CHAPTER 6: ACCOUNTING

FOR MERCHANDISING
PURCHASES AND SALES
Chapter Content
• Merchandising Ac.vi.es

• Accoun.ng for merchandising purchases

• Accoun.ng for sales

• Accoun.ng for business results

Commercial activities
• A merchandising company resells finished goods (inventory) produced by a manufacturer
(supplier) to customers for a profit.
• Opera.ng cycle in a merchandising company:
• purchasing merchandise
Purchases
• paying for merchandise
• storing inventory
• selling merchandise
• collec.ng customer payments. Sales
Commercial activities
• Purchase of merchandise:
• The acquisi.on of inventory or goods that a company intends to sell to customer to generate
revenue.
• Paying for the merchandise with cash or on credit.
• Sales:
• The benefits and risks of ownership have transferred from seller to buyer or when the delivery of
services has been completed.
• Receiving cash or receivables.
• Profit:
• Different between net sales and expenses including cost of good sold and selling, general and
administra.ve expenses
 nh kì
vnh vin

Perpetual and Periodic Inventory Systems

ton nhieu thoi gian, chi phi hon

• To account the inventory in merchandising companies è using 2 different systems:

• A perpetual inventory system automa.cally updates and records the inventory account every
.me a sale, or purchase of inventory, occurs.
• A periodic inventory system updates and records the inventory account at certain, scheduled
.mes at the end of an opera.ng cycle.
è The most popular system è perpetual inventory systems è real-.me updates and keeps a
constant flow of inventory informa.on available for decision-makers.
Accounting for purchase
• Vouchers for book entry:
• Orders/Business contracts
• Warehouse receipt
• Invoice
 Accounts for purchases

Inventory accounts Payment

Acc151- Goods in transit Acc 111- Cash on hand

Acc 152 – Raw materials Acc 112 – Cash in bank
Acc 153 – Tools and supplies Acc141- Advances
Acc 156 – Merchandise goods Acc 331 – Trade payables
Merchandise inventory measurements
Historical
cost

Purchase Other costs Purchase

costs directly Reductions
(invoice)

üassociated with getting the product ready for sale: ü trade discounts,
§ transporta.on costs, ü purchase returns
§ customs du.es,
ü purchase allowances.
§ storage fees, insurance fees,
§ non-refundable taxes, other related items.
Accounting principles for purchases
• Trade discounts:
• A reduc.on to the adver.sed manufacturer’s price that occurs during nego.a.ons of a final
purchase price before the inventory is purchased. The trade discount may become larger if the
retailer purchases more in one transac.on.
• Cash discounts: provides a discount on the final price aTer purchase if a retailer pays within a
discount windowè not including in the value of merchandise inventory
• Purchase returns and allowances:
• A purchase return occurs when merchandise is returned and a full refund is issued.
• A purchase allowance occurs when merchandise is kept and a par.al refund is issued.
Accounting principles for purchases
For example: On 1 January 2016, John Traders purchased merchandise for $15,000 on account
from Sam & Co. The transporta.on fees costs $1,500, the non-refundable
thue k hoan lai
tax is $1,000. Sale
discount is at 2%. What is the value of this merchandise inventory?

The value of merchandise inventory= (15,000 + 1,500 + 1000) – (15000 x 2%) = $17,200
Accounting for merchandise purchases
Acc 111, 112, 141, 331 Acc 152, 153, 156

Value of merchandise inventory

Acc 151

Value of goods in
Receiving Goods in
transit (at the end
transit
of fiscal year)
 Accounting for merchandise purchases
For example: Record journal entries for the following purchase transac.ons of Apex Industries.
cash discount
• Nov. 6 Purchased 24 computers on credit for $560 per computer. Terms of the purchase are 4/10, n/60,
invoice dated November 6. Transporta.on fees paid by cash was $1,500 in total. Dr Acc 156: 24 x 560= 13.440
Cr Acc 331: 13.440
• Nov. 10 Returned 5 defec.ve computers for a full refund from the manufacturer. Dr Acc 156: 1500
Cr Acc 111: 1500
• Nov. 22 Paid account in full from the November 6 purchase.

