MERCHANDISING

Prepared by Prof. Anita B. Catolico

CPA-MBA
 MERCHANDISING FIRM- secures its profits by selling
merchandise at a price in excess of its cost.
MERCHANDISE INVENTORY – goods that are acquired
for sale by the firm.

SALES- Revenue or income of a merchandising firm.

OPERATING CYCLE OF A
MERCHANDISING FIRM
 1. PURCHASE OF MERCHANDISE
 2. SALES OF MERCHANDISE

 3. COLLECTION OF ACCOUNTS RECEIVABLE

SALES INVOICE – describes the types of merchandise
sold, the unit sales price, total price, credit term and term
of shipment.
TERMS OF SHIPMENT
 1. FOB SHIPPING POINT – ownership to the
merchandise shipped passes to the buyer at the point of
shipment or delivery to the carrier. Freight charges is
shouldered by the buyer.

 2. FOB DESTINATION - ownership to the merchandise

shipped passes to the buyer upon reaching the point of
destination, which is when they are received by the
buyer. Freight charges is shouldered by the seller.
 SALES RETURNS & ALLOWANCES – when part or
all of the merchandise shipped to the buyer are defective
or damaged or they are not in accordance with the
specifications stated in the purchase order.
 SALES RETURNS- when the buyer opt to return the
goods to the seller.
 SALES ALLOWANCES – when the buyer decides to
keep the goods if the seller will grant an acceptable
amount of allowance.
 CREDIT MEMO – a document issued by the seller to
inform the buyer that it has credited or reduced the
customer’s account for the cost of the returned
merchandise or for the amount of allowance granted.
 CASH DISCOUNTS – an incentive for the buyer to pay
its account promptly.
 COMMON TERMS:

 n/30 – account due in 30 days, no cash discount

 2/10, n/30 – 2% discount if paid within 10 days, account

due in 30 days
 2/10,1/15,n/30 –

 due in 30 days, 2% discount within 10 days, 1% within

15 days.
 n/10 EOM – account due within 10 days from the end of
the month of purchase.
 4/10 EOM –
 4% discount within 10 days after end of current month.

 2/EOM, n/60 –

 2% discount before end of the month, due in 60 days

 COD – cash on delivery

LET’S TRY!!!
 June 11 – Sold merchandise to ABC Co. P60,000. Terms
2/20, 1/30, n/60.
 11 – Paid the delivery charges P300 cash.
 15 – Issued a credit memo to ABC Co. for
defective merchandise returned P10,000.

 July 5 – Received a check from ABC Co. as full payment

of their account.
 Sept. 21 – Sold mdse. To XYZ Co. P105,000, TERMS
20% down, balance 2/10, n/30.
 21 – Paid delivery expense P800.
 23 – Issued a credit memo for mdse. Returned by
XYZ , P12,000
 30 – Received full payment from XYZ.
 Jan. 2 – Sold mdse. to Mr. Co P10,000 terms 2/10, n/30.
 2 – Paid freight on the above sale P1,500.
 3 – Mr. Co returned P2,000 merchandise.
 5 – Mr. Co made a partial payment of P4,000.
 12 – Mr. Co paid his account in full.
 TRADE DISCOUNT – A special discount given to
customers for buying in large quantity. This discount is
automatically deducted from the invoice price and as
such is NOT recorded.
 Example:
 For Purchases of 51-100 pcs. 5%

 For Purchases of 101-200 pcs. 5%, 8%

 For Purchases of more than 200 pcs. 5, 8, 10

 Unit Price – P100

NOW LET’S TRY BEING A BUYER!!
 Oct. 16 – Bought mdse. from XYZ /Co. amounting to
P98,000. TERMS 3/10 EOM.
 16 – Paid delivery charges P500.
 20 – Returned defective mdse. to XYZ Co. for
P8,000.
 Nov. 5 – Issued a check to XYZ Co. as full payment.
 Oct. 10 – Purchased from LOL Co. mdse worth
P230,000 with trade discounts of 10, 10.
TERMS- 2/10, n/30
15 – Returned defective mdse to LOL Co. for
P25,000.
18 – Issued a check to LOL Co. as full payment of
account.
 May 2 – Bought mdse. worth P300,000. TERMS: 2/10,
n/30
 2 – Paid delivery charges P1,000.
 6 – Returned defective mdse. Worth P20,000.
 8 – Made a partial payment of P80,000.
 12 – Issued a check as full payment.
 IMPORTANT!!
 ALL THE FOLLOWING ACCOUNT TITLES:

 -PURCHASES

 -PURCHASE RETURNS & ALLOWANCES

 -PURCHASE DISCOUNT

 -SALES

 -SALES RETURNS & ALLOWANCES

 -SALES DISCOUNT

 ARE USED ONLY FOR TRANSACTIONS

INVOLVING MERCHANDISE
SO…
 May 5 – Purchased office equipments from Abenson for
P450,000 TERMS-10% down and issued a 20-day 8%
note for the balance.
 7 – Received a credit memo from Abenson for
some minor defects on the equipments. P5,000.
 25 – Issued a check to Abenson in full payment of
the note plus interest due.
2 TYPES OF INVENTORY ACCOUNTING
SYSTEMS
1) PERIODIC SYSTEM :
 - Used by businesses that sell low price-high volume
goods.
 - Count their inventory periodically, at least once a year.
 2) PERPETUAL SYSTEM:
 - used by businesses that sell high price-low volume
goods.
 - daily movement of inventory is recorded.
VAT- VALUE ADDED TAX
 A 12% value added tax is levied by the government to
both buyer and seller for every purchase and sales of
goods and services unless otherwise exempted by law.
 - VAT INPUT

 - VAT OUTPUT
VALUE ADDED TAX
 FIRM HAS AN OPTION TO REGISTER WITH BIR
AS VAT OR NON-VAT REGISTRANT PROVIDED
THAT THE ANNUAL GROSS SALES IS NOT MORE
THAN P1.5 M. PERCENTAGE TAX OF 3% OF
GROSS SALES IN LIEU OF VAT SHALL BE PAID.
 HOWEVER, INPUT VAT CANNOT BE OFFSET
AGAINST THE PERCENTAGE TAX BUT IS
CONSIDERED AS AN EXPENSE.
VAT EXEMPT
 AGRICULTURAL PRODUCTS
 BOOKS

 SCHOOLS

 HOSPITALS

 TAXES & LICENSES

 SALARIES

 MARINE PRODUCTS
 VAT OUTPUT > VAT INPUT = VAT PAYABLE

VAT OUTPUT< VAT INPUT = RECEIVABLE

FROM BIR
 (DEDUCTED FROM FUTURE VAT PAYABLE)

 VAT INPUT – FOR PURCHASES/EXPENSES

 VAT OUTPUT – FOR SALES
 PAYMENT OF VAT – MONTHLY – 20 DAYS AFTER
END OF THE MONTH

 QUARTERLY