£ i a ACCOUNTING FOR MERCHANDISING NATURE OF MERCHANDISING BUSINESS A business engaged in buying anc selling of merci Trandising fir). This type ot husiness gen: al a profit which are only finished gcods. 2 oF goods is call ame by buying and ate Types of Merchandisers Wholesaler] one who buys in bulk or volume directly frc 7 a manufacturer and sells the goods tg a retaiier. ‘one who sells products to end users Merchandising Operations ‘Two points to be considered in recording business tran: actions of a merchandising business: Buyer point of view and Seller point oF vi Inventory Systems ‘The Periouic System For businesses selling goods with different {ow- priced ems this system is appropriate to use Transactions resulting from the sale nf these low-priced items are voluminous. Transactions related to the acquisition of inventory are recorded accordingly as: Buyer's Point of View: [Purchases Accounts used to rcord merchandis= bought for the purposes of resale. Used to record the returns acknowledged o ‘allowances granted by the supplier to the buver frum the purchase of coods. Reduction from fe purchase price grented by the supplier to the uyer for paying within the discounted rerod Freight- in} Cost of transporting the merchandise {rom the seller's place {o the buyer's place of business. - °°" Seller's Point of View [Sales\ the proceeds from the sales price of aceds sold credited to the reveriue account when the sales were made Sales Returns and Allowanass} record the returns acknowiedyed or allowances granted by the supplier to the buyer from the sale of goods ~ [Sales Discount] Reduction from the purchase price granted by the supplier to the buyer for paying within the discounted period. [Eien aat\cost of transporting ‘the mercnandise from the seller's piace to the buyer's Place of business. ~ sete * ‘ aes&B) Lesson Objectives | + analyze the different meichondising transactions from both the seller's and the buyer's points of view + journaize the transcictions on tne sellers and the buyer's books under t system of recorcing inventory RECORDING TRANSACTIONS UNDER THE PERIODIC SYSTEIA Discount ‘A discount is a reduction from a certain price or ammount. There are two kinds of discount in accounting for merchandising transactions, the trade discount and the cash discount. ‘Trade Discount — a deduction from the list price or catalogue price granted to customers to encourage purchase >t goods or merchandise in big quantities or volume, ‘This is not recorded or chown in the buyer's or seller's books. Mlustrative Problum a. Spitz Co. bought merchandise for eash with a list price of ?10,000 less: 10% trade discount. > 10,000 List Price Less: 10% Trae Discount 10,000 x 0.1 Purchase Price wre Pte en | (6) aeJournsl entry on the books of Spitz Co. Purchase : Cash 9,000 Purchased ‘nerchandi ve for cash Note: The trade ‘tiscount was not shown in the books and the purchase price recorded in the bo: ks is P9,000. ‘The Tist price of ? 10,000 did not reflect in the books. b. Terrier Co. sold merrhauvtise to Poodle Co. with a list nrice of 50,000. ‘Terms: 10%, 10%, 2/10, n/29, cee NESTS “ Note: ‘The 10%, 10% in the terms represent the trade diccount given to the buyer ts while the 20, 1/¢0 are the terms of payment. The different terms of : payment wil be disessed wuder cash discount. oq: § List Price F 50,000 t Less: 10% Trade Diecount } 90,000 x cic oon se Balance fee Less: 10% Trade Discount se 45,000 <0.10 te Sale Price ‘Journal entry on the books of Terricr Co, Accounts Receivable Sales Sold merchandise on .ccount ‘Terms: 2/10, 30 40,500 40,500 Note: The trade discount was not chown in in the books is 40,500, The li books. the books and the sales price recorded ist price of 50,000 did not reflect in the¢, Dalmatian Co. bought goods fro. Rotweiller Inc. with list p P125,000. Terms 20-10, 1/19, 1/80 List Price P 125,000 Less: 20% Trace Discount & 125,000 « 0.20, Balance Loss: 10% Trade Discount 100,000 x 0.10 Purchase Price &, Journal entry on the hooks of Dalmatian Co. Purchases 90,000 Accounts Payable 90,000 Purchased merchandise on account Terms 1/10, n/30 Note: 1. The 20-10 in the terms represents the trade discount given to the buyer while the'1/10, and n/20 are the terms of payment. 