ACCOUNTING FOR

MERCHANDISING
NATURE OF MERCHANDISING BUSINESS

 Engaged in buying and selling of merchandise

or goods
 Generates income by buying and selling goods
at a profit
 Only buys and sells finished goods
 Purchases
directly from manufacturer or other
merchandisers
TYPES OF MERCHANDISERS

1. WHOLESALER- one who buys in bulk or volume

directly from manufacturer ans sells goods to
a retailer
2. RETAILER- one who sells products to end users
Merchandising Operations

 Buying
 Selling

Thus two points of view are considered in

recording business transacations.
Inventory Systems in a Merchandising
Business
 Periodic

*Appropriate for businesses selling goods with low-priced items

*Transactions related to the acquisition of inventory are
recorded accordingly as purchases, purchase discounts,
purchase returns and freight-in
*Transactions related to the sale of inventory are recorded as
sales, sales discount, sales return and allowances and freight-
out or delivery expense.
 Perpetual – appropriate for high priced-items.
 RECORDING TRANSACTIONS UNDER THE
PERIODIC SYSTEM
 DISCOUNT- a reduction from a certain price or amount.
Two kinds of discount in accounting: trade discount and cash discount
Trade discount – a deduction from the list price or catalogue price granted to
customers to encourage purchase of goods or merchandise in big quantities or
volume. This is not recorded or shown in the buyer’s or seller’s book.
 RECORDING TRANSACTIONS UNDER THE
PERIODIC SYSTEM
Example:
1. Spitz Co. bought merchandise for cash with a price list of P10,000 less 10% trade
discount.
List Price P10,000
Less: 10% Trade Discount 1,000
Purchase Price P9,000
Journal Entry on the books of Spitz Co.
Purchases P9,000
Cash P9,000
#purchased merchandise for cash
 RECORDING TRANSACTIONS UNDER THE
PERIODIC SYSTEM
Example:
2. Terrier Co. sold merchandise on March 3, 2023 to Poodle Co. with a list of P50,000.
Terms: 10%, 10%, 2/10, n/30.
Note: The 105, 105 in the terms represent the trade discount given to the buyer while the
2/10,n/30 are the terms of payment. The different terms of payment will be discussed
under cash discount.
List Price P50,000
Less: Trade Discount 10%
Balance
Less: Trade discount 10%
Sale price P40,500
 RECORDING TRANSACTIONS UNDER THE
PERIODIC SYSTEM
Journal Entry:
Accounts Receivable P40,500
Sales P40,500
#sold merchandise on account
Note: The trade discount was not shown in the books and the sales
price recorded in the books is P40,500. The list price of P50,000
did not reflect in the books.
 RECORDING TRANSACTIONS UNDER THE
PERIODIC SYSTEM
3. Dalmatian Co. bought goods from Rotweiller Inc. on April 1, with
list price of P125,000. Terms 20-10, 1/10, n/30
List Price P125,000
Less: 20% Trade Discount 25,000
Balance P100,000
Less: 10% Trade Discount 10,000
Purchase Price P90,000
 RECORDING TRANSACTIONS UNDER THE
PERIODIC SYSTEM
Journal Entry on the books of Dalmatian Co.
April 1 Purchases 90,000
Accounts 90,000
#purchased merchandise on account, terms 1/10.n/30
 Exercise on Trade Discounts
1. Pinnacle Technologies quoted a list price of P2,500 for each 64
gb flash drive, less a trade discounts of 20%. If Video Fantastic
ordered seven units, how much would be Video Fantastic will
record as Purchases?