount , paying 25%
downpayment, while the balance is on terms
of 2/10, n/30.


Transaction:

On May 2, ABC Company issued a Debit Memo to
the DEF for the defective items returned, P2,000.
(2) PARTIAL PAYMENT /COLLECTION OF ACCOUNT
- payment of account before the due date
- no cash discount is to be applied yet
- cash discount is computed upon full
payment.
- if the full payment was made after the
due, the discount on the partial payment
is forfeited.
Lets continue:

On May 3, ABC Company made a partial payment
with DEF Company amounting to P1,500.
EXERCISE
) April 1 - ABC Company purchased merchandise from DEF
Company , P50,000, Less 5-5-5- on terms 2/10, n/30
(2) April 1 - ABC Company paid transportation cost of
merchandise bought from DEF Company, P1,000
(3) April 2 - ABC Company Issued a Debit Memo to DEF for
merchandise returned due to wrong specification, P5,000
(4) On April 3 ABC Company made a partial payment of
P10,000
(5) April 10, - ABC Company Paid the account with DEF in
full


(5) April 11 - ABC Company sold merchandise GHI
Company, P80,000, Less 2-2-2- on terms 2/10, n/30
(6) April 11 - ABC Company paid transportation cost of
merchandise delivered to to GHI, P2,000.
(7) April 12 - ABC Company issued a Credit Memo to GHI
for the returned merchandise due to wrong specification, P
10,000.
(8) April 15 Received P10,000 partial payment of account
(9) April 21 - ABC Company collected the account of GHI
in full.