Accounting for a

Merchandising Business-
Week 3
Prepared by:

RICHPHER G. GAGALAC
*Accounting for a Merchandising
Business
- Net Sales
- Cost of Sales
- Value Added Tax
-Operating Expenses
- Inventory System
 Who shoulders the
Who Pays the
Freigth Terms transportation
Shipper?
Costs
FOB Destination, Freight Prepaid Seller Seller
FOB Shipping Point, Freight Collect Buyer Buyer
FOB Destination, Freight Collect Seller Buyer
FOB Shipping Point, Freight Prepaid Buyer Seller
• The Shipping costs borne by the buyer using the
periodic inventory system are debited to
transportation in account. In the cost of sales
section of the income statement, the balance in this
account is added to purchases in computing for the
net cost of purchases for the period.

• Shipping cost borne by the seller are debited to

transportation out account. This account which
also called delivery expense or freight out, is an
operating expense in the income statement.
Inventory System
• Perpetual inventory system
• Periodic Inventory system
Perpetual Inventory System
• The inventory account is continuously updated.

Purchases
Recorded
Purchase discounts
as Merchandise
Purchase returns and Inventory
allowances

Transportation In
Periodic Inventory System
• When goods are purchased, a separate set of accounts is used to
accumulate information on the net cost of the purchases
• Only at the end of the period, when inventory is counted, will entries be
made to the inventory account to establish its proper balance.

Purchases PHP 122,030.00

Purchase return and allowances (1,750.00)
Purchase discount (2,300.00)
Freight In 1,200.00
Net Cost of Purchases PHP 119,180.00
Purchases
November 12 Purchases 101 ₱100,000.00
Accounts Payable 310 ₱100,000.00
To record purchases of merchandise;
terms 2/10, n/30

Purchase returns and allowances

14 Accounts Payable 2,000.00
Purchases Returns and allowance 2,000.00
return of damaged merchandise purchased
on November 12
VALUE ADDED TAX ENTRIES
VALUE ADDED TAX ENTRIES
Operating Expenses
• These are expenses, other than the cost of sales, which are incurred
to generate profit from the entity’s major line of business –
merchandising.

• Distribution Costs or Selling Expenses

• Administrative or General and Administrative Expenses
• Other Operating Expenses
Distribution Costs or Selling Expenses
• Are those expenses related directly to the entity’s efforts to
generate sales.

I. Sales Salaries
II. Sales Commissions
III. Advertising Expense
IV. Store displays
V. Traveling Expenses
VI. Store Supplies
VII. Depreciation of Store Property and Equipment
VIII.Transportation Out
Administrative Expenses
• Are those expenses related to the general administration of the
business.

I. Officers Salaries
II. Office Salaries
III. Office Supplies Used
IV. Depreciation of Office Property and Equipment
V. Business Taxes
VI. Professional Services
VII. Uncollectible Accounts Expense
VIII.General Office Expenses
Other operating expenses
• Are those expenses not related to the central operations of
the business.

I. Loss on sale of investments

II. Loss on sale of property and equipment.
Any Questions???
 - END -

Thank you
and
God bless
Reference
• Ballada – Basic Accounting and Reporting – 24th Edition