Opening Prayer
Lord Eternal God, thank you for the opportunity of this online
class.
We are aware that without your divine intervention, this
online class will not be possible and our work will be empty.
Grace us with wisdom and vision and gift us with an open
mind and humility so that not only through this but in all our
lives will be a learning place for your kingdom.
We ask this through our Lord Jesus Christ who lives with you
in the unity of the Holy Spirit now and forever…Amen
Saint John Baptist De La Salle…Pray for us
Live Jesus in our hearts…. Forever
MERCHANDISE
OPERATIONS
Dr. Armando L. Banares
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COMPARISON OF INCOME
STATEMENTS
OPERATING CYCLE OF A
MERCHANDISE BUSINESS
SOURCE DOCUMENTS
STEPS IN A PURCHASE
TRANSACTION
TERMS OF TRANSACTIONS
INVENTORY SYSTEMS
NET SALES
COST OF SALES
TOPICS TO
DISCUSS
COMPARISON OF INCOME
STATEMENTS
SERVICE
Profit is measured as the difference between
revenues from services and expenses.
MERCHANDISING
Earns profit by buying and selling goods. In a
merchandising business, net sales arise from
the sale of goods while cost of sales or cost
of goods sold represents the cost of
inventory the entity has sold to customers.
The difference between net sales and cost of
sales is called gross profit. The net of
Operating Profit is added and net of Taxes is
deducted to get the Profit.
PARTS OF AN INCOME
STATEMENT FOR A
MERCHANDISING ENTITY
OPERATING CYCLE OF A
MERCHANDISING
BUSINESS
THE CYCLE
The merchandising entity purchases
inventory, sells the inventory and uses
the cash to purchase more inventory –
and the cycle continues.
OPERATING CYCLE OF A
MERCHANDISER
SOURCE DOCUMENTS
Merchandising businesses use various
business forms and documents to help
identify the transactions that should be
recorded in the books. These source
documents contain vital information
about the nature and amount of the
transactions.
TYPES OFSOURCE
DOCUMENTS
SALES INVOICE
Contains the name and address of
the buyer, the date of sale and
information – quantity, description
and price – about the goods sold.
BILL OF LADING
Issued by the carrier that specifies
contractual conditions and terms of
delivery.
STATEMENT OF
ACCOUNT
A document that reflects all
transactions that took place
between you and a particular
customer for a given period of time.
OFFICIAL
RECEIPT
Receipt of cash by the seller or the
authorized representative. It notes
the invoices paid and other details
of payment.
DEPOSIT SLIP
Printed forms with depositor’s
name, account number and space
for details of the deposit.
TYPES OFSOURCE
DOCUMENTS
CHECK
A written order to a bank by a
depositor to pay the amount
specified in the check to the person
named in the check.
PURCHASE REQUISITION
A written request to the purchases
of an entity from an employee or
user department of the same entity
that goods be purchased.
PURCHASE ORDER
An authorization made by the buyer
to the seller to deliver the
merchandise as detailed in the
form.
RECEIVING REPORT
It contains information about goods
received from a vendor. It records
the quantities and description of
the goods delivered.
CREDIT MEMORANDUM
A form used by the seller to notify
the buyer that his account is being
decreased due to errors or other
factors requiring adjustments.
PURCHASE TRANSACTIONS
Whenever a purchase or sale of
merchandise occurs, the buyer and the
seller should agree on the price of the
merchandise, the payment terms and
the party to shoulder the transportation
costs.
STEPS IN A PURCHASE
TRANSACTION
3. AFTER RECEIVING THE PURCHASE
ORDER, THE SELLER FORWARDS AN
INVOICE TO THE PURCHASER UPON
SHIPMENT OF THE MERCHANDISE.
1. WHEN CERTAIN ITEMS ARE NEEDED, THE USER
DEPARTMENT FILLS IN A PURCHASE REQUISITION
FORM AND SENDS IT TO THE PURCHASING
DEPARTMENT.
2. THE PURCHASING DEPARTMENT THEN
PREPARES A PURCHASE ORDER AFTER
CHECKING WITH THE PRICE LISTS,
QUOTATIONS, OR CATALOGS OF APPROVED
VENDORS.
