Professional Documents
Culture Documents
MERCHANDISING BUSINESS
Business organization that is engaged in buying and selling of merchandise
MERCHANDISE
Goods or articles acquired by the business that are intended for sale Merchandise inventories Include only goods that are held for sale in the normal course of business operations
Examples: office supplies for sale are inventories for National Book Store but office supplies for UST
Merchandise Inventory
Merchandise Inventory Beginning
Goods available at the start of the accounting period
ACCOUNTING FOR MERCHANDISING BUSINESS The merchandising business uses special accounts to record the buying and selling of merchandise or goods for sale.
SALES Income account used to record sale of merchandise Credit to record increase; debit to record decrease //
CREDIT MEMORANDUM
Document that informs a customer that a credit has been made to the customers account receivable arising from discounts, returns and allowances//
SALES DISCOUNT Discount granted by the seller to encourage early payment of the buyers Decreases the amount of sales Debit to record increase; credit to record decrease //
FREIGHT OUT Freight charges or cost of delivering the product to the buyers place paid by the seller Debit to record increase; credit to record decrease //
Note: These special merchandise accounts are used to record sale of merchandise only. For sale of non-merchandise items, the ordinary account titles are used.
TERMS OF SALES
n/30
The amount of the invoice is payable within 30 days from the date of sale. One of the most common modes of purchase No discount is given by the seller
TERMS OF SALES
2/10, n/30
A discount of 2% is deducted from the invoice price if paid within 10 days from date of sale The gross invoice price is to be paid if payment is made after the discount period. Account should be paid in 30 days from the date of sale
TERMS OF SALES
COD
Cash on Delivery The invoice price is to be paid upon delivery of the product
TERMS OF SALES
EOM
End of month Account should be paid on or before the end of the month of sale
TERMS OF SALES
2/10, EOM, n/60
2% discount is given if the customer pays by the tenth of the month following the month of sale Beyond this period, the full amount must be paid within 60 days from the date of sale
SHIPPING CHARGES ON MERCHANDISE SOLD OR PURCHASED The buyer and the seller must agree on
who is responsible for paying any freight charges, and who bears the risk of loss while the merchandise is on transit
FREIGHT TERMS
FOB Shipping Point
Free on Board at point of origin. The buyer pays for the freight or transportation The buyer debits Freight In for this. The buyer assumes the risk of loss while goods are in transit
FREIGHT TERMS
FOB Destination
Free on Board up to destination. The seller pays for freight or transportation The seller assumes the risk of loss while the goods are in transit The seller debits Freight Out or Delivery Expense account for this
CHART OF ACCOUNTS
List of account titles used in recording business transactions. Arranged in the ALPICE order
Jan 5 ABC Co. returned defective merchandise amounting to P500. 6 - Sold merchandise to various customers P13,000. Paid freight charges amounting to P400. 12 - Received full payment from ABC Co. 13 - Sold an old office table for P1,000. COD //
PURCHASE DISCOUNTS
Used to record the amount of discounts granted by the seller Decreases the cost of goods bought Credit for increases, debit for decreases //
FREIGHT IN
Account debited by the buyer for the transportation expense of goods purchased Debit for increases, credit for decreases //
Note:
These special merchandise accounts are used to record purchase of merchandise only. For purchase of non-merchandise items, the ordinary account tiles will be used.
Jan 17 AB Enterprises received deliveries of handbags from Celine amounting to P20,000. Terms: COD 18 AB Enterprises ordered and received delivery from Manel, shoes costing P35,000. Terms: n/30. AB Enterprises paid to the Marikina supplier the P95,000 less 2% discount. (see Jan. 16) The buyer AB Enterprises found some defective goods and made complaint to Celine. Supplier Celine agreed to refund P1,200 and promptly paid this amount to AB Enterprises.
19 -
20 -
23 -
29 -
30 -
AB Enterprises complained to Manel on some unpolished shoes for which Manel gave the buyer rebate of P1,000. A credit memorandum was received from Manels Purchased supplies for office use, P1,000 on cash basis. Purchased goods amounting to P30,000 less 20%
Credit memorandum a note issued by the seller to acknowledge the return of merchandise and to inform the buyer that his account has been reduced accordingly.
DISCOUNTS
Reduction in the original price of goods Types of Discounts
a. Cash discount b. Trade discount
A. CASH DISCOUNT
Reduction in price to encourage a customer to pay immediately Recorded in the books as Sales discount (by seller) Purchase discount (by buyer) //
B. TRADE DISCOUNT
Reductions from the published list price granted to dealers or wholesalers for buying large quantities or for regularly patronizing the business Granted to customers who buy items to resell or who will use the items to produce other salable goods Often listed in catalogs that contain the list price as well as the amount of trade discount available.
Example 1:
Example 2: