Accounting for
Merchandising
Business
February 17, 2013
Learning Objectives
• Describe merchandising and identify business
examples
• Describe merchandising activities and identi...
Service vs Merchandising
Service Business
• Net income is the difference between its
revenues and the expenses incurred in...
Wholesale vs Retail
Wholesaler
• An intermediary that buys products from
manufacturers or other wholesalers and sells them...
Measuring Net Income
• Net income to a merchandiser implies that
revenue from selling merchandise exceeds
both the cost of...
Measuring Net Income
Net
Income
(Loss)
Less
LessEquals
Equals
Sales
Revenue
Cost of
Goods Sold
Gross
Profit
Operating
Expe...
Operating Cycle for a Merchandiser
Purchases
Merchandise
inventory
Credit sales
Account
receivable
Cash
collectionPurchase...
Business Documents
Main Source, Inc. Invoice
614 Tech Avenue Date Number
Nashville, TN 37651 5/4/05 358-BI
S
o
l
d
T
o
Nam...
Inventory Systems
+
+
Beginning
inventory
Net cost of
purchases
Ending Inventory
Cost of Goods
Sold
=
Inventory Systems
Two alternative inventory accounting system:
• Periodic Inventory System – cost of goods are
determined ...
Periodic Inventory System
• Purchases – is debited when goods are bought
from supplier; classified as part of the account
...
• The purchase transaction is normally recorded by
the purchaser when the goods are received from
the seller.
• Every purc...
• Purchase returns and allowances account
represents reduction in the cost of goods
purchased. It is a contra account to p...
• Purchase discount is based on the invoice cost
less returns and allowances, if any.
• The Purchase Discount account is u...
Types of Discount
DISCOUNT
CASH
DISCOUNT
TRADE
DISCOUNT
PURCHASE
DISCOUNT
SALE
DISCOUNT
• Trade discounts are given to reduce the list
price to actual sales price which may be due to
the volume of transactions....
• Cash discounts are normally given to
encourage prompt payment.
• Some common examples of cash discount
terms:
– 2/10, n/...
• On May 5, ABC Co. purchased merchandise
from XYZ Co. worth P100,000 less 10, terms
2/10, n/30.
• On May 8, ABC Co. retur...
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Introduction to merchandising business 02172013

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Transcript of "Introduction to merchandising business 02172013"

  1. 1. Accounting for Merchandising Business February 17, 2013
  2. 2. Learning Objectives • Describe merchandising and identify business examples • Describe merchandising activities and identify the components of income for a merchandising entity • Describe the business documents used • Describe both perpetual and periodic inventory systems. • Analyze and record transactions for merchandise purchases
  3. 3. Service vs Merchandising Service Business • Net income is the difference between its revenues and the expenses incurred in providing the services Merchandising Business • Earns net income by buying and selling merchandise • Merchandise inventories represent goods intended for sale
  4. 4. Wholesale vs Retail 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 Manufacturer Wholesaler Retailer Customer
  5. 5. Measuring Net Income • Net income to a merchandiser implies that revenue from selling merchandise exceeds both the cost of the merchandise sold to customers and the cost of other expenses for the period.
  6. 6. Measuring Net Income Net Income (Loss) Less LessEquals Equals Sales Revenue Cost of Goods Sold Gross Profit Operating Expenses Sales Revenue – income earned in selling merchandise Cost of Goods Sold – cost of merchandise sold during the period Operating Expenses – expenses incurred in running the business
  7. 7. Operating Cycle for a Merchandiser Purchases Merchandise inventory Credit sales Account receivable Cash collectionPurchases Merchandise inventory Cash sales
  8. 8. Business Documents Main Source, Inc. Invoice 614 Tech Avenue Date Number Nashville, TN 37651 5/4/05 358-BI S o l d T o Name: Barbee, Inc. Attn: Tom Bell Address: One Willow Plaza Cookeville, Tennessee 38501 P.O. 167 Sales: 25 Terms 2/10,n/30 Ship: FedEx Prepaid Item Description Quanity Price Amount AC417 250 Backup System 500 54.00$ 27,000$ Sub Total 27,000 We appreciate your business! Ship Chg. - Tax - Total 27,000$
  9. 9. Inventory Systems + + Beginning inventory Net cost of purchases Ending Inventory Cost of Goods Sold =
  10. 10. Inventory Systems Two alternative inventory accounting system: • Periodic Inventory System – cost of goods are determined only at the end of an accounting period – Low Value, High Quantity Inventories • Perpetual Inventory System – maintains detailed records of the cost of each inventory item and continuously show the inventory that should be on hand – High Value, Low Quantity Inventories
  11. 11. Periodic Inventory System • Purchases – is debited when goods are bought from supplier; classified as part of the account Cost of Goods Sold upon sale or as Merchandising Inventory, an asset account, if unsold. • The purchase account is used only for goods purchased for resale.
  12. 12. • The purchase transaction is normally recorded by the purchaser when the goods are received from the seller. • Every purchase should be supported by business document that provide written evidence of the transaction. – Cash purchases – cash register receipt indicating the items purchased – Credit purchases – purchase invoice indicating the total purchase price and other relevant information Periodic Inventory System
  13. 13. • Purchase returns and allowances account represents reduction in the cost of goods purchased. It is a contra account to purchase and its normal balance is credit. • Debit memorandum – a document the purchaser issues to inform the supplier of a debit made to the supplier’s account, including the reason for the return or allowance. Periodic Inventory System
  14. 14. • Purchase discount is based on the invoice cost less returns and allowances, if any. • The Purchase Discount account is used to record the amount saved by paying promptly. It is a contra account having a normal credit balance. Periodic Inventory System
  15. 15. Types of Discount DISCOUNT CASH DISCOUNT TRADE DISCOUNT PURCHASE DISCOUNT SALE DISCOUNT
  16. 16. • Trade discounts are given to reduce the list price to actual sales price which may be due to the volume of transactions. • A buyer and or the seller does not record the list prices and the trade discounts in its accounts. Instead, a buyer/seller records purchases or sales net of the trade discount (at invoice price). Trade Discount
  17. 17. • Cash discounts are normally given to encourage prompt payment. • Some common examples of cash discount terms: – 2/10, n/30 – 2/10, 1/15, n/30 – 2/10 EOM, n/60 Cash Discount
  18. 18. • On May 5, ABC Co. purchased merchandise from XYZ Co. worth P100,000 less 10, terms 2/10, n/30. • On May 8, ABC Co. returned defective merchandise worth P10,000. • On May 15, ABC Co. paid his balance to XYZ Co. in full. Sample Transaction
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