MERCHANDISING BUSINESS

 usually described as the net credit

period or net term
TYPES OF BUSINESS ACCRD TO ACTIVITIES
Service Merchandising  Discount Period
Business Business period covered by the discount
Nature earns profit by earns profit by
performing buying and TYPES OF CASH DISCOUNT INTERMS OF POV
services selling goods  PURCHASE DISCOUNT – point of view of buyer
Owner Proprietorship Merchandiser (the business got discount from its supplier)
Wholesaler SALES DISCOUNT – point of view of the seller (the
Retailer business itself is the one who gives discount)
Measuring
Profit TRADE DISCOUNTS
deduction from the list or catalog price in order to
arrive at the invoice price, which is the amount actually
charged to the buyer
purpose is to encourage trading or increase sales
includes volume/quantity discounts
may be stated in series (e.g., 20%,10%)
Purchases (Dr) Sales (Cr)
 no accounting entry because there is no trade discount
Supplier Business Customer
account
(BUY) (SELL)
Purchase Return
IMPORTANT NOTE
 Purchase allowance Sales Return
Sales allowance All accounting entries are based on the invoice price,
Purchase discount
Sales discount which is obtained by deducting trade discount from the
Freight
Freight list price
 Exclude the first day when counting the days passed
after the transaction happened
Discount Titles (Purchase and Sales Discounts) are
Consumer- the one who consumes the product
recorded when there is payment made by the buyer/seller
Customer – not necessary the one who consumes the
 Invoice Price is recorded as sales
product

TERMS OF TRANSACTION
Return and Allowances
CASH DISCOUNT
buyers may be dissatisfied with the merchandise
 discount given for prompt payment (purpose: to
received either because the goods are damaged or
encourage prompt payment)
defective, of inferior quality or not in accordance with
computed on the net amount (Invoice price) after the
their specifications
trade discount
 deduction from the invoice price when payment is
Returns – decrease the amount(sales) and physical
made within the discount period
volume of the goods sold
 Purpose is to encourage trading or increase sales
Includes volume/quantity discounts Buyer (Entry of Purchase Return)
Accounts Payable
 Credit Period
Purchase Return
 a period of time allowed for payment
if the goods are sold on account
Seller (Entry of Sales Return)
Sales Return
 MERCHANDISING BUSINESS
Accounts Payable
FOB Destination, Freight Prepaid
Allowances- decrease the amount (sales) but not the Freight Out
physical volume of the goods sold Cash
 no physical return of the goods
Buyer (Entry of Purchase Allowance) FOB Shipping Point, Freight Collect
Accounts Payable Freight In
Purchase Allowance Cash

Seller (Entry of Sales Allowance) FOB Destination, Freight Collect (Buyer’s POV)
Sales Allowance Accounts Payable
Accounts Receivable Cash

Credit Memorandum FOB Destination, Freight Collect (Seller’s POV)

formal acknowledgement that the seller has reduced Freight Out
the amount owed by the customer Accounts Receivable

TRANSPORTATION COSTS FOB Shipping Point, Freight Prepaid (Buyer’s POV)

Freight bill Freight In
 shows whether the shipping term are FOB Shipping Accounts Payable
Point or FOB Destination
 is prepared when merchandise is shipped by a carrier
FOB Shipping Point, Freight Prepaid (Seller’s POV)
designates which party shoulders the costs
Accounts Receivable
(transportation cost)
Cash
designates whether the shipment is freight prepaid or
freight collect
FOB Shipping Point – the buyer shoulders the IMPORTANT NOTE
transportation costs because the ownership of goods is FREIGHT = TRANSPORTATION COST
transferred to the buyer when the goods are ship FREIGHT OUT/TRANSPORTATION OUT = POV OF
SELLER
FOB Destination – the seller shoulders the transportation  recorded as operating expense, under the selling
costs because the ownership of goods is only transferred expenses line item
to the buyer when it reaches the buyer’s destination FREIGHT IN/TRANSPORTATION IN = POV OF
BUYER
Freight Prepaid – the seller pays the transportation cost an adjunct account to purchases
before shipping the goods sold  added as cost of inventory
the seller is the one who pays for the transportation
cost FOB (Location of seller) = FOB Shipping Point
FOB (Location of Buyer) = FOB Destination
Freight Collect – the transportation is still unpaid so the
carrier will collect the payment to the buyer VALUE-ADDED TAX (12%)
 the buyer is the one who pays for the transportation a tax on the value added to the purchase price or
cost cost in the sales or lease of goods, property or services
in the course of the trade or business. (VAT is a
Legend: business tax)
Buyer It is imposed on the value added in each stage of
Seller distribution.
 MERCHANDISING BUSINESS
 It is an indirect tax that may be shifted or passed 10. Credit memorandum -is used whenever there is a
on to the buyer transferee or lessee of the goods, return
property, or service
COMPONENT OF VAT
INPUT VAT
 the VAT paid on the domestic purchases or VAT
paid on the importation of goods and services by the
taxpayer—the one who pays tax/the business

OUTPUT VAT
 the VAT passed on to customers or clients by a
VAT taxpayer on his/her sales to customers

OUTPUT TAX – INPUT TAX = VAT PAYABLE

WHENEVER A BUSINESS MAKES A PURCHASE

(INPUT VAT) OR SALE (OUTPUT VAT),
ALWAYS MULTIPLY IT TO 12% VAT

TWO ASSUMPTIONS IN VAT TRANSACTIONS

VAT INCLUDED – vat is already included in the
amount of an item/product (Divide the amount by 112%
or 1.12)
VAT EXCLUDED – vat is not yet included in the
amount of an item/product (Multiply the amount to 12%
or 0.12)

SOURCE DOCUMENTS
- Why do documentation?
For economic activities to have TRAIL
- Relates on the accounting principle
“Verifiability
Types of Source Documents
1. Sales invoice – is used whenever sales is made
2. Bill of lading – issued by carrier about freight
transaction
3. Statement of Accounts (SOA) – list of all
accounts due of buyer
4. Official Receipt – is used whenever there is cash
in to the business
5. Deposit slips –
6. Checks –
7. Purchase Requisition (1) –
8. Purchase Order (2)
9. Receiving Report (3) – pag dumating na yung
goods eto iccompare sa sales invoice at purchase
order