ACCOUNTING

FOR
MERCHANDISING
OPERATION
 Learning Objective

01
Accounting For Merchandising
Operation

02 Inventory system

03 Perpetual Inventory System

04 Financial Statements
Accounting For
Merchandising Learning
Objective 1
Operation
 MERCHANDISER
Merchandiser is a person or enterprise that buys and sells
goods and earned revenue.

Wholesalers 2 types of Retailer

Buy goods from merchandiser Buy goods from
manufacturer in manufacturer or
order to provide wholesaler in
(sell) goods to order to provide
retailer. goods to
consumer.
 DIFFERENT BETWEEN SERVICE AND MERCHANDISING BUSINESS
SERVICE MERCHANDISING
BUSINESS BUSINESS

Primary Source of Service Revenue Sales Revenue

Revenue

Calculation of Net Service Revenue Sales Revenue

Income/Net Loss Less: Expenses Less: Cost of Goods Sold
Net Income/Net Loss Gross Profit/Loss
Add: Other Income/Revenue
Less: Operating Expenses
Net Income/Net Loss

Note: Merchandising business has TWO types expenses: COGS & Operating Expense
Inventory
Learning
System Objective 2
Inventory Eg: Ali Enterprise bought 100 units boxes A4
A.k.a stock, is an asset paper from Double A Company for the purpose of
bought or owned by resale to customers.
business that purposely
for sale in order to gain 100 units of boxes A4 paper = Inventory of Ali Ent
profit.

Merchandiser / retailer Complete/Finished Goods

Classification
Finished Goods
of inventory
Manufacturer Work in Process/Progress

Raw Material
 TWO SYSTEM USED IN ACCOUNTING FOR INVENTORY
Perpetual System Periodic System

Maintained detailed records of the cost of Do not keep detailed records of the
each inventory purchase and sale. goods on hand.

Records continuously show inventory Cost of goods sold determined by count

that should be on hand for every item. at the end of the accounting period.

Calculation of Cost of Goods Sold only

Company determines Cost of Goods
determined at the end of the accounting
Sold each time a sale occurs.
period.
 Journal entries
Perpetual Learning
Inventory System Objective 3
 RECORDING PURCHASES
Transactions
Purchases merchandise
inventory
Purchase return and allowance
Purchase discount
Journal Entries
Dr. Merchandising Inventories
Cr. Account Payable/Cash
Dr. Account Payable/Cash
Cr. Merchandise Inventory
Dr. Account Payable
Cr. Merchandise Inventory
Cr. Cash
 Transactions Journal Entries
Purchases
(When the merchandise is purchased) Purchases Dr. Merchandising Inventories
merchandise Cr. Account Payable/Cash
inventory
Purchase return Dr. Account Payable/Cash
On May 11, Star Enterprise and allowance Cr. Merchandise Inventory
bought merchandise (goods)
RM4,000 on account with term Purchase Dr. Account Payable
discount 2/10, n/30. discount Cr. Merchandise Inventory
Cr. Cash

Date Account Debit Credit

11 May Dr. Merchandising Inventories 4,000
Cr. Account Payable 4,000
 Transactions Journal Entries
Purchases Return & Allowance
(Dissatisfied with merchandise received, Purchases Dr. Merchandising Inventories
return to the seller) merchandise Cr. Account Payable/Cash
inventory
Purchase return Dr. Account Payable/Cash
On May 12, Star Enterprise and allowance Cr. Merchandise Inventory
returns RM500 of defective
merchandise purchased on Purchase Dr. Account Payable
discount Cr. Merchandise Inventory
May 11. Cr. Cash

Date Account Debit Credit

12 May Dr. Account Payable 500
Cr. Merchandise Inventory 500
 Purchases Discount
(When purchased on account, seller may give discount to encourage prompt payment)
CREDIT TERMS
Star Enterprise pay the balance
due of RM3,500 with
Permit buyer to claim a cash
discount 2/10, n/30 on May 14. discount for prompt payment.