2. The trade discount was not shown in the books and the purchase price recorded on the books is 20,009, ‘The list price of 125,000 did not reflect in the hooks, Cash Discount ~ a deduction from the selling o purchese price granted to customers encourage prompt nay ments of accounts. This is re or shown in the buyer's rad seller's books. This i recorded as purchase discount in the hooks of the buyer or sales discount in the book: of the seller. This method of ~ecording cash discount in the books of the buyer or seller is knowu as the Gross Method. Examples of different credit terms: 1. 3/15, 2/20, n/30 ~ means that a 3» cash discount is granted to the buyer if account is paid within 15 day from date of purchase, 2% cash discount is given if account is paid within 20 days, purchase price loge returas aad allowances if any is payable within 30 days. 2. 1/10, n/60 — means that a 1% cash discount i¢ granted to the buyer if account is paid within 10 davs from dave of purchase, purchase price less returns and allowances if any, is payable within 60 days. 3. n/90 ~ means that no cash disecunt is available to the buyer, Purchase price less returns and allowances if any. is payable within 29 daysa 2/10 EOM, n/60— means that a 2% cash discount is granted to the buyer is paid 10 days after the end of the month. Purchase price less returns and allowances if any, is payable within 60 éays. L/EOM, 1/30 ~ means that a 1% cash discount *3 given if the buyer pays until the end of the month. Purchase price less veturns and allowances if any, is payable within 30 days. . BOM — means that no cash discount is availab’e. Purchase price less returns and allowances if any, is payable at the end of the» :onth. Note: In numbers 4, 5. and 6 above, EOM can ; leo be writen as eom. ‘Mlustrative Problem ‘a. On July 1, Siamese Kat Merchandising j archased goods from Persian Kat ‘Trading for 70,000. Terms 1/10, 2120. ‘The terms 1/10, 1/30 mean that a 1% discount will be given if payment is made within 10 days from July 1 and no discount wi!l be given if payment is made beyond 10 days. (Purchase price less ret'ums and allowances if any) is payable within 30 day duly L- July 11 duly cece July 81 ‘deount po discount Purchase Price Less: 1% x 70,000 Payment wiin 10 days b. Assuming the terms of Siainese Kat Merchandising’s purchase is 3/10, 2/15, 1n/30 and Siamese Kat Merchandising paid on July 16, ‘The termis 9/10, 2/15, n/30 mean thet a 3% discount wll be given if payment is made within 10 days from July 2, 2% dissount wrill ke given if payment is made within 15 days fiom July i,and no discount will be given if payment is made beyond 15 days. (Purchase price less returns and allowances if any) is payable within 30 days. July 1 nly 11 duly 12 - duly 16 Juy YT n-ne duly 31 3% discount 2% discount no discount Purchase Price 70,000 Less: 2% x 70,000 1,400 Payment wiin 15 days _ (Fi he wercnonceg He¢. Assuming the terms of Siamese Kat Merchardising’s purchase is 3/10 EOM, 1/60 and Siamese Knt Merchandising paid on August 10 ‘The terms 3/10 FOM, ni60 mean that a % discount will be given if payment is made 10 days after the end of the m: ath snd no discount will be given if payment is mace beyond the disesunt pe ‘od. (Purchase price less returns and allowances if any) is payable within 6° days. Bs duly 1 - ‘Augus! 