MERCHANDISING
BUSINESS
-joemargarciacunanan
DEFINITION OF TERMS
• Merchandise inventories – represent goods
intended for sale. Inventories include only items that
are held for sale in the normal course of business
operations.
• Wholesaler – an intermediary that buys products
from manufacturers or other wholesalers and sells
them to retailers or other wholesalers.
• Retailer – buys products from the manufacturers or
wholesalers and sells them to consumers or endusers.
ACCOUNTING FOR MERCHANDISING
BUSINESS
• Analyzing business transactions through source documents
• Journalizing or recording of transactions in a journal
• Posting or transferring of the entries from the journal to the
ledger
• Preparing the trial balance
• Adjusting entries are assembled
• Preparing 10-column worksheet
• Preparing the Financial Statements based on adjusted balances
• Recording/Posting adjusting entries
• Recording/Posting closing entries
• Preparing a post-closing trial balance
• Preparing reversing entries
MEASURING PROFIT
• Profit to a merchandiser implies that revenue from
selling merchandise exceeds both the cost of
merchandise sold to customers and the cost of
other expenses for the period.
• Sales – accounting term for revenues from selling
merchandise.
• Cost of Goods Sold – accounting term for cost of
buying and preparing the merchandising.
• Operating Expenses – merchandiser’s expenses
COST OF GOODS SOLD
• Is the total cost of merchandise sold during the
period.
• It is often the largest single deduction on a
merchandiser’s income statement.
• Sales Revenue minus Cost of Goods Sold is called
Gross Profit
• For example, when a pair of shoes costing P850.00
is sold for P1,000.00, the gross profit is P150.00.
OPERATING EXPENSES
• Are deducted from gross profit to determine profit or
loss. Operating expenses may be distribution costs
(selling expenses) or administrative expenses.
• Distribution costs – are expenses incurred in the
process of earning sales revenue which was not
found in a service enterprise like commission paid
to salesmen, store supplies, etc.
ACCOUNTING FOR
SALES
SALES
• Sales revenue like service revenues, is recorded
when earned.
• Sales are earned when the goods are transferred
from the seller to the buyer.
• On December 1, 2012, sold P100,000 worth of
merchandise for cash.
Cash
100,000
Sales
100,000
ACCOUNTING FOR SALES RETURNS
AND ALLOWANCES
• When customers return merchandise that
have been previously recorded in the sales
account, the return is recorded by a debit to
the account Sales Returns and Allowances.
On December 18, 2012, Mr. B, a customer
returned defective merchandise purchased
last December 1 with a selling price of 20,000.
Sales Return and Allowances
20,000
Cash
20,000
SALES DISCOUNT
• The terms of a credit sale may include an offer of a
cash discount called sales discount to encourage
customers to pay their accounts promptly.
• Common examples of cash discount terms are the
following:
2/10, n/30 – two percent may be deducted from the
amount due if the customer pays within 10 days
from the date of sale. The 10-day period during
which the customer can avail the discount is known
as the discount period.
TRADE DISCOUNTS
• Trade discounts are used to reduce the list price to
actual sales price which may be due to volume of
transactions. This is different from cash discounts
which are given to induce prompt payment.
• List price – usually not the item’s intended selling
price, also called a catalog price.
Cunanan Co. sold merchandise with a list price of
P52,000 and with trade discounts of 20% and 10%.
The sales price will be computed as follows:
ACCOUNTING FOR
PURCHASES
PURCHASES
• The purchase account is used only for goods
purchased for resale.
• Purchase is normally recorded by the purchaser
when the goods are received from the seller.
On December 6, 2012, purchased goods for
P170,000. The journal entry is:
Purchases
170,000
Cash
170,000
PURCHASE RETURNS AND
ALLOWANCES
• A sales return and sales allowances on the seller’s
books is recorded as a purchase return or
allowance .
On December 8, 2012, the company returned
P10,000 worth of defective goods. The journal entry
for this transaction would be:
Cash
10,000
Purchase Return & Allowances
SHIPPING CHARGES ON
MERCHANDISE PURCHASED OR
SOLD
• When goods are purchased by the buyer, the cost
of shipping the merchandise may be shouldered by
the buyer or seller depending upon the
arrangements.
• FOB destination – means that the seller has agreed
to pay all the shipping costs and the purchaser
receives title at point of destination.
• FOB shipping point – means that the buyer has
agreed to shoulder all the shipping costs and the
purchaser receives title to goods at shipping point.
VALUE ADDED TAX
ACCOUNTING FOR VAT
• Any person who in the course of trade or business,
sells, barters, exchanges, leases goods or
properties, renders services and any person who
imports shall be subject to the value added tax
(VAT) 12%
• Any person whose sales or receipts are exempt
from the payment of value added tax and who is not
a VAT-registered person shall pay a tax equivalent
to three percent (3%).
ACCOUNTING FOR VAT
• A 12% output tax is imposed to customers and
added to the selling price.
On December 1, 2012, sold P100,000 worth of
merchandise for cash. Output tax is 12%.
Cash
112,000
Sales
100,000
Output Tax
12,000
ACCOUNTING FOR VAT
• In purchase transactions, 12% input tax is being
paid to our suppliers in addition to the purchase
price.
On December 6, 2012, purchased goods for
P100,800 Input tax is 12% of the purchase price.
Purchases
90,000
Input Tax
10,800
Cash
100,800
ACCOUNTING FOR VAT
• The enterprise should remit to the BIR the excess
of output tax over input tax.
In our example:
Output tax
12,000
Less: Input Tax
10,800
VAT payable
1,200
VAT payable should be remitted to BIR within 25
days from the end of the month.