10/11 Dr Acc 331: 5x 560= 82800

Cr Acc 156: 5x 560= 82800
22/11 Dr Acc 331: 13440-42800= 410640
Cr Acc 112: 13440 - 42800= 810.640
Accounting for merchandise purchases
For example: Record journal entries for the following purchase transac.ons of Lapex Ltd
company:
1. Purchased tools with the purchase price at $15,000 transferred the payment the seller.
cr: acc 111: 420
Shipping cost was at 420, paid in cash. cr acc 112: 15000
dr acc 153: 15000 dr: acc 153: 420

2. Paid in advance to seller S: 25,000 drcr acc

acc 331
111

3. Goods in transit at the end of last quarter to warehouse, purchase price was 6000
4. Advance 10,000 cash for employees to buy materials.
5. Purchased materials for 10,000, paid to the seller by the advance of the purchasing
staff. By the end of the quarter, these materials had not yet been delivered to the
warehouse.
 Accounting for sales
• Vouchers for book entry
• Orders/ Business Contracts
• Invoices
• Inventory delivery
vouchers
Accounts for Sales
- Acc 511 - Revenues
- Acc 632 – Cost of goods sold
- Acc 641 – Selling Expenses
- Acc 642 – Administra.ve Expenses

- Acc 911 – Income Summary

- Acc 156 – Merchandise goods

- Acc 157 – Outward goods on consignment
Accounting Principles for Sales
• Inventory sales:
• Goods sold by a company through its usual selling process in exchange for compensa.on
• Compensa.ons including cash and receivables
• Each inventory sale transac.on has two sides:
• Recording sales received from the customer è revenue
• The sales entry consists of a debit to either Cash or Accounts Receivable (if paying on credit), and a
credit to the revenue account, Sales.
• Recording decreases in the inventory è cost of goods sold
• The cost of sales entry includes decreasing Merchandise Inventory and increasing Cost of Goods Sold
(COGS).
è Impacts on both the balance sheet and income statement.
 Accounting Principles for Sales
• Sales revenue is recognized when a customer receives .tle to the merchandise, regardless
of when the money changes hands.
• If a customer purchases merchandise at a sales counter and takes possession of
the goods immediately, the sale transac.on is immediately recorded.
• If merchandise is shipped to the customer, a delivery record or shipping
document is matched with the invoice to prove that the merchandise has been
shipped to the customer è FOB Des.na.on è the ownership of the goods is
transferred at the buyer's dock
• In this case, the merchandise in transit belongs to sellers è not recording revenue.
• The sale transac.on is recorded when receiving the shipping document or when we have the evidence
for transferring the ownerships to buyers.
Accounting for Inventory Sales
Sales Counter
- Recording Revenue:
Debit Acc 111, 112, 131
Credit Acc 511 (price)
- Recording Cost of goods sold:
Debit Acc 632
Credit Acc 156
FOB Destination
- Exporting goods for sales:
Debit Acc 157
Credit Acc 156
When receiving the shipping
document:
- Recording Revenue entry :
Debit Acc 111, 112, 131
Credit Acc 511 (price)
- Recording cost of sales:
Debit Acc 632
Credit Acc 157
Accounting for Inventory Sales
• Example: Record journal entries for the following transac.ons of CBS:
1. On July 1, CBS sells 10 electronic hardware packages to a customer at a sales price of $1,200
each. Cost to CBS per package per unit is $620.
2. On July 7, CBS sells 20 desktop computers to a customer on credit. The credit terms are n/15
with an invoice date of July 7. The unit price is $750 and the cost per unit is $400.
3. On July 17, the customer makes full payment on the amount due from the July 7 sale.
4. On July 20, CBS receives the delivery record for the package of laptops shipped to the customer
last month. The total sales and cost of goods sold are $22,000 and $18,000 respec.vely.
5. On July 25, CBS exports the package of tablets at costs of $15,000 following FOB des.na.on
term. The total revenue is $25,000. By the end of July, CBS has not received the confirma.on of
the customer for this package.
Accounting for Operating ProHit
Operating Net sales Cost of good Selling Administrative
= - - -
Profit sold Expenses expenses

Gross profit
• Profits:
• Value remaining aTer a company’s expenses have been paid
• Net sales > Expenses è posi.ve è having a profit
• Net sales < Expenses è nega.ve è geong a loss
• Accrual method and matching principle
Sales/Revenues
Sales/Revenues = Number of Units x
sold Price