4. UPON RECEIVING THE SHIPMENT OF
MERCHANDISE, THE PURCHASER
PREPARES A RECEIVING REPORT.
5. BEFORE APPROVING THE INVOICE
FOR PAYMENT, THE ACCOUNTS PAYABLE
DEPARTMENT COMPARES COPIES OF
THE DOCUMENTS TO ENSURE THAT
QUANTITIES, DESCRIPTIONS, AND
PRICES AGREE.
TERMS OF TRANSACTIONS
Merchandise may be purchased and
sold either on credit terms or for cash
on delivery. When goods are sold on
account, a period of time called the
credit period is allowed for payment.
When goods are sold on credit, both
parties should have an understanding
as to the amount and time of payment.
These terms are usually printed on the
sales invoice and constitute part of the
sales agreement.
TERMS OF TRANSACTIONS
CASH DISCOUNT
Some businesses give discounts for prompt payment called cash discounts. If a trade discount is
also offered, cash discount is computed on the net amount after the trade discount. This
practice improves the seller’s cash position by reducing the amount of money in accounts
receivable.
Cash discounts are called purchase discount from the buyer’s viewpoint and sales discounts
from the seller’s view point.
TERMS OF TRANSACTIONS
TERMS OF TRANSACTIONS
TRADE DISCOUNT
Suppliers furnish smaller wholesalers or retailers with price lists and catalogs showing
suggested retail prices for their products. These firms, however, also include a schedule of trade
discounts from the listed prices to enable the customer to determine the invoice price to be
paid. Trade discounts encourage the buyers to purchase products because of markdowns from
the list price. Trade discounts should not be confused with cash discounts. This type of discount
enables the suppliers to vary prices periodically without the inconvenience of revising price
lists and catalogs.
TERMS OF TRANSACTIONS
TRANSPORTATION COSTS
When merchandise is shipped by a
common carrier – a trucking entity or an
airline – the carrier prepares a freight
bill in accordance with the instructions
of the party making the shipping
arrangements. The freight bill
designates which party shoulders the
costs, and whether the shipment is
freight prepaid or freight collect.
TERMS OF TRANSACTIONS
INVENTORY SYSTEMS
Merchandise inventory is the key factor
in determining cost of sales. Because
merchandise inventory represents
goods available for sale, there must be
a method of determining both the
quantity and the cost of these goods.
There are two systems available to
merchandising entities to record events
related to merchandise inventory: the
perpetual inventory system and the
periodic inventory system.
INVENTORY SYSTEMS
PERPETUAL INVENTORY SYSTEM
The perpetual inventory system is an alternative to the periodic inventory system. Under the
perpetual inventory system, the inventory account is continuously updated. Perpetually updating
the inventory account requires that at the time of purchase, merchandise acquisitions be
recorded as debits to the inventory account. At the time of sale, the cost of sales is determined
and recorded by a debit to the cost of sales account and a credit to the inventory account. With
a perpetual inventory system, both the inventory and cost of sales accounts receive entries
throughout the accounting period.
INVENTORY SYSTEMS
PERPETUAL INVENTORY SYSTEM
When an entity uses the perpetual inventory system, the ending inventory should reconcile with
the actual physical count at the end of the period assuming that no theft, spoilage, or error has
occurred. Even if there is a little chance for a suspicion of inventory discrepancy, most entities
make a physical count. At that time, the account is adjusted for any inaccuracies discovered. The
count provides an independent check on the amount of inventory that should be reported at
the end of the period.
INVENTORY SYSTEMS
PERIODIC INVENTORY SYSTEM
The periodic inventory system is primarily used by business that sell relatively inexpensive
goods and that are not yet using computerized scanning systems to analyze goods sold. A
characteristic of the periodic inventory system is that no entries are made to the inventory
count as the merchandise is bought and sold. When goods are purchased, a separate set of
accounts – purchases, purchase discounts, purchase returns and allowances, and transportation
in – is used to accumulate information on the net cost of the purchases. Only at the end of the
period, when the inventory is counted, will entries be made to the inventory account to
establish its proper balance.
END OF
PRESENTATION