MERCHANDISING

MERCHANDISE – represents the stock of goods or those

bought by the merchandiser for resale to its customers.

The account Sales is credited when there is a sale of

merchandise. This is the major revenue in a merchandising
business.

Cost of sales - represent the cost of buying the

merchandise which were sold to obtain a revenue.

Gross profit – the mark up in selling the goods to

the customers

Operating Expenses – Expenses necessary to operate the

business in order to earn revenue.
 Each sale is supported by a source document called
invoice.

 Sales discount –
 Trade discount – a percentage reduction from a published price
which may be granted to dealers or wholesalers for buying large
quantities or for regularly patronizing the business.

List price P5,000

Less 2% 100
4,900
Less 1% of 4,900 49
Gross Invoice Price P 4,851
 Cash discounts – this is granted to encourage a customer
to pay immediately , speed up the seller’s cash inflow

 Illustration: On March 1, xx Royal Furniture sold goods to Jim Perez for

P6,000 with a P2,000 down payment and the balance on term of 2/10,
n/30. the customer paid on March 8. Entries in the books of Royal
Furniture will be:
March 1 Accounts Receivable 4,000
Cash on Hand 2,000
Sales 6,000

March 8 Cash on Hand 3,920

Sales discount 80
Accounts Receivable 4,000
 Sales discount– is a contra revenue account

Illustration: assume that Perez paid only P2,000 on March 8 and

the balance on March 10, if the policy of the company is to grant
discounts only when the account is fully paid , the entries will be:

March 1 Accounts Receivable 4,000

Cash on hand 2,000
Sales 6,000

March 8 Cash on hand 2,000

Accounts Receivable 2,000

March 10 Cash on Hand 1,920

Sales discount 80
Accounts Receivable 2,000
 If the company grants discounts on partial payments :

March 8 Cash on Hand 1,960

Sales Discount 40
Accounts Receivable 2,000

March 10 Cash on hand 1,960

sales discount 40
Accounts Receivable 2,000
 Returns & Allowances- represents return of defective
merchandise and this is a contra revenue account

Illustration: Assume that Royal furniture sold for cash to Asia Miguel
merchandise worth P15,000. One week after Asia Miguel returned
goods worth P4,500 because the goods were not as ordered.

May 8 Cash on Hand 15,000

Sales 15,000

May 8 Sales Returns & Allo. 4,500

Cash in Bank 4,500
Note: If the buyer bought the goods on account, then instead of a cash
refund , a credit memo will be issued by the seller to acknowledge the
return
  CREDIT MEMORANDUM

CUSTOMER: CECILIA E. BERNALES

ADDRESS : 46 Luna St., New Intramuros Village , Q.C.

We have credited your account for 3 tables @ P1500

P4,500.00
Due to the following reasons:
________________________
________________________
(signed)
Sales Manager
 Sales Revenue xxx
 Less: Sales Discounts xx
 Sales Returns xx
 Sales Allowances xx xxx
 Net Sales xx
 TRANSPORTATION IN/FREIGHT IN

 THE cost of transporting the goods may be paid by the buyer or seller
depending on term of shipment.

 FOB Shipping Point - means the title of ownership passes to the

buyer as soon as seller turns over the goods to a common carrier.
Buyer pays for the freight. This is called FREIGHT IN.

 FOB Shipping Point – Freight Prepaid=buyer should pay for the

freight but was advanced by the seller

 Buyer’s Book Seller’s Book

 Purchases 50,000 Accounts Receivable 50,000
 Freight In 1,000 Sales
50,000
 Accounts Payable 51,000 Accounts Receivable 1,000
 Cash
1,000
 FOB Destination – seller is liable for the freight and
is still considered as owner of the goods until it reaches the
buyer. The account title Freight Out is used . Freight out is a
selling expense while Freight in is added to the cost of the
merchandise purchased.

 FOB Destination- Freight Prepaid:

 Seller’s Book:
 Accounts Receivable 50,000
 Sales 50,000

 Freight out 1,000

 Cash 10000
 Net Cost of Purchases

 Purchases
xxx
 Add: Freight xxx
 Cost of goods delivered
xxx
 Less: Purchase returns
 Purchase allowances
 Purchase discount