Merchandising Accounting

Merchandising Accounting

Merchandising Operations

 

Merchandising– buying and selling products rather than services

 

Merchandisers have additional items on balance sheet and income statement

–          Balance Sheet- inventory (asset)

–          Income Statement- sales revenue/sales, cost of goods sold (expense)

 

Operating Cycle of Merchandising Business

  1. Company purchases inventory from vendor
  2. Sells inventory to customer
  3. Collects cash from customers

 

 

Two kinds of inventory accounting systems:

–          Periodic System– used for inexpensive goods, updated through inventory counting

–          Perpetual System– up to date computerized record

Units purchased and their costs

Units sold, sales and cost amounts

Quantity on hand and its cost

 

Purchasing Inventory

Inventory is asset (debit)

Accounts Payable is credit

 

Purchase discounts

3/15, Net 30 Days or 3/15, n/30

–          Deducts 3% from total bill if paid within 15 days, or else total balance due in 30 days

 

Eom– end of month

 

Paying Inventory

Accounts payable debit

Cash credit

If paid in discount frame the discounted value is under inventory

 

Purchase Return– returning merchandise that is defective, damaged, unusable

Purchase Allowances– granted to purchaser as an incentive to keep goods that are not “as ordered”

 

Returning inventory

Accounts payable is debited

Inventory is credited

 

 

Transportation Costs

FOB-  Free on Board– is specified in purchase agreement to determine when title to good transfers to the purchaser and who pays for the freight

 

FOB Shipping Point– buyer takes ownership to the goods at the shipping point.

FOB Destination– buyer takes ownership of the goods at the destination point

Freight in– transportation cost to ship goods into a warehouse

Freight out– transportation cost to ship goods out to customer

 

Freight In

–          Discounts not on shipping cost. Shipping cost can be added to inventory

Freight out

Operating expense– expenses that occur in the entity’s major line of business

Delivery expense debit

Cash credit

 

Inventory – purchase allowance/returns – purchase discounts +freight in = inventory(net cost)

 

 

Sale of Inventory

Sales Revenue (sales)-  amount a business earns selling merchandise

Cost of goods sold (COGS) is the cost of inventory that has been sold

Cost of Sales (COS) – also known as cost of goods sold

 

Sales return– customer returning product asking for refund of credit

Sales Allowance

Sales Discount– discount amount would be collected

Freight Out– May have to pay delivery expense to ship goods to customer

 

Cash Sale

Cash debit

Sales revenue credit

Cost of goods sold debit

Inventory credit

 

 

Sales returns

Sales returns and allowances debit

Accounts receivable credit

Inventory debit

Cost of goods sold credit

 

 

Sales Allowances

Returns and allowances debit

Accounts receivable credit

 

 

Net Sales Revenue, Cost of Goods Sold, Gross Profit

 

Net sales – cost of goods sold = profit, Gross Profit, Gross Margin

 

 

Adjusting and Closing Accounts of a Merchandiser

 

Adjusting for Inventory’s Actual Count

Shrink reduces actual inventory

Yearly inventory found that total inventory is 300 dollars less

Cost of goods sold is debited 300

Inventory is credited 300

 

Closing the Accounts

Closing all accounts not on the balance sheet

 

Step 1: debit the sales revenue,

Credit the discounts, returns and allowances, income summary

 

Step 2: Make expense accounts equal to 0

Debit income summary

Credit cost of goods sold, wage expense, rent expense, all expenses

 

Step 3: Bring income summary to retained earnings

Debit income summary difference

Credit retained earnings

 

Step 4: Make dividends equal to 0

Debit retained earnings

Credit dividends

 

 

Preparing Financial Statements

 

Income Statement

–          Selling expenses– expenses related to marketing and selling of products

–          Sales salaries, commissions, advertising, store rent

–          General Expenses– expenses not related to selling

–          Taxes, main hq rent

Net Income = total revenues and gains – total expenses and losses

Merchandising Accounting

Merchandising Accounting

 

 

Statement of Retained Earnings

 

Balance Sheet: Include Inventory

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