Accounting for Merchandising

Operations

Ricalyn E. Sumpay, CPA

Instructor
 Merchandising

(PRODUCT)
TRADING/BUY AND SELL
PURCHASE OF INVENTORIES
-SALE OF INVENTORIES

Cash
Ar-collection
 Sample Statement of Financial Performance
Net Sales (Selling Price *Units Sold)
-Cost of Sales/Cost of Goods Sold (Purchase cost *units sold)

Gross Profit
+ Income/Expenses
Profit(Loss)
 Discounts

Trade – for bulk purchases

Cash –for paying within the
discount period Sales/Purchase
 Trade Discount
A Company received quotations from two entities for
an item of merchandise as follows:
A.Quantity (4) List price P25, 000 (total), Trade
discount 20%
B.Quantity (3) List price P200, 000 (each), Trade
discount (20-10-10)

Prepare the entry on the viewpoint of the seller and

the buyer under the following conditions: a. paid in
cash b. on credit
 Trade Discounts
B Company sold the merchandise with an invoice
price of P360, 000 with a trade discount of 20% and
10%.
Prepare the journal entry under the viewpoint of the
seller and the buyer.
 Cash Discounts
Discount Term
2/10, n/30
TWO WAYS OF RECORDING DISCOUNTS
a.Gross Method - Discount is recognized when
payment was made within the discount period.
b.Net Method – Discount is recognized immediately
upon purchase or upon sale.
 Gross Method & Net Method
Purchases
1. Purchases on account, P200, 000,
2/10, n/30.
2. Payment was made within the
discount period.
3. Payment was made beyond the
discount period.
 Gross Method & Net Method
Sale
1. Sale on account, P300, 000, 2/10,
n/30.
2. Payment was made within the
discount period.
3. Payment was made beyond the
discount period.
 Trade Discount Exercises
B Company began operations in the current year.
1.During the year, B Company purchased merchandise having an
invoice cost of P1,000,000. All purchases were made under the credit
terms 2/10, n/30.
2.During the year, the entity paid for 80% of the merchandise within
the discount period.
3.The remaining 20% was made beyond the discount period.
4.B Company sold 70% of the merchandise it acquired with a target
profit of 10% based on cost. The buyer promised to pay within 10
days.
Prepare the entry under gross method and net method under the
viewpoint of the buyer.
 Trade Discount Exercises
B Company began operations in the current year.
1.During the year, B Company purchased merchandise having an
invoice cost of P1,000,000. All purchases were made under the credit
terms 2/10, n/30.
2.During the year, the entity paid for 80% of the merchandise within
the discount period.
3.The remaining 20% was made beyond the discount period.
4.B Company sold 70% of the merchandise it acquired with a target
profit of 10% based on cost. The buyer promised to pay within 10
days.
Prepare the entry under gross method and net method under the
viewpoint of the B Company.
 Trade Discount Exercises
Answer problems 1, 2, 6, 7
 Accounting for Transportation

FREIGHT
FOB destination
FOB shipping point
Freight collect
Freight prepaid
 Accounting for Transportation

FREIGHT
FOB destination
FOB shipping point
Freight collect
Freight prepaid
 Accounting for Transportation
On Dec. 11, C Company purchased from D
Company merchandise worth P100, 000, terms FOB
destination, Freight prepaid. The transportation cost
amounts to P3, 500. Prepare the entry on C
Company and D Company viewpoint as of Dec. 11,
and as of Dec 21, when C company paid the credit
in full. (Gross Method)
 Accounting for Transportation
Answer:
Accounts Receivable Cash
Freight out Sales discount
Sales Accounts Receivable

Purchases Accounts Payable

Accounts Payable Purchase discount
Cash
 Accounting for Transportation
Answer:
Accounts Receivable Cash
Freight out Sales discount
Sales Accounts Receivable
Cash

