CHAPTER 7: MERCHANDISING
The statement of account is a formal
OPERATIONS
Merchandising Income Statement (Formulas)
 Net Sales – Cost of Sales = Gross Profit
 Gross Profit + Income – Expenses = Profit
 Gross Profit – Operating Expenses =
Operating Profit
 Operating – Finance Cost + Finance
Revenues = Profit before tax
 Profit before tax – tax expense = profit from
continuing operations
NOTE: Profit from discontinued operations (net
of tax) is taken into account to get profit for the
period.
Operating Cycle of a Merchandising Business
 The merchandising entity purchases
inventory, sells the inventory, and uses the
cash to purchase more inventory—and the
cycle continues.
 For cash sales, the cycle is from cash to
inventory and back to cash.
 For sales on account, the cycle is from cash
to inventory to accounts receivable and back
to cash.
 The faster the sale of inventory and the
collection of cash, the higher the profits.
Source Documents
1. A sales invoice is prepared by the
SELLER of goods and sent to the
BUYER. This document contains the
name and address of the buyer, the date
of sale, and information- quantity
description- about the goods sold. It also
specifies the amount of sales and the
transportation and payment terms.
2. The bill of lading is a document issued
by the CARRIER—a trucking, shipping,
or airline—that specifies contractual
conditions and terms of delivery such as
freight terms, time, place, and the person
named to receive the goods.
3.
notice to the DEBTOR detailing the
accounts already due.
4. The official receipt evidences the
receipt of cash by the seller or the
authorized representative. It notes that
invoices are PAID and other details of
the payment.
5. Deposit slips are printed forms with the
depositor’s name, account number, and
space for details of the deposit. A
validated deposit slip indicates that
cash and checks with the supplied
details were actually deposited or
credited to the account holder.
6. A check is a written order to a bank by
a depositor to pay the amount specified
in the check from his checking account
to the person named in the check. The
entity issuing the check is the payor
while the receiver is the payee.
7. Purchase requisition is a written
request by the purchaser of an entity
from an employee or user department of
the same entity that goods be purchased.
8. The purchase order is an authorization
made by the buyer to the seller to deliver
the merchandise as detailed in the form.
9. Receiving report is a document
containing information about goods
received from a vendor. It formally
records the quantities and description of
the goods delivered.
10. A credit memorandum is a form used
by the seller to notify the buyer that his
account is being decreased due to errors
or other factors requiring adjustments.
Cash discounts are discounts for prompt
payments. Cash discounts are also called
purchase discounts from the buyer’s viewpoint
and sales discounts from the seller’s point of
view.
Trade discounts encourage buyers to purchase
products because of markdowns from the list
price.
Transportation costs
FOD means free on board.
FOB Shipping point = buyer
FOB Destination = seller
Freight collect = buyer
Freight prepaid = seller