It refers to number of days a company

takes in convertng tis inventories to cath.

OPERATING CYCLE OF MERCHANDISING BUSINESS

Cash Cash Purchases

Co

Purchases
Cash Sales

Accounts
Receivable

Inventory Inventory
S/e₃On

Cash Sales Sales on Account

NOE A 8B5OMA,CA,MBA

SERVICE VS.MERCHANDISING
COMPARISON OF INCOME STATEMENT

Service Merchandising

~ _ XX Net sales XX
Income
Cost of Goods Sold (XX)
Expenses_ _(XX)
Gross profit XX
Net income XX
Other income XX
Expenses (XX)
Net income XX

NOEL A.B86ONIA,CPA,MBA
 NET SALES
Sales or Sales revenue- is the account
which represents the revenue of the
merchandising business.

Gross Sales XX Sale refurns and allowances- is a contra-

Sales Returns and Allowances-(XX) revenue account used when customers
Sales Discounts return merchandise.
(XX) Dv
Sales discount- is a contra-revenue
Net Sales XX account used when a buyer avails of the cash
discount from the seller due to early
payment of his account.

NOE A,BERGONIA,CPA,MBA

EXAMPLE
GROSS SALES
Adobo Trading sold merchandise with a list price of
P5,000.Since the buyer bought a lot,Adobo gave
hin 2 % and 3%frade discgunts. List price XX
List price
Trade (XX)
=P5,800x(100%-2%)x(100% - discount
=P4,753 XX
Invoice price
Cash sales
4,753 List price X(100%-TD)×(100%-TD)=Inwoice Price

Ca
Sales 4,7

Sales on Account
Accounts receivable 4,753 NOEIA.BERGONIA,CPA,

Sales 4,753
SALES RETURNS AND ALLOWANCES

Customer return merchandise because it is:

damaged or defective
of inferior quality and not in accordance with their
specifications.
Thd selley usually issues a credit memorandum to the fustomer
which acknowledge that the seller has reduced the amount owed
by the customer.
fthe sale is made through cash,the seller will refund the amount
fo the buyer or will give a replacement product.

NOEA.BERGONIA,CPA,MBA

EXAMPLE
SALES RETURNS AND ALLOWANCES

Assume that a customer of Adobo Trading returned defective

merchandise amounting to P800.

Cash sales
Sales returns and allowances 800
Cash 800

Sales on Account
Sales returns and allowances 800
Accounts receivable 800

NOEL A.BERGONIA,CPA,MBA