ACCOUNTING PROCESS:

MERCHANDISING OPERATIONS
 SERVICE BUSINESS VS. MERCHANDISING BUSINESS

SERVICE BUSINESS MERCHANDISING BUSINESS

- Service Entities performs services for a fee - Merchandising entities earn profit by
buying and selling goods (inventories)
Income Statement Income Statement
Revenues from services xx *Net Sales xx
Expenses (xx) **Cost of sales (xx)
Profit xx Gross Profit xx
Operating Expenses (xx)
Operating Profit xx
Finance cost (interest) (xx)
Profit xx
 INCOME STATEMENT: MERCHANDISING BUSINESS

* Net sales: ** Cost of Sales (PERIODIC SYSTEM)

Gross Sales xx Beginning inventory xx
Sales discount (xx) Net purchases:
Sales returns (xx) Purchases xx
Sales allowances (xx) Purchase discount (xx)
Net Sales xx Purchase returns (xx)
Purchase allowances (xx)
Transportation in xx xx
Goods Available for sale xx
Ending, Inventory (xx)
• Cost of Sales xx
 OPERATING CYCLE: MERCHANDISING BUSINESS

Purchase Inventory Sale

(cash or on account) (cash or on account)
 OPERATING CYCLE: MERCHANDISING BUSINESS

Purchasing Process (Source Documents)

Purchase Requisition Purchase order Receiving Report Invoice

Sales Process (Source Documents)

Sales order Delivery Receipt Invoice

FORMULA IN COMPUTING THE INVOICE PRICE

List Price xx
Trade discount (xx)
Invoice Price xx
Cash discount (xx)
Net Amount xx
 FREIGHT TERMS

F.O.B. Destination - Ownership of the goods transferred upon receipt of goods.

- Seller shoulder the transportation cost
- On the part of the seller, this is transportation cost/selling
expense or freight out

F.O.B. Shipping Point - Ownership of the goods transferred upon shipment.

- Buyer shoulders the transportation cost
- On the part of the buyer, this is transportation in/freight in

Freight Prepaid - Seller pays the freight

Freight Collect - Buyer pays the freight
 INVENTORY SYSTEMS

Periodic Inventory System. This system is primarily used by

business that sell relatively inexpensive goods and that are not yet
using computerized scanning systems to analyze goods sold. A
characteristics of the periodic inventory system is that no entries
are made to the inventory account as the merchandise is bought
and sold. Only at the end of the period, when the inventory is
counted, will entries be made to the inventory account to establish
its proper balance.
 INVENTORY SYSTEMS

Perpetual Inventory System. This system is an alternative

to the periodic inventory system. Under this system, the
inventory account is continuously updated. With a
perpetual inventory system, both the inventory and cost of
sales accounts receives entries throughout the accounting
period.