10 gust 1 ~- August 30 3% diseoun: no discount & Purchase Price 770,000 . | Less: 3% x 70,000 2,100 Be Payment within discount period £57,900 BUYER'S POINT OF VIEW KONY ~ A buyer is the one who purchases goods, Merchandise inventory are goods o commodities purchased by the company for sale normally at a profit. Certain doc are prepared by the buyer to complete # purchase trans#etion, 1, Purchase Order ~ a decument sent by the buyer to the seller ordering certain goods where the data, quantity, déecription of goods, and the total amount of the order is indicated. This auchorizes the seller to deliver the goods to the buyer under the agreed specifications, terms, anc conditions, 2. Receiving Report — a form prepared by the buyer's receiving personnel stating ‘the quantity and condition of the goods delivered by the seller 3. Debit Mcmorandum ~ a written notice from the buyer informing the seller that the buyer will debit the account or decrease the amount owed to the seller for returned goods or allowances requested due to defect or wrong specifications Wane, voice er ana ayer Ayormoae ReCtIT = nyewan Derwenr ceier and MMye 3) Caer pene. canaien ng Pistnet Secheneet money tMniy crateiH oR fk t ; ERS BOOKS APNOISON OF Buyer's Books Pro forma Journal Ex} Buyer's Point o¢ View 1. Purchased merehand:se for cash Purchases xxx, Cash sxx 2. Purchased merchandise on account Purchases xxx ‘Accounts Payable a" 3. a. Returred defective merchandise bought on account 'b. Allowances granted to buyer for the account purchase ¢, Issued a debit memo to the seller for the return Accounts Payable xxx Purchase Roturz and Allowances x 4. Received cash refund for returned merchandise Cash xxx Purchase Returas and Allowances sox 5. Transportation charges incurred in buying. (Assumption: Freight chi to be shouldered by buyer) ges. Freight-in 2x, Cash or Accounts Payable 200 AB6-~| the MerchonaiTd susie PORGAR- AN) Seller's Books Journal Entries: jer's Point of View . Sold merchan Cash xxx Sales wx 2, old mershandise on account Accounts Receivable x Sales coed 3... Received defective merchandise sold on account _ Allowances granted to buyer for ‘the account sales Issued a credit meme to the buyer for the returns Sales Returns amd Allowances xe Accounts Receivable ee 4, Paid cash refund for returned merchandise Sules Returns and Allowances xx Cash xxx 5. Transportation charges incurred in selling. (Assumption: Freight charges to be shouldered by selle Freight-out or Delivery Expense xxx Cash or Accounts Payable xxx6. Payment of Accounts Payable within the discount period arising from the purchase of merchandise Accounts Payable Purchase Discount Cash XXX 7, Payment after the discount period Accounts Payable xxx Cash xxx Note: Notice that the Purchase accouat is alvays debited while the Purchase Discount and the Purchase Returns and Allowances accounts are always credited. Normal Baleces of Accounts: {6. Collection within the discount period from the sale of merchandise Cash ox Sales Miseount x Accounts Receivi le xox 7. Collertion after the discount periou Cash xxx Accounts Receiy ible xxx Note: Novice that the Sales account is always credited while the Sales Discount and thc Sales Returns and Allowances acct ints are always debited. ‘Noi mal Balances of Av-ounts: Purchases Sales Debit Credit Credit Purchase price Sales prive of of merchandise merchandise sal bought | Parchasanjogoins and, Soles Roturns end Allowances Allowances Debit Credit Debit Credit | Purclaee, Sales prive of price of goods goods ietuned returned to hy Digan iad seller and allowances allowances granted’ granted | 187Purchase Discount ar vo V Sales Discount Debit Credit Debit | Credit Discount Diseouat grantel when granted wher foods were paid within discount sy thin discount period: period Freight-In Freight-Out Debit Credit Debit Credit ‘Transportation Transporation oats costs shouldered ae ere by buyer seller Illustrative Problem Sushi Trading - Bayer Pro forma Journal Entries. Buyer's Point of View 1. Purchased meichandige for 63,000 cash Purchases Cash 63,000 Purchased merchandise for cash 63,900 2, Purchased merchandise ® 110,000 on accoun.t. Terms: 2/10, n/60 Purchases 116,000 ‘Accounts Payable 110,000 Purchased merchandise on account, ‘Terms: 2/10, 1/60 188" The Merchandising Si 03! Milo Enterprises ~ Seller Pro forma Journal Entries: Saller’s Point of View 1, So’ i merchandise for 63,000 cash Cash 63,000 Sales So d merchandise for cash 2, S: id merchandise 110,000 on account T rms: 2/10, n/60 63,000 ‘Ac gun's Receivable 110,000 Sales ‘Sc d merchandise on acount ‘Terms: 2/10, n/60 110,000 ¥Ser, Returned ? 10,000 defective merchandise bought on account Accounts Payable Purchase Returns and Allowances 10,000 Returned defective merchandise bought on recount 10,690 4 Received 500 cash refund for merchandise bought for cash Cash Purchase Returns and Allowances Received refund for merchandise returned 500 Bor Paid transportation charges shouldered by buyer 800 (Assumption: Freight charges toe shouldered by buyer) Preight-in Cash or 800 Accounts Payable 800 Freight charges on merchandise Vaid within discount porind Accounts Payable 100,000 Purchase Discount 2,000 Cash 98,000 Paid account within discoxnt period Computation Purchase Price 110,000 Less: Purchase Returns and Allowances 10,960 Net Purchases: Fi00,000 Less: Purchase Discount 100,000 x 0.02 Cash Paid ¢ On fag On - ees Recei od dofeetive merchandise sold e-1 accaunt 4. Paid 500 cash refund for returned merchandise sold for cash Sales Returns and lowances Cosh Paid fund for mere! andise returned, 5, Paid raneportotion charges shoul lered by seller P900 (Assumption: Freight charge shoulderca by seller) Preight-out or Dalivery Expense 80 Aceoun's Payable reight chary son merchandise - Collected within discount period Cash Sales Discount Accounts Receivable Collected arcount within disco period 2,000 Computation Sales brie Less: Sales Returns and Allowances Net Sale: Less: Sales Discount 100,000 « 0.02 | Cash Received: 110,000 ss 00 100,009 2.000 The Peroaic Sistem | 188a Purchased merchandise ® 15,000 ‘Terms 8/10, n/30 Purchases 15,0¢0 Accounts Payable 15,000 Purchased merchandise on account ‘Terms: 9/10, n/30 Paid account after the discount veriod Accounts Payable Cash Foll settlement of account 25,000 15,000 Note: Notice that the Purchaeo azcount is always debited while the Purchase Discount and the Purchase Returns and Allowances accounts are always credited. 7. Sold merch: ndise 15,000 Terms 3/10, 1/30 Accounts F ceivable Scles Sold merch ndise on account Terms: 3/1 n/30 35,000 25,000 3. Collected account after the discount period Cash 15,000 Accounts Receivable 15,000 Pull settlement sf account Note: Notice that theSalc saccountis alw: credited while the Sales Discount and the Sales Returns and Allowances accounts are always debited. ‘Normal Balances of Accounts: Normal Balances of Accounts: Purchases Sales Debit Credit Debit Credit 1. 63,000 \ 1. 63,000 2, 110,000 { 2. 110,000 7. 16,000 i 7. 15,000 Purchase Returns and Allowances Debit Credit 3. 10,000 4. 500Ping Co. bought merchandise from Pong Co. Given the following information, determine the amount of purchases to he recorded and te amount of payment. Terms: 5/10, 1/80, aa Fass 1 =a Jaee Trade les yichosel i Fava : con ly eine | ace es o_| | a ea eee 19 90,000} 10.5 | March 29 \ ee ee ee ee reer pep ye Sie On September 15, Bell Accessories purchases P 100.000 worth of merchandise from Clang Supplies on cccount, terms 2/10, n/30. On September 15, 710,000 worth of damage goods were returned to Cleng Supplies. Fuli payment was _ made on Septeniber 25. Give the necessary journa! entries under the periodic inventory system. Jaden Sales Company engaged in the folluwing transactions for che month of September using the periodic inventory me‘hod. Sept. 1 Purchased goods from Me Trading. ‘lerms: 10-15, 1/20 BOM, 200,000 8 Returned 40 % defective goods 5,090) * 11 Cash sales, 792,000 (cost, PE Purchased goods from: Jamie Kinterprises worth 51,000, A trade discount 14 of F10,000 was grent-d. ‘Terms 3/15 n/30 AB Paid 6,000 freight on goods purchase?