2% discount if paid within
10 days. Otherwise, net
amount due within 30
days.
Advantages:
1.Purchaser saves money
2.Sales shortens the operating
cycle by converting the
account receivable to cash
earlier.
 Transactions Journal Entries

Star Enterprise pay the balance

Purchases Dr. Merchandising Inventories
due of RM3,500 with merchandise Cr. Account Payable/Cash
discount 2/10, n/30 on May 14. inventory

Purchase return and Dr. Account Payable/Cash

allowance Cr. Merchandise Inventory

Purchases = 11 May Purchase discount Dr. Account Payable

Pay Full = 14 May Cr. Merchandise Inventory
Cr. Cash
Therefore, the payment made within the
discount period of 14 days. Date Account Debit Credit
14 May Dr. Account Payable 3,500
Discount calculation:
Cr. Merchandise 70
= % x (Purchases – Purchases Return)
Inventory 3,430
= 2% x (RM4,000 – RM500)
Cr. Cash
= RM70
 RECORDING SALES
Transactions Journal Entries

Sales merchandise inventory i. Dr. Account Receivable/Cash

Cr. Sales
ii. Dr. Cost of Goods Sold
Cr. Merchandise Inventory

Sales return and allowance i. Dr. Sales return and allowance

Cr. Account Receivable/Cash
ii. Dr. Merchandise Inventory
Cr. Cost of Goods Sold

Sales discount Dr. Cash

Dr. Sales Discount
Cr. Account Receivable
 Transactions Journal Entries
Sales Sales merchandise i. Dr. Account Receivable/Cash
inventory Cr. Sales
(When the merchandise is sold)
ii. Dr. Cost of Goods Sold
Cr. Merchandise Inventory
On 13 June, SOONG Sales return and i. Dr. Sales return and allowance
Enterprise sells merchandise allowance Cr. Account Receivable/Cash
on account RM2,500 with term
2/10, n/30 to Maring Utang ii. Dr. Merchandise Inventory
Cr. Cost of Goods Sold
Enterprise. The cost of
Sales discount Dr. Cash
merchandise sold was Dr. Sales Discount
RM2,000. Cr. Account Receivable

Date Account Debit Credit

13 June Dr. Account Receivable 2,500
Cr. Sales 2,500

Dr. Cost of Goods Sold 2,000

Cr. Merchandise Inventory 2,000
 Transactions Journal Entries
Sales Returns & allowances When
Sales merchandise i. Dr. Account Receivable/Cash
customer dissatisfied with merchandise
inventory Cr. Sales
received (due to damage, defective or did not
meet specification) and return to the company. ii. Dr. Cost of Goods Sold
Cr. Merchandise Inventory

On 17 June, Maring Utang Sales return and i. Dr. Sales return and allowance
allowance Cr. Account Receivable/Cash
Enterprise return merchandise
RM500 for damage ii. Dr. Merchandise Inventory
Cr. Cost of Goods Sold
merchandise to SOONG
Sales discount Dr. Cash
Enterprise with cost of Dr. Sales Discount
merchandise return RM300. Cr. Account Receivable

Date Account Debit Credit

13 June Dr. Sales return and allowance 500
Cr. Account Receivable 500

Dr. Merchandise Inventory 300

Cr. Cost of good sold 300
 Transactions Journal Entries
Sales Discount
Sales merchandise i. Dr. Account Receivable/Cash
Company usually offer credit term to inventory Cr. Sales
encourage buyers to make prompt payment.
ii. Dr. Cost of Goods Sold
Cr. Merchandise Inventory
On 20 June, SOONG
Sales return and i. Dr. Sales return and allowance
Enterprise received allowance Cr. Account Receivable/Cash
RM2,000 from Maring
ii. Dr. Merchandise Inventory
Utang Enterprise for Cr. Cost of Goods Sold
balance due, from 13 June Sales discount Dr. Cash
credit sales with term 2/10, Dr. Sales Discount
Cr. Account Receivable
n/30.
Date Account Debit Credit
Get discount (within 10 days)
Discount = % x (Sales – Sales Return) 13 June Dr. Cash (2,000 – 40) 1,940
= 2% x (RM2,500 – RM500) Dr. Sales Discount 40
Cr. Account Receivable 2,000
= RM40
 RECORDING FREIGHT
COST
Freight cost indicates whether the buyer or seller of goods has taken possession,
and who is paying for transport. Ideally, either the seller or the buyer should record
goods in transit in its accounting records. The rule for doing so is based on the
shipping terms associated with the goods.

Ownership transfer to the Ownership transfers to the

buyer as soon as the buyer as soon as the
shipment departs the seller. shipment arrives at the
buyer’s place.
FOB SHIPPING POINT FOB DESTINATION
 Ali (buyer) bought merchandise inventories on
credit from Bala (seller) with term n/30. the
inventories exclude freight charge RM150.

