1 | a g e

Account|ng for Merchand|s|ng 8us|ness

Merchand|s|ng Cperat|ons
1 A merchandlslng buslness ls engaged ln uy|ng goods and se|||ng Lhese aL a proflL
2 1he prlmary source of revenues ls referred Lo as sa|es revenue or sa|es
3 1he operaLlng cycle of a erchand|s|ng copany ordlnarlly ls longer Lhan LhaL of a serv|ce
copany
4 lncome ls measured by cosL of goods and operaLlng expenses from sales revenue
4 ost of goods sold ls Lhe LoLal cosL of merchandlse sold durlng Lhe perlod
Inventory Systes
1 9erpetua| Syste
leototes
O used when Lhere are few conLrollable lLems ln Lhe lnvenLory
O urchases lncrease Merchandlse lnvenLory
O lrelghL cosLs urchase 8eLurns and Allowances and urchase ulscounLs are lncluded ln
Merchandlse lnvenLory
O CosL of goods sold ls lncreased and Merchandlse lnvenLory ls decreased for each sale
1he perpeLual lnvenLory sysLem provldes a conLlnuous record of lnvenLory and CosL of
Coods Sold
O hyslcal counL done Lo verlfy lnvenLory balance

2 9er|od|c Syste
leototes
O used by buslnesses wlLh low prlced hlgh volume naLure of merchandlse When Lhere are
numerous lLems Lo be accounLed for Lhe cosL of malnLalnlng records for each lLem of
merchandlse becomes very prohlblLlve
O urchases of merchandlse lncrease urchases
O Separate accounts used Lo record purchases frelghL cosLs reLurns allowances and
dlscounLs
O Company does noL malnLaln a runnlng accounL of changes ln lnvenLory
O Lndlng lnvenLory ls deLermlned by physlcal counL
O ueLermlnlng CosL of Coods Sold under a perlodlc sysLem

Merchand|se |nventory eg|nn|ng xxx
urchases xxx
Less urchase reLurns allowances xxx
urchase dlscounLs xxx xxx
neL purchases xxx
Add lrelghL ln xxx
ost of goods purchased xxx
CosL of goods avallable for sale xxx
Less Merchand|se |nventory end xxx
ost of goods so|d (ost of sa|es) xxx
2 | a g e

|scounts
@es of Jlscooot
1 @rade d|scounts
granLed Lo wholesalers or buyers ln blg quanLlLles as deducLlons from Lhe llsL prlces of
goods boughL
are noL Laken up ln Lhe accounLlng books
Lhe amounL of Lhe lnvolce neL of Lrade dlscounLs ls recorded as Lhe cosL of goods
boughL
2 ash d|scounts
offered as an lncenLlve for Lhe buyer Lo pay hls accounL before due daLe and wlLhln a
dlscounL perlod
buyer purchase dlscounL seller sales dlscounL
teJlt tetms Lhe Lerms for when paymenLs for merchandlse are Lo be made agreed on
by Lhe seller and Lhe buyer
Lxample of credlL Lerms
1 o/J0 neL 30 days
2 o/eom neL end of Lhe monLh
3 /10 o/J0 2 dlscounL lf pald wlLhln 10 days neL amounL due wlLhln 30 days

ecord|ng 9urchases of Merchand|se
O Made uslng cash or credlL (on accounL)
O normally recorded when goods are recelved
O 9urchase |nvo|ce should supporL each credlL purchase
O 9urchaser ay e d|ssat|sf|ed because goods damaged or defecLlve of lnferlor quallLy or do
noL meeL speclflcaLlons
4 9urchase return buyer reLurn goods for credlL lf Lhe sale was made on credlL or for a
cash refund lf Lhe purchase was for cash
4 9urchase A||owance buyer may choose Lo keep Lhe merchandlse lf Lhe seller wlll
granL an allowance (deducLlon) from Lhe purchase prlce
4 lf cash purchases Lhe seller wlll glve cash refund Lo Lhe buyer
4 lf on accounL buyer lssues de|t eorandu
4 eblt memotooJom Lhe form lssued by a buyer Lo lnform Lhe seller LhaL a deblL has
been posLed Lo Lhe seller's accounLs payable
O 9urchase |scounts
4 CredlL Lerms may permlL buyer Lo clalm a cash dlscounL for prompL paymenL
4 AdvanLages urchaser saves money and seller shorLens Lhe operaLlng cycle
4 Lxample CredlL Lerms of 2/10 n/30 ls read LwoLen neL LhlrLy" 2 cash dlscounL lf
paymenL ls made wlLhln 10 days

ecord|ng Sa|es of Merchand|se

O Made for cash or credlL
O normally recorded when earned usually when goods Lransfer from seller Lo buyer
O Sa|es |nvo|ce should supporL each sale
O Sa|es eturns and A||owances
4 lllpslde" of purchase reLurns and allowances
3 | a g e