Net sales = Sales - Sales reductions

Example: A customer purchases 300 plants on credit from

a nursery for $3,000 (with a cost of $1,200). Upon receipt, - Discounts
customer was dissatisfied with 100 of the plants. After - Sales returns
speaking with the nursery, the customer decides to keep - Sales allowances
200 of the plants for a partial refund of $1,000. What is
sales and net sales?
Expenses
• Capital expenditure
• It is an expenditure which provides
benefits to the company for several
future yearsè not recording in P&L
un.l this expenditure/assets
bringing the benefits for firms:
• Expenditure incurred for fixed
assets (land, building, plant,
machinery…)
• Expenditure incurred for finished
products.
• Prepaid expenses.
• Revenue expenditure
• Rou.ne expenditure incurred in
the normal course of business and
consumes within one period è
charged immediately into income
statement:
• Cost of goods sold.
• Selling expenses: adver.sing
expenses, commissions,
remunera.on of salesmen,
payroll…
• Administra.ve expenses:
deprecia.on, maintenance,
execu.ve team salaries, u.li.es,
office supplies, accoun.ng costs…
Expenses
What is capital expense or revenue expense?
revenue ex 641
1. Deprecia.on expense for management buildings.
2. Raw materials for finished goods. cap ex

3. Salaries of direct employees. revenue ex

4. Adver.sing costs at the fair. revenue ex
5. Deprecia.on of manufacturing equipment. revenue ex
6. Public rela.ons expenses revenue ex
7. Electric bills, water bills, internet bills of factories.
8. Electric bills, water bills, internet bills of administra.ve buildings revenue ex

9. Shipping costs in FOB des.na.on sales. revenue ex

 Dr Acc 11x,331: 120,000*700= 84,000,000
Cr acc 511: 84,000,000

Operating ProHit Dr Acc 632: 120,000 * 500= 60,000,000

Cr Acc 156/157: 60,000,000

Dr acc 156 150000*500= 75000000

The performance of trading company FT in year N is as follows: Cr acc 11x,331: 75,000,
1. The total quan.ty of purchased goods is 150,000 units, the purchase price is $500/unit.
2. During the year, the company sold 120,000 units with unit price of $700 /unit.
Dr Acc 64Y: 20
3. Deprecia.on expenses of mall is $20,000. Cr Acc 214: 20,00
4. At the beginning of October, the company paid rent for mall with the monthly rent of $3,000.
The company has paid the rent for 6 months in advance of $18,000. Dr acc 242: 18,000,000
Cr acc 11x, 331: 18,000,000
5. Other administra.ve expense in this year is $7,000. at the end of this year (31/12/Y)
Dr acc 642: 7,000 Dr acc 641: 9,000,000
What is the opera.ng profit in this year? Cr acc 331: 7,000 CR acc 242: 9,000, 000

cost profit= net sale - COGS= (sale - sale deduction) - COGS= 84,000,000 - 60,000,000=24,000,000
operating profit= gross profit - sales cost - administrative cost= 24,000,000 - 20,000-9,000- 7,000= $23,964,000
Accounting for Operating proHits
• Accoun.ng for Opera.ng Profit:
• Accoun.ng for Purchases
• Accoun.ng for Sales
• Accoun.ng for Revenue Expenditure:
• Selling expenses.
• Administra.ve expenses.
• Closing process:
• Adjus.ng entries
• Closing entries
Closing Entries
• Closing sale reduc.on to revenue
Acc 511
• Closing net sales to income summary
• Closing costs of goods sold to income summary
• Closing selling expenses and administra.ve expenses
to income summary

Acc 911
Accounting for Operating ProHits
Acc156 Acc 632 Acc 911 Acc 511 Acc11X,131
(9a) Cost of goods sold (13a) (13c) Net sale (9b, 11b)
Cost of Price
TK 157 goods Acc 521
(10) Cost (11a) Cost sold (13b)
of goods of goods
Reduction
sold sold

Acc 334,15X,.. Acc 641, 642

(12) Selling and (13a) Selling and
Administrative Expenses Administrative Expenses
• The following is the adjusted trial balance
data for Emma’s Altera.ons as of December
31, 2019:
• Use the data provided to compute net sales
for 2019.
• Compute gross profit, and opera.ng profit for
2019.
• Provide closing entries.
QUESTIONS???