lOMoARcPSD|30612575
480429767 9 Accounting for Merchandising Operations Long
Accountancy (University of Northern Philippines)
Studocu is not sponsored or endorsed by any college or university
Downloaded by Sunflower (flauviablythe@gmail.com)
lOMoARcPSD|30612575
ACCOUNTING FOR MERCHANDISING
OPERATIONS
Merchandising
- a business activity of buying and selling of
goods. The goods that a merchandising
company sells to its customers are called
Merchandise Inventory, or simply,
Inventory.
-
examples: grocery, department store,
appliance stores
Operating Cycle
Gross Invoice Price
In Accounting for Merchandising Operations, we
always record the Gross Invoice Price in the books.
Merchandises are always quoted in the original
price, called List Price and deductions are given by
the seller to encourage the buyer to buy more,
called Trade Discounts.
Gross
List
Trade
Invoice =
Price
Discount
Price
List Price
Trade Discount
Gross Invoice Price
=
1. Find the amount that will be recorded in
the books of Jimin Trading regarding their
purchase of merchandise, listed as P6,000
and is given a trade discount of 20%
Given
List Price
Trade Discount
Gross Invoice Price
Amount
6,000
20%
?
6,000 x 20% = 1, 200
=
6,000
1,200
4,800
2. Find the amount that will be recorded in
the books of Jimin Trading regarding their
purchase of merchandise, listed as P7,000
and is given chain discounts of 30% and
25%.
Given
List Price
Trade Discount
(Chain)
Gross Invoice Price
Downloaded by Sunflower (flauviablythe@gmail.com)
Amount
7,000
30%
25%
?
lOMoARcPSD|30612575
Sales, whether in cash or account, are sometimes
returned to seller because of wrong color, wrong
size, inferior quality, and many other reasons.
7,000 x 30% = 2,100
=
7,000
2,100
4,900
Sales Returns
--- merchandise returned to the seller,
which Implies a cancellation of sale
4,900 x 25% = 1,225
=
Sales Allowances
--- granted to customers if customers keep
the merchandise although unsatisfied
with what they bought
Sales Returns and Allowances
--- account name used to record these types
of transactions
4,900
1,225
3,675
Sales
In a sales transaction, the legal ownership of goods
is transferred from the seller of the goods to the
buyer of the merchandise.
When you purchase a flat-screen television
from an appliance center. The appliance
center first had he ownership of the
television when hey bought it from the
supplier. The appliance center then sells
you the television and transfer the
ownership o you in the sales transaction.
Revenue is earned each time sale is made.
Sales can be accepted in cash or on account.
Credit Term
--- when goods are sold on account, the
terms of payment must be specified on
the invoice (sales invoice)
Terms of Payment
--- conditions of payment agreed between a
a buyer and a seller for goods sold or
services rendered
--- examples:
2/10, n/30
2/15, 5/10, n/60
5/10, n/EOM
1. The following transactions were dealt by
Lisa Merchandising:
a) April 1, sold merchandise to Jennie
Company with a price of P12,000,
cash on delivery.
b) April 2, sold merchandise to Rose
Company with a price of P8,000,
terms 2/10, n/30
c) April 5, Jennie returned P3,000
worth of defective merchandise.
Cash refund was granted.
d) April 11, Rose Company paid their
account balance.
2020
01 Cash
April
12,000
Sales
Accounts
02 Receivable – Rose
Company
Sales
12,000
8,000
8,000
05 Sales Returns and
Allowances
Cash
3,000
11 Cash
Sales Discount
Accounts
Receivable Kim Company
7,840
160
Downloaded by Sunflower (flauviablythe@gmail.com)
3,000
8,000
lOMoARcPSD|30612575
Rose Company
Given
Item Price
Terms of Payment
Amount
8,000
2/10
n/30
8,000 x 2% = 160
=
8,000
160
7,840
Purchases
The cash collected will then be used to purchase
goods that will then be used to purchase goods
that will be sold by the firm.
Merchandising entities need to purchase inventory
in order to be able to sell and gain profit.
the account contains deductions from
purchases for items returned to suppliers,
as well as deductions allowed by suppliers
for goods that are not returned.
1. The following transactions were dealt by
Lisa Merchandising:
a) May 1, purchased merchandise from
M Company amounting to P15,000,
cash on delivery.
b) May 2, purchased merchandise from
Kim Company amounting to P6,000,
terms 5/10, n/EOM
c) May 7, Lisa returned P3,000 worth
of merchandise to M Company, cash
refund was granted.
d) May 10, Lisa Company paid their
account balance to Kim Company.
2020
01 Purchases
May
Cash
15,000
15,000
We can say that Purchases are also sales
transactions. However, the viewpoint here is that
the company that accounts for the transaction will
be the buyer of merchandise.
02 Purchases
Accounts
Payable - Kim
Company
6,000
Periodic Inventory System
- under this system, no detailed record of
inventory is being maintained during the
year
- an actual physical count of the goods
remaining on hand is required at the end of
each period
- form of inventory valuation where the
inventory account is updated at the end of
an accounting period rather than after
every sale and purchase
- the method allows a business to track its
beginning inventory and ending inventory
within an accounting period.
