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

Both comments and pings are currently closed.

Comments are closed.