Merchandising: Merchandise

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.

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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 Less 2% Less 1% of 4,900 Gross Invoice Price

P5,000 100 4,900 49 P 4,851

Cash discounts – this is granted to encourage a customer to pay immediately , speed up the seller’s cash inflow

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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 March 8 Cash on Hand Sales discount Accounts Receivable

6,000 3,920 80 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 Cash on hand Sales

4,000 2,000 6,000

March 8 Cash on hand Accounts Receivable

2,000

March 10 Cash on Hand Sales discount Accounts Receivable

1,920 80

2,000

2,000

If the company grants discounts on partial payments :

March 8

Cash on Hand 1,960 Sales Discount 40 Accounts Receivable

March 10 Cash on hand 1,960 sales discount 40 Accounts Receivable

2,000

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 May 8

Sales Returns & Allo. Cash in Bank

Note:

15,000 4,500 4,500

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

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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

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Sales Revenue Less: Sales Discounts Sales Returns Sales Allowances Net Sales

xxx xx xx xx

xxx xx

TRANSPORTATION IN/FREIGHT IN

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

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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.

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FOB Shipping Point – Freight Prepaid=buyer should pay for the freight but was advanced by the seller

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Buyer’s Book Purchases 50,000 Freight In 1,000 50,000 Accounts Payable

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1,000

Seller’s Book Accounts Receivable Sales 51,000

Accounts Receivable Cash

50,000

1,000

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FOB Destination – seller is liable for the freight

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FOB Destination- Freight Prepaid:

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Seller’s Book: Accounts Receivable Sales

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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.

Freight out Cash

50,000 50,000 1,000 10000

Net Cost of Purchases 

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

xxx