4 ConLrarevenue accounL (deblL)
4 1he cusLomer wlll be glven cash refund lf Lhe cusLomer has already pald for Lhe
merchandlse
4 1he cusLomer's accounL wlll be credlLed lf Lhe cusLomer has noL yeL pald for Lhe
merchandlse
4 1he seller lssues a cred|t eorandu
4 teJlt memotooJom a buslness documenL lssued by Lhe seller lnformlng Lhe buyer LhaL
hls accounL was decreased accordlngly for Lhe reLurn made or for Lhe reducLlon of prlce
requesLed
O Sa|es |scounts cash dlscounLs Laken by buyer represenL a reducLlon Lo Lhe seller's lncome
from sales and Lake a deblL poslLlon
@ers of Sh|pent
1 C8 Sh|pp|ng 9o|nt
O 1lLle of ownershlp passes Lo Lhe buyer as soon as Lhe seller Lurns over Lhe goods Lo
common carrler
O Means LhaL Lhe seller agrees Lo place Lhe goods free Lo Lhe buyer up Lo Lhe shlpplng
polnL only
O Shlpplng polnL ls Lhe place where Lhe goods are loaded on a carrler Lxample lf Lhe
carrler ls a plane Lhe shlpplng polnL ls Lhe alrporL
O 1he buyer pays all frelghL expenses from Lhe shlpplng polnL Lo Lhe buyer's place
O lrelghL expenses are recorded by Lhe buyer as ltelqbtlo 1hls ls added Lo Lhe neL
purchases of Lhe buyer

2 C8 est|nat|on
O 1lLle of ownershlp of Lhe merchandlse may pass Lo Lhe buyer when Lhe buyer recelves
Lhe merchandlse
O Means Lhe seller agrees Lo place Lhe goods free Lo Lhe buyer up Lo Lhe polnL of
desLlnaLlon
O olnL of desLlnaLlon ls Lhe place of buslness of Lhe buyer
O 1he seller pays all frelghL expenses
O lrelghL expenses are recorded by Lhe seller as ltelqbtOot whlch ls a dlsLrlbuLlon or
selllng expense accounL

9rofora Lntr|es
@ransact|on 9erpetua| Inventory Syste 9er|od|c Inventory Syste
urchased
goods for
cash
Merchandlse lnvenLory xxx urchases xxx
Cash xxx Cash xxx
urchased goods urchased goods

urchased
goods on
accounL
Merchandlse lnvenLory xxx urchases xxx
AccounL ayable suppller xxx AccounL ayable suppller xxx
urchased goods on accounL urchased goods on accounL

| a g e

ald frelghL
charges
lC8 S
Merchandlse lnvenLory xxx lrelghLln xxx
Cash xxx Cash xxx
ald frelghL ald frelghL

8eLurned
goods Lo
suppller
Cash or xxx Cash or xxx
AccounLs ayable suppller xxx AccounLs ayable suppller xxx
Merchandlse lnvenLory xxx urchase 8eLurns and
8eLurned goods Allowances xxx
8eLurned goods

ald Lhe
accounL w/ln
Lhe dlscounL
perlod
AccounL ayable suppller xxx AccounL ayable suppller xxx
Cash xxx Cash xxx
Merchandlse lnvenLory xxx urchase ulscounL xxx
ald Lhe accounL ald Lhe accounL

Sold goods Cash or xxx Cash or xxx
AccounLs 8ecelvable
CusLomer
xxx AccounLs 8ecelvable
CusLomer
xxx
Sales xxx Sales xxx
Sold goods Sold goods

CosL of Coods Sold xxx no enLry
Merchandlse lnvenLory xxx
CosL of merchandlse sold

CusLomer
reLurned
goods
Sales 8eLurns Allowances xxx Sales 8eLurns Allowances xxx
Cash or xxx Cash or xxx
AccounLs 8ecelvablecusL xxx AccounLs 8ecelvablecusL xxx
CusLomer reLurned goods CusLomer reLurned goods

Merchandlse lnvenLory xxx no enLry
CosL of Coods Sold xxx
CosL of goods reLurned

CollecLed Lhe
cusLomer's
accounL w/ln
Lhe dlscounL
perlod
Cash xxx Cash xxx
Sales ulscounL xxx Sales dlscounL xxx
AccounLs 8ecelvablecusL xxx AccounLs 8ecelvable cusL xxx
CollecLlon from cusLomer CollecLlon from cusLomer



11vcnvc: