MERCHANDISING

FORMULAS
Prepared by a.g.

PROFIT: NET SALES: NET PURCHASES

Net Sales Gross Sales Gross Purchases
(Cost of Goods Sold) (Sales Discount) (Purchase Discount)
Gross Profit (Sales Ret. & All.) (Purchase Ret. & All.)
(Operating Expenses) NET SALES + Freight-in
PROFIT NET PURCHASES

COST OF GOODS SOLD: INVOICE PRICE:

Beginning Inventory List Price
Net Purchases (Trade Discount)
Merch. Avail. For Sale (TGAS) INVOICE PRICE
(Ending Inventory)
COST OF GOODS SOLD
SHIPPING TERMS
WHO SHOULD PAY? WHO ACTUALLY PAID?
FOB Shipping Point, Freight Collect Buyer Buyer
FOB Shipping Point, Freight Prepaid Buyer Seller
FOB Destination, Freight Collect Seller Buyer
FOB Destination, Freight Prepaid Seller Seller

SHIPPING TERMS JOURNAL ENTRIES (BOOKS OF SELLER)

DEBIT CREDIT
FOB Shipping Point, Freight Collect A/R / Cash xxx
Sales xxx
FOB Shipping Point, Freight Prepaid A/R / Cash xxx
Sales xxx
Cash xxx
FOB Destination, Freight Collect A/R / Cash xxx
Freight-out xxx
Sales xxx
FOB Destination, Freight Prepaid A/R / Cash xxx
Freight-out xxx
Sales xxx
Cash xxx
SHIPPING TERMS JOURNAL ENTRIES (BOOKS OF BUYER)
DEBIT CREDIT
FOB Shipping Point, Freight Collect Purchases xxx
Freight-in xxx
A/P xxx
Cash xxx
FOB Shipping Point, Freight Prepaid Purchases xxx
Freight-in xxx
A/P xxx
FOB Destination, Freight Collect Purchases xxx
Cash xxx
A/P xxx
FOB Destination, Freight Prepaid Purchases xxx
A/P xxx

FREIGHT-OUT OR FREIGHT-IN?
Freight-out SELLER
Freight-in BUYER
PERIODIC VS PERPETUAL INVENTORY SYSTEMS
To Record: PERIODIC PERPETUAL
Purchase Purchases xxx Merchandise Inventory xxx
Cash / A/P xxx Cash / A/P xxx

Purch. Returns & Allowances Cash / A/P xxx Cash / A/P xxx
Purchase Returns & Allowances xxx Merchandise Inventory xxx

FOB Shipping Point Freight-in xxx Merchandise Inventory xxx

Cash / A/P xxx Cash / A/P xxx

Payment w/in Disc. Period A/P xxx A/P xxx

Cash xxx Cash xxx
Purchase Discount xxx Merchandise Inventory xxx

Sale Cash / A/P xxx Cash / A/R xxx

Sales xxx Sales xxx
Cost of Goods Sold xxx
Merchandise Inventory xxx

Returned by Buyer Sales Returns and Allowances xxx Sales Returns and Allowances xxx
A/R / Cash xxx Cash / A/R xxx
Merchandise Inventory xxx
Cost of Goods Sold xxx

Collection w/in Disc. Period Cash xxx Cash xxx

Sales Discount xxx Sales Discount xxx
A/R xxx A/R xxx
ADJUSTING ENTRIES
CGS METHOD DIRECT EXTENSION METHOD
COGS Cost of Goods Sold xxx - no entry to set-up CGS -
Merchandise Inventory, 12/31 xxx
Purch. Returns & Allowances xxx
Purch. Discount xxx
Merchandise Inventory, 1/1 xxx
Purchases xxx
Freight-in xxx

CLOSING ENTRIES: CGS METHOD

Close sales & income Sales xxx
Other Income xxx
Sales Ret. & All. xxx
Sales Disc. xxx
Income Summary xxx
Close COGS Income Summary xxx
Cost of Goods Sold xxx
Close expenses Income Summary xxx
Expenses xxx
Close income summary Income Summary xxx
Capital xxx
Close drawing account Capital xxx
Drawing xxx
CLOSING ENTRIES: DIRECT EXTENSION METHOD
Close sales & income Merchandise Inventory, 12/31 xxx
Sales xxx
Purch. Returns & Allowances xxx
Purch. Discount xxx
Other Income xxx
Income Summary xxx
Close expenses Income Summary xxx
Expenses xxx
Close income summary Income Summary xxx
Capital xxx
Close drawing account Capital xxx
Drawing xxx

OTHER METHOD FOR CLOSING INCOME SUMMARY AND DRAWING

Close income summary (to drawing) Income Summary xxx
Drawing xxx
Close drawing account (to capital) Drawing xxx
Capital xxx

Net Profit = CREDIT BALANCE of Income Summary [JOURNAL ENTRY: Debit Income Summary]
Net Loss = DEBIT BALANCE of Income Summary [JOURNAL ENTRY: Credit Income Summary]
ADJUSTING ENTRIES
ACCRUALS
Accrued Income Receivable xxx
Income xxx

Accrued Expense Expense xxx

Payable xxx

DEFERRALS
Deferred Income Income Method Liability Method
Original Cash xxx Cash xxx
Income xxx Unearned Income xxx

Adjusting Entry Income xxx Unearned Income xxx

Unearned Income xxx Income xxx

Deferred/Prepaid Expense Expense Method Asset Method

Original Expense xxx Prepaid Expense xxx
Cash xxx Cash xxx

Adjusting Entry Prepaid Expense xxx Expense xxx

Expense xxx Prepaid Expense xxx
DEPRECIATION
Depreciation Expense xxx
Accumulated Depreciation xxx

IMPAIRMENT OF RECEIVABLE/ALLOWANCE FOR DOUBTFUL ACCOUNTS

Allowance Method Direct Write-Off Method
Provision Bad Debts Expense xxx - no entry -
Allowance for DA xxx

Write-Off Allowance for DA xxx Bad Debts Expense xxx

Receivable xxx Receivable xxx

Recovery Receivable xxx Receivable xxx

Allowance for DA xxx Bad Debts Expense xxx

Cash xxx Cash xxx

Receivable xx Receivable xxx

Income Method Not yet earned; Reversed

Liability Method Earned
Expense Method Unused; Reversed
Asset Method Used