FOB Shipping Point (Buyer pay) FOB Destination (seller pay)

Dr. Merchandise inventory RM150 Dr. Freight out RM150

Cr. Cash RM150 Cr. Cash RM150
Financial
Learning
Statement
Objective 4
 SIMPLE FORMAT FINANCIAL STATEMENTS
Statement of Statement of Financial
Comprehensive Income Position

Non Current Assets xx

Revenue xx
(+) Current Assets xx
(-) Cost of Goods Sold (x)
TOTAL ASSETS XX
GROSS PROFIT/(LOSS) XX/(XX)
Owner’s Equity xx
(+) Other Revenues and Gains xx
(+) Non Current Liabilities xx
(-) Expenses (xx)
(+) Current Liabilities xx
NET PROFIT/(LOSS) XX
TOTAL OWNER EQUITY + LIABILITIES XX
 NAME OF BUSINESS
Statement of Comprehensive Income for the year ended DD/MM/YY
  RM RM RM
Revenue      
Sales   xxx  
(-) Sales Return and allowance   (xx)  
(-) Sales Discount   (xx)  
Net Sales     xxx
       
Less: Cost Of Goods Sold      
Opening/Beginning Inventories   xx  
Purchases xxx    
(-) Purchases Return and allowance (xx)    
(-) Purchases Discount (xx)    
Net Purchases   xxx  
(+) Custom Duty/Import Duty   xx  
Cost of Goods Available for Sale   xxx  
(-) Closing/Ending Inventories   (xx)  
Cost of Goods Sold     (xxx)
GROSS PROFIT/(GROSS LOSS)     XXX
GROSS PROFIT/(LOSS) XXX/(XXX)
Add: Other Revenues and Gains      
Interest Revenue/Received   xx  
Rent Revenue/Received   xx  
Commission Revenue/Received   xx  
Fees Revenue   xx  
Subscription Fees   xx  
Total Revenue     xxx
       
Less: Expenses      
Salaries Expense   xx  
Rent Expense   xx  
Insurance Expense   xx  
Advertising Expense   xx  
Utilities Expense   xx  
Freight Out   xx  
Administrative Expense   xx  
Depreciation Expense   xx  
Stationeries Expense   xx  
General Expense/Miscellaneous Expense   xx  
Maintenance Expense   xx  
Wages Expense   xx  
Interest on Loan Expense/Rates Expense   xx  
Bad Debt Expense   xx  
Loss on Disposal   xx  
Total Expense     (xxx)
NET INCOME/(NET LOSS)     XXX / (XXX)
 NAME OF BUSINESS
Statement of Financial Position as at DD/MM/YY
  RM RM RM
ASSETS      
Non Current Assets      
Land and Building   xxx  
Motor Vehicle xxx    
(-) Accumulated Depreciation – Motor Vehicle (xx) xxx  
Equipment xxx    
(-) Accumulated Depreciation – Equipment (xx) xxx  
Fixtures and Fittings xxx    
(-) Accumulated Depreciation – Fixtures and Fittings (xx) xxx  
Investment   xx  
Goodwill   xx  
Patent   xx  
Copyright   xx  
Trademark   xx  
Franchise   xx  
Total Non Current Assets     xxx
       
Current Assets      
Cash   xx  
Bank   xx  
Prepaid Expenses   xx  
Accrued Revenues   xx  
Note Receivable   xx  
Account Receivable   xx  
Closing/Ending Inventory   xx  
Total Current Assets     xxx
TOTAL ASSETS     XXXX
OWNER’S EQUITY AND LIABILITIES      
OWNERS’S EQUITY      
Beginning/Opening Capital   xxx  
Add: Net Income/Net Profit   xx  
Add: Additional Capital   xx  
Less: Net Loss   (xx)  
Less: Drawing   (xx)  
Ending/Closing Capital     xxx
       
LIABILITIES      
Non Current Liabilities      
Loan   xx  
Mortgage   xx  
Debenture   xx  
Total Non Current Liabilities     xxx
       
Current Liabilities      
Short Term Loan   xx  
Account Payable   xx  
Note Payable   xx  
Unearned Revenues   xx  
Accrued Expenses   xx  
Total Current Liabilities     xxx
TOTAL OWNER’S EQUITY AND LIABILITIES     XXXX
THANK YOU