MERCHANDISING OPERATIONS
and timing of payments that a buyer (debtor)
Merchandise- (Merchandise inventory)
consists of products, also called goods, that
a company buys to resell to customers
Merchandiser- earns net income by buying
and selling merchandise.
Wholesaler- buys products from
manufacturers and sells them to retailers.
Retailers- buys products from
manufacturers or wholesalers and sells them
to customers
Sales (revenues)- accounting term for
revenues from selling merchandise.
Cost of goods sold (cost of sales)- term
used for the expense of buying and
preparing the merchandise.
Gross profit (gross margin)- net sales less
cost of goods sold.
Perpetual inventory system- updates
accounting records for each purchase and
sale of inventory.
Periodic inventory system- updates the
accounting records for purchases and sales
of inventory only at the end of a period.
List price (catalog price)- price of an item
before any trade discount is deducted.
Trade discount- reduction from a list or
catalog price that can vary for wholesalers,
retailers, and consumers.
PURCHASES WITH CASH DISCOUNTS
Credit Terms- description of the amounts
agree to make in the future.
EOM- end of month; used to describe credit
terms for credit transactions.
Credit Period- time period that can pass
before a customer’s payment is due.
Cash Discount – reduction in the price of
merchandise granted by a seller to a buyer
when payment is made the discount period
(to encourage buyers to pay earlier).
Seller views a cash discount as Sales
Discount (term used by a seller to describe a
cash discount granted to buyers who pay
within the discount period)
Buyer views a cash discount as a Purchase
Discount (term used by a purchaser to
describe a cash discount granted to the
purchaser for paying within the discount
period)
Discount Period – time period in which a
cash discount is available and the buyer can
make a reduced payment.
PURCHASE WITH RETURNS AND
ALLOWANCES
Purchases returns - merchandise a buyer
acquires but them returns to the seller.
Purchases allowance - refer to a seller
granting a price reduction (allowance) to a
buyer of defective or unacceptable
merchandise.
 RECEIVABLE DR. SALES REVENUE
CR.) FREIGHT OUT

REVENUE (CONTRA-INCOME) DR
- SALES ALLOWANCES
- SALES PURCHASES
- SALES DISCOUNT
PURCHASE (CONTRA-EXPENSE) CR
- PURCHASE ALLOWANCES
- PURCHASE PURCHASES
- PURCHASE DISCOUNT
CREDIT MEMO (magkakaroon ka ng
purchase allowances) decrease
- Accounts receivable by the seller CR
- Accounts payable by the buyer DR
DEBIT MEMO
- Receivable by the seller DR +
- Payable by the buyer CR
BUYER – PURCHASE DISCOUNT CR.
CONTRA-EXPENSE (PURCHASES DR.
ACCOUNTS PAYABLE CR.) FREIGHT
IN
FOB SHIPPING POINT
- The ownership of the goods
purchased is vested in the buyer
upon shipment thereof.
- The buyer is responsible for the
freight charge from the point of
shipment to the point of destination.
FOB DESTINATION
- The ownership of the goods
purchased is vested in the buyer
upon receipt thereof.
- The seller is responsible for the
freight charge up to the point of
destination.
FREIGHT COLLECT
- The freight charge on the goods is
not yet paid by the seller.
- The buyer paid the freight charge to
the common carrier.
FREIGHT PREPAID

SELLER – SALES DISCOUNT DR. - The freight charge on the goods is

CONTRA-INCOME (ACCOUNTS not yet paid by the buyer.
- The seller paid the freight charge to
the common carrier

While in Transit
Goods To recognize in accounting book
TERMS ownership Seller Buyer
                   
1. FOB Destination   Seller Sales No Purchases No
          Accounts Receivable No Accounts Payable No
          Freight - out Yes Freight - in No
                   
                   
FOB Shipping
2. Point   Buyer Sales Yes Purchases Yes
          Accounts Receivable Yes Accounts Payable Yes
            Freight - out No Freight - in Yes