Merchandising Business – refers to an enterprise that buys and sells goods to

earn a profit.
MERCHANDISE OR MERCHANDISE INVENTORY - refers to an item bought by a
business for the purpose of reselling it.

SALES OR SALES REVENUE – this is the primary source of revenue in

merchandising business.

Sales Returns and Allowance - a customer may return merchandise if it broken or

if it is not as ordered.
Sales Discount – two usual discounts granted to customers are (1) trade discounts
and (2) cash discounts:

Trade Discounts – a percentage reduction from a published list price may be

granted to customers for patronizing the business. This is immediately deducted
from the list price.

Cash Discounts – when goods are sold on credit, terms of payment depend on the
custom of the industry. Usual credit terms: n/30 (gross amount is payable within
30 days from the date sale), or 2/10,n/30 (gross amount is payable within 30 days
with 2% discount given if the account is paid within 10 days).

PURCHASES - represents goods available for sale by the business for a particular
accounting period.

Purchase Returns and Allowances – goods bought may be returned to the seller
for being defective, spoiled or not as ordered.

Purchase Discount – discount claimed by the buyer.

TRANSPORTATION/FREIGHT COSTS – The two most common arrangements for

transportation or freight costs are FOB Shipping Point and FOB Destination.
FOB Shipping Point – buyer should pay for the freight. This is added to Purchases
to get the gross purchases.

FOB Destination – seller is liable for the freight

Expenses:
Cost of Goods Sold or Cost of Sales – the amount of merchandise sold by the business for a given
period. The formula to compute for cost of goods sold is:

Merchandise Inventory, beginning

Add: Net Purchases
Cost of Goods Available for Sale
Less: Merchandise Inventory,
ending
Cost of Goods Sold

Operating Expenses – refer to expenses incurred by the business in their day-to day operations.
Examples: salaries, utilities, rent, supplies, insurance, transportation, depreciation, delivery, and
advertising.