Accounting FOR Merchandising Business PDF

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ACCOUNTING FOR MERCHANDISING BUSINESSNATURE OF A MERCHANDISING BUSINESS The business is called trading business or buy and sell business. The difference between a merchandising and a service business is the existence of physical products sold to customers. Merchandising businesses sell products in o...

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Accounting for Merchandising Business

ACCOUNTING FOR MERCHANDISING BUSINESS NATURE OF A MERCHANDISING BUSINESS •

The business is called trading business or buy and sell business.

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The difference between a merchandising and a service business is the existence of physical products sold to customers.

SOURCE DOCUMENTS 1. Sales invoice is prepared by the seller of goods and sent to the buyer as a proof of sale. It contains the name and address of the buyer, the date of sale and information-quantity, description and price- about the goods sold. It also specifies the amount of sales, and the transportation and payment terms.

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Merchandising businesses sell products in order to generate revenue while service- oriented businesses render service.

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The major activities of a merchandising business consist of buying and selling of products called merchandise.

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The entity buys goods or merchandise on a wholesale basis, either from a manufacturer or a wholesaler or retailer and sells the same at a mark-up or at a profit.

2. Bill of lading is a document issued by the carrier - a trucking, shipping or airline - that specifies contractual conditions and terms of delivery such as freight terms, time, place, and the person named to receive the goods.

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The revenue of a merchandising business is called Sales.

3. Statement of account is a formal notice to the debtor detailing the accounts already due.

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The goods that are bought for sale are reported as merchandise inventory and are classified as current assets.

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When the merchandise is sold, their cost is transferred to an expense account called cost of sales or cost of goods sold.

4. Official receipt evidences the receipt or cash by the seller or the authorized representative. It notes the invoices paid and other details of payment.

What is Merchandising business? •

It is a type of business wherein the owner buys the product from wholesalers or manufacturers and without changing the physical form of that product, sells it at a mark-up or profit.

5. Deposit slips are printed forms with the depositor's name, account number and space for details of the deposit. A validated deposit slip indicates that cash and checks with the supplied details were actually deposited or credited to the Account holder. 6.

Merchandising Operations

Check is a written order to a bank by a depositor to pay the amount specified in the check from his checking account to the person named in the check. The entity issuing the check is the payor while the receiver is the payee.

7. Purchase requisition slip is a written request to the purchaser of an entity from its employee or user department of the goods or items needed to be purchased. SERVICE VS. MERCHANDISING VS. MANUFACTURING

8. Purchase order is an authorization made by the buyer to the seller to deliver the merchandise as detailed in the form. 9.

Receiving report is a document containing information about goods received from a vendor. It formally records the quantities and description of the goods delivered.

10. A credit memorandum is a form used by the seller to notify the buyer that his account is being decreased due to errors or other factors

requiring adjustments.

Operating Cycle of Merchandising Business The operating cycle of a merchandising company ordinarily is longer than that of a service company. The goal of many business owner/manager is to shorten this cycle. The faster the sale of inventory and the collection of cash, the higher the profits and better liquidity position.

DISCOUNTS 1. Trade Discounts – sometimes called “quantity discounts”, these are being offered to retailers to attract them to buy in big quantities or by the volume or in bulk. This kind of discount is not journalized.

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Cash Discounts – this is the kind of discount often offered by the seller or to buyer of goods to encourage prompt payment. This usually boost the sales of the seller and considered to be a substantial savings for the buyers. Based on our sample transaction in trade discount, if receivable is paid on March 15, within discount period of 10 days (2/10, n/30) , the entry would be:

COMPARISON BETWEEN SERVICE & MERCHANDISING IN TERMS OF INCOME STATEMENT PRESENTATION

MAJOR ACTIVITIES OF A MERCHANDISING BUSINESS  Purchasing Activities-These activities refer to the buying or acquisition of merchandise that is intended for sale. It includes the purchase price plus other incidental costs related to the acquisition of the product.  Selling Activities. These activities refer to the transfer of the title of ownership over the merchandise from the seller to the buyer for a consideration either in money or in other things of value.

MERCHANDISING ACCOUNTS

DISCOUNT TERMS 

1/15, n/30 — 1% if paid within 15 days, net due in 30 days

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2/10, n/eom — 2% if paid within 10 days, net due end of month

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0.5/10, n/60 — ½% if paid within 10 days, net due in 60 days

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n/30 - if not paid within the discount period, “n” means net amount without the prompt payment discount rate and must be paid within 30 days.

ACCOUNTING TERMS RELATED TO PURCHASING ACTIVITIES 1. PURCHASES. Account representing the amount of goods or merchandise bought by the business either for cash basis or “on account” and intended for sale.

2. PURCHASE RETURNS & ALLOWANCES- an account used when some of the merchandised purchased are subsequently returned to the supplier because of defects or non-compliance with desired specifications of some items. It is also a contra – account of purchases....