Accounting for
Merchandising
Operations
A look at this topic
▪ MERCHANDISING ACTIVITIES
▪ ACCOUNTING FOR MERCHANDISE PURCHASES
▪ ACCOUNTING FOR MERCHANDISE SALES
▪ ADJUSTING AND CLOSING FOR
MERCHANDISERS
▪ MORE ON FINANCIAL STATEMENT FORMATS
MERCHANDISING ACTIVITIES
MERCHANDISE consists of products, also called goods, that a company buys to resell to customers.
WHOLESALER
MERCHANDISER
RETAILER
OPERATING CYCLE
Merchandise (inventory)
available for sale
Perpetual Inventory System
Periodic Inventory System
ACCOUNTING FOR MERCHANDISE PURCHASES
Purchases WITHOUT Cash Discount
Purchases WITH Cash Discounts
Credit terms include the amount and timing of payments from the buyer to a seller (“n/10 EOM”)
Payments within Discount Period
Payment after Discount Period
Purchases WITH Returns and Allowances
Returns – are merchandise a buyer acquires but then returns to the seller
Allowances refer to a seller granting a price reduction (allowance) to a buyer of defective
or unacceptable merchandise.
Purchase Returns
PURCHASES AND TRANSPORTATION COSTS
FOB (free on board) – the point of transfer, determines who pays transportation
costs.
FOB shipping point – buyer accepts ownership when the goods depart the seller’s
place of business
FOB destination means ownership of goods transfers to the buyer when the
goods arrive at the buyer’s place of business
Purchases and their itemized costs - Summary
ACCOUNTING FOR MERCHANDISE SALES
Each sale of merchandise has two parts: the revenue side and the cost side
Each sales transaction requires two entries: one for revenues and one for costs.
Sales WITHOUT Cash Discounts
Sale WITH Cash Discounts
Buyer pays WITHIN Discount Period
Buyer can pay $980 within the 10-day discount period ending November 22. If customer
pays on (or before) November 22, Z-Mart records the cash receipt as
Buyer pays AFTER Discount Period
Sales WITH Returns and Allowances
Returns received by Seller
Returned Goods NOT Defective
Returned Goods ARE Defective
ADJUSTING AND CLOSING FOR MERCHANDISERS
Inventory Shrinkage Adjusting Entry
Closing Entries for Merchandisers