accounting lecture

1. Merchandising Business
Buys goods at low
price from suppliers Sells the same goods at
higher price to
customers
Examples: Sari-sari stores, Supermarket, Department stores, Book Stores, Car
Traders, Jewelry stores, Ukay-ukay
SUPPLIER
BUYER
SELLER
CUSTOMER

2. Differentiating Service with Merchandising
1. On Asset Accounts
 Service Business and Merchandising Business can have the same Current Assets and Non–
Current assets, except for Inventory account.
 Service Business has no Inventory Account while Merchandising Business has an Inventory
account.
 Inventory account are the products being sold by the merchandising business.
2. On Liability and Equity Accounts
 No difference.
3. On Revenue and Expense Accounts
 Revenue: Service Business uses the account “Service Income” while Merchandising Business
uses the account “Sales”.
 Under Service Business there is no product cost, while in Merchandising the cost of the
product sold termed “Cost of Goods Sold” is deducted from Sales.
 No difference on Expense accounts.

3. IS
S
F
P
Bad debts expense
Depreciation expense
=
Current Assets Current Liabilities
Cash Accounts payable
Accounts Receivable Loans payable (short)
Merchandise Inventory
Prepaid exp Non Current Liabilities
Supplies Loans payable (long)
Non Current Assets
Building Equity
Equipment Owner, Capital
Computer Owner, Drawing
Furnitures and Fixtures
CREDIT
DEBIT
Assets Liabilities and Equity
Allowance for Doubtful Accounts
Accumulated Depreciation
ASSETS LIABILITIES
EQUITY
Current Assets:
Cash
Accounts receivable
Inventory
Prepayment to suppliers
Prepaid insurance
Office supplies
Non - Current Assets:
Equipment
Current Liabilities:
Accounts payable
Loans payable (short term)
Non - Current Liabilities:
Loans payable (long term)
Owner’s capital
Owner’s drawing
Salaries expense
Rent expense
Utilities expense
Cleaning supplies expense
Service income For SERVICE Type
Sales
EXPENSES
REVENUE
For MERCHANDISING
Illustration of Merchandising Business in the Accounting Equation
Cost of Goods Sold
(cost of inventory that were sold)

4. Service Business Merchandising Business
Service Income
Less: Expenses
Net Profit
Sales
Less: Cost of Goods Sold
Gross Profit
Net Profit
Salaries expense
Rent expense
Utilities expense
Bad debts expense
Depreciation expense
Less: Expenses
Salaries expense
Rent expense
Utilities expense
Bad debts expense
Depreciation expense
Comparison on the Presentation of Income Statements
Revenue: Revenue:

5. Basic Format of Income Statement of Merchandising Business
Sales
Less: Expenses
Net Profit
Less: Cost of Goods Sold
Gross Profit
48,750
10,000
6,250
32,500
16,250

6. Exercises: Fill – up the missing amounts of the Income Statement
Sales
Less: Expenses
Net Profit
Less: Cost of Goods Sold
Gross Profit
440,000
140,000
75,000
225,000
215,000
?
?
Case A:

7. Exercises: Fill – up the missing amounts of the Income Statement,
continued
Sales
Less: Expenses
Net Profit
Less: Cost of Goods Sold
Gross Profit
260,000
105,000
(30,000)
185,000
75,000
?
?
Case B:

8. Exercises: Fill – up the missing amounts of the Income Statement,
continued
Sales
Less: Expenses
Net Profit
Less: Cost of Goods Sold
Gross Profit
870,000
320,000
(90,000)
640,000
230,000 ?
?
Case C:

9. Exercises: Fill – up the missing amounts of the Income Statement,
continued
Sales
Less: Expenses
Net Profit
Less: Cost of Goods Sold
Gross Profit
1,250,000
275,000
150,000
825,000
425,000
?
?
Case D:

10. Exercises: Fill – up the missing amounts of the Income Statement,
continued
Sales
Less: Expenses
Net Profit
Less: Cost of Goods Sold
Gross Profit
1,300,500
675,000
(95,750)
721,250
579,250
?
?
Case E:

11. Ask Questions?
By: Danilo “Sir Dan” Dumantay, MBA, CPA, CGFM, AIF
“The only stupid
question is the
one that goes
unasked.”