07 Cash
3,000
6,000
Purchase
Returns and
Allowances
10 Accounts Payable –
Kim Company
Cash
Purchase
Discount
Purchase Returns and Allowances
- an account that is paired with and offsets
the purchases account in a periodic
inventory system
Downloaded by Sunflower (flauviablythe@gmail.com)
3,000
6,000
5,700
300
lOMoARcPSD|30612575
Lisa Company
Merchandise Transportation
Given
Item Price
Terms of Payment
Freight Terms
Amount
6,000
5/10
n/EOM
6,000 x 5% = 300
=
6,000
300
5,700
Sales and Purchases
1. Gabb Company has gross sales of P400,000,
sales discount of P10,000, and sales returns
and allowances of P12,000. Also, Gabb has
purchased P200,000 worth of inventory,
purchase discount of P8,000 and purchase
returns and allowances of P5,000. Compute
for net sales and net purchases.
Net Sales:
Gross Sales
Less: Sales Discount
Sales Returns and
Allowances
Net Sales
₱
400,000
(10,000)
(12,000)
₱
378,000
Net Purchases:
Gross Purchases
Less: Purchase Discount
Purchase Returns
and Allowances
Net Purchases
₱
200,000
(8,000)
(5,000)
₱
187,000
Free on Board
Shipping Point
--- title of the goods
(ownership)
passes to the
buyer as soon as
the shipment
leaves the seller’s
warehouse (or
shipping dock)
--- the seller should
record the sale
when the goods
leave warehouse
VS
Free on Board
Destination Point
--- the buyer owns the
title of the goods
(ownership) once it
arrives at the
buyer’s dock
--- the ownership title
rests with the seller
during the transit
Who is the owner by December 31?
Buyer
1. Goods shipped FOB Shipping
Point on December 28, received
by the buyer on December 30.
2. Goods shipped FOB Shipping
Point on December 28, received
by the buyer on January 3.
3. Goods shipped FOB Destination
on December 28, received by the
buyer on December 30.
4. Goods shipped FOB
Destination Point on December
28, received by the buyer on
January 3.
Freight Prepaid
--- fare paid in
advance, which
means that the
seller will pay the
fare
--- carriers collect the
freight charges
before performing
the contract of
carriage, usually
from the shipper
Downloaded by Sunflower (flauviablythe@gmail.com)
VS
Seller
✓
✓
✓
✓
Freight Collect
--- the consignee or
receiver is
responsible for the
freight charges
--- carriers collect the
freight charges
after performing
the contract of
carriage, usually
from the shipper
lOMoARcPSD|30612575
Freight-In
--- buyer pays for the
freight charges
--- it is an adjunct
account to
purchases and
thus added as cost
of inventory in
bringing it to its
present location
and condition
VS
Freight-Out
--- seller pays for the
freight charges
--- recorded by the
seller as an
operating expense,
under the selling
expense line item
What will be the entry for the following?
1. ABC Company purchased merchandise
worth P15,000 with terms 5/10, n/30.
Freight charges paid by ABC amounts to
P3,000.
Purchases
Freight-In
Cash
Accounts Payable
15,000
3,000
3,000
15,000
2. DEF Company sold merchandise priced at
P8,000 with terms 2/10, n/30. Freight
charges paid by DEF amounts to P2,000 and
will not be reimbursed by their buyer.
Accounts Receivable
Freight-out/Delivery Expense
Sales
Cash
Income Statement
Adjusting Entries
To close beginning inventory…
Profit or Loss Summary
Merchandise Inventory
(Beginning)
xxx
To record ending inventory…
Merchandise Inventory (Ending)
Profit or Loss Summary
xxx
xxx
Net Sales
Less: Cost of Goods Sold
Gross Profit
Add: Other Income
Total Revenue
Less: Operating Expenses
Net Income
₱
Gross Sales
Less: Sales Discount
Sales Returns and
Allowances
Net Sales
₱
xxx
(xxx)
(xxx)
₱
xxx
Beginning Inventory
Add: Net Purchases
Cost of Goods Available for
Sale
Less: Ending Inventory
Cost of Goods Sold
₱
xxx
xxx
Gross Purchases
Add: Freight-In
Total Purchases
Less: Purchase Discount
Purchase Returns
and Allowances
Net Purchases
₱
xxx
xxx
xxx
(xxx)
(xxx)
₱
xxx
8,000
2,000
8,000
2,000
xxx
Downloaded by Sunflower (flauviablythe@gmail.com)
₱
xxx
(xxx)
xxx
xxx
xxx
(xxx)
xxx
xxx
₱
(xxx)
xxx
lOMoARcPSD|30612575
Two Methods of Presenting the Income Statement
Function of Expense
Nature of Expense
VS
Method
Method
--- classifies expenses