Purchases Accounts Payable

Accounts Payable Purchase discount
Cash
 Accounting for Transportation
On Dec. 11, C Company purchased from D
Company merchandise worth P100, 000, terms FOB
shipping point, Freight collect. The transportation
cost amounts to P3, 500. Prepare the entry on C
Company and D Company viewpoint as of Dec. 11,
and as of Dec 21, when C company paid the credit
in full. (Gross Method)
 Accounting for Transportation
Answer:
Accounts Receivable Cash
Sales Sales discount
Accounts Receivable

Purchases Accounts Payable

Freight in Purchase discount
Accounts Payable Cash
Cash
 Accounting for Transportation
On Dec. 11, C Company purchased from D
Company merchandise worth P100, 000, terms FOB
destination, Freight collect. The transportation cost
amounts to P3, 500. Prepare the entry on C
Company and D Company viewpoint as of Dec. 11,
and as of Dec 21, when C company paid the credit
in full. (Gross Method)
 Accounting for Transportation
Answer:
Accounts Receivable Cash
Freight out Sales discount
Sales Accounts Receivable

Purchases Accounts Payable

Cash Purchase discount
Accounts Payable Cash
 Accounting for Transportation
On Dec. 11, C Company purchased from D
Company merchandise worth P100, 000, terms FOB
shipping point, Freight prepaid. The transportation
cost amounts to P3, 500. Prepare the entry on C
Company and D Company viewpoint as of Dec. 11,
and as of Dec 21, when C company paid the credit
in full. (Gross Method)
 Accounting for Transportation
Answer:
Accounts Receivable Cash
Cash Sales discount
Sales Accounts Receivable

Purchases Accounts Payable

Freight in Purchase discount
Accounts Payable Cash
 Accounting for Transportation
Answer Problem 12, 13, 14, 15 & 16
 Goods Includible in the Inventory
As a rule, all goods to which the entity has title shall be
included in the inventory, regardless of location. Applying
the legal test, the following must be included in the
inventory:
a.Goods owned and on hand
b.Goods in transit and sold FOB destination
c.Goods in transit and purchased FOB shipping point
d.Goods out on consignment
e.Goods in the hands of salesmen or agents
f.Goods held by customers on approval or on trial.
 Goods Includible in the Inventory
The Company revealed the following purchase transactions occurred during the last few days of the
fiscal year, which ends December 31, and in the first few days after that date.
1.An invoice for P50, 000, FOB shipping point, was received and recorded on December 27. The
shipment was received in satisfactory condition on January 2. The merchandise was not included in
the inventory.
2. An invoice for P75, 000, FOB destination, was received and recorded on December 28. The
shipment was received in satisfactory condition on January 3. The merchandise was not included in
the inventory.
3. An invoice for P30, 000, FOB shipping point, was received and recorded on January 4. The
invoice shows that the goods have been shipped on December 28 and the receiving report indicates
that the goods had been received on January. The merchandise was excluded from inventory.
4. An invoice for P90, 000, FOB shipping point, was received on December 15. The receiving
report indicates that the goods were received on December 18 but across the face of the report is the
notation “merchandise not of the same quality as ordered – returned for credit, December 19”. The
merchandise was included in the inventory.
5. An invoice for P140, 000, FOB destination, was received and recorded on January 4. The
receiving report indicates that the goods were received on December 29. The merchandise was
included in the inventory.
 Goods Includible in the Inventory
E Company provided the following data at year-end:
Items counted in the bodega P4, 000, 000
Items included in the count specifically segregated per sales contract 100, 000
Items in receiving department, returned by the customer in good condition 50, 000
Items ordered and in the receiving department, invoice not received 400, 000
Items ordered, invoice received but goods not received. Freight is paid by the seller 300, 000
Items shipped today, invoice mailed, FOB shipping point 250, 000
Items shipped today, invoice mailed, FOB destination 150, 000
Items currently being used for window display 200, 000
Items on counter for sale 800, 000
Items in receiving department, refused by company because of damage 180, 000
Items included in count, damaged and unsalable 50, 000
Items in the shipping department 250, 000