--- expenses are
according to their
aggregated
function as cost of
according to their
goods sold
nature and not by
function
Function of Expense Method
Prepare Excellent Retail Company’s Income
Statement for the month of April under:
a) Function of Expense Method
b) Nature of Expense Method
c) Functional Multi-Step Presentation
Note 2 – Net Purchases
Gross Purchases
Add: Freight-In
Total Purchases
Less: Purchase
Discount
Purchase
Returns and
Allowances
Net Purchases
Sales and Other Income
Gross Sales
Sales Returns and Allowances
Sales Discount
Other Income
Purchase and Freight
Gross Purchases
Freight-In
Purchase Returns and Allowances
Purchase Discount
Operating Expenses
Salaries Expense
Utilities Expense
Rent Expense
Depreciation Expense
Inventory
Beginning Inventory
Ending Inventory
900,000
15,000
10,000
45,000
300,000
80,000
20,000
10,000
70,000
60,000
50,000
40,000
120,000
150,000
Note 1 – Net Sales
Gross Sales
Less: Sales Discount
Sales Returns
and
Allowances
Net Sales
₱ 900,000
(10,000)
(15,000)
(25,000)
₱ 875,000
₱ 300,000
80,000
380,000
(10,000)
(20,000)
Note 3 – Cost of Goods Sold
Beginning Inventory
Add: Net Purchases
Cost of Goods Available for
Sale
Less: Ending Inventory
Cost of Goods Sold
(30,000)
₱ 350,000
₱
120,000
350,000
470,000
(150,000)
₱ 320,000
Note 4 – Operating Expenses
Salaries Expense
Utilities Expense
Rent Expense
Depreciation Expense
Total Operating Expenses
₱
70,000
60,000
50,000
40,000
₱ 220,000
EXCELLENT RETAIL COMPANY
Income Statement
For the Month Ended April 30, 2020
Net Sales (Note 1)
₱
Less: Cost of Goods Sold (Note 3)
Gross Profit
Add: Other Income
Total Revenue
Less: Operating Expenses (Note 4)
Net Income
₱
Downloaded by Sunflower (flauviablythe@gmail.com)
875,000
(320,000)
555,000
45,000
600,000
(220,000)
380,000
lOMoARcPSD|30612575
Nature of Expense Method
Note 1 – Net Sales
Gross Sales
Less: Sales Discount
Sales Returns
and
Allowances
Net Sales
Note 2 – Net Purchases
Gross Purchases
Add: Freight-In
Total Purchases
Less: Purchase
Discount
Purchase
Returns and
Allowances
Net Purchases
₱ 900,000
(10,000)
(15,000)
(25,000)
₱ 875,000
₱ 300,000
80,000
380,000
(10,000)
(20,000)
(30,000)
₱ 350,000
EXCELLENT RETAIL COMPANY
Income Statement
For the Month Ended April 30, 2020
REVENUES
Net Sales (Note 1)
Other Income
Total Revenue
DEDUCTION AND EXPENSES
Increase in Merchandise
Inventory
Net Purchases (Note 2)
Salaries Expense
Utilities Expense
Rent Expense
Depreciation Expense
Total Deductions and Expenses
NET INCOME
₱
875,000
45,000
920,000
-
₱
30,000
350,000
70,000
60,000
50,000
40,000
540,000
380,000
Downloaded by Sunflower (flauviablythe@gmail.com)
lOMoARcPSD|30612575
Functional Multi-Step Presentation
EXCELLENT RETAIL COMPANY
Income Statement
For the Month Ended April 30, 2020
Gross Sales
Less: Sales Returns and
Allowances
Sale Discount
Net Sales
Beginning Inventory
Gross Purchases
Add: Freight-In
Total Purchases
Less: Purchase Returns and
Allowances
Purchase Discount
Net Purchases
Cost of Goods Available for Sale
Less: Ending Inventory
Cost of Goods Sold
Gross Profit
Add: Other Income
Total Revenue
Less: Operating Expenses
Salaries Expense
Utilities Expense
Rent Expense
Depreciation Expense
Net Income
₱
₱
900,000
15,000
10,000
-
25,000
875,000
-
320,000
555,000
45,0000
600,000
-
220,000
380,000
120,000
₱
₱
300,000
80,000
380,000
20,000
10,000
-
30,000
-
350,000
470,000
150,000
70,000
60,000
50,000
40,000
₱
Downloaded by Sunflower (flauviablythe@gmail.com)
lOMoARcPSD|30612575
Closing Entries
Dec
31 Sales
Purchase Returns
and Allowances
Interest Revenue
Profit or Loss
Summary
31 Profit or Loss
Summary
Sales Returns
and
Allowances
Purchases
Freight-In
Sales Salaries
Expense
Store Supplies
Expense
Advertising
Expense
xxx
xxx
Office
Supplies
Expense
Depreciation
Expense –
Equipment
Rent Expense
Auditing
Expense
Miscellaneous
Expense
Insurance
Expense
Interest
Expense
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
31 Profit or Loss
Summary
Schiffman,
Capital
Downloaded by Sunflower (flauviablythe@gmail.com)
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx