Accounting for Merchandising Business
Invoice not Paid within Discount Period
-Merch Inventory (discount amount) $60 -Acc. Payable- Company Name $2940 Cash (total amount without discount) $3000
Income Statement for Merchandising Business
-Revenue activities involve buying and selling merchandise to customers.
Income Statement for Service Business
-Revenue activities involve providing service o customer. Revenues from services are reported as FEES EARNED. Operating expenses incurred while providing the service is subtracted from Fees earned to arrive at Operating Income. Fees Earned - Operating Exp= Operating Income
Customer Discount
A variety of discounts offered by the seller as incentive for the customer to act in a way benefiting the seller.
Cash Sales
Assume that the cost of merchandise sold on March 3 is $1,200. The entry to record the cost of merchandise sold and the decrease in the merchandise inventory is as follows: -Cost of Merch Sold 1200 Merch Inventory 1200 To record cost of merch sold
Purchases Returns and Allowances
From the buyer's perspective, returned merchandise or an adjustment for defective merchandise.
Perpetual Inventory System
Purchase $$ of merch on account: -Merch Inventory -Accounts Payable Purchase Inv, on account
Sales Transaction
Revenue from merchandise sales is usually recorded as Sales. Sometimes a business may use the title Sales of Merchandise. CASH SALES: sells merchandise for $1,800. -Cash Sales to record cash sales
Gross Profit
Sales - Cost of merchandise sold
Cash Sales
Sales may be made to customers using credit cards such as MasterCard or VISA. •Such sales are recorded as cash sales. Any processing fees charged by the clearinghouse or issuing bank are periodically recorded as an expense.•This expense is normally reported on the income statement as an administrative expense. Paid Credit Card Processing Fees" -Credit Card Expense Cash Record service charge on credit card sales
Credit Terms
Terms of when payment are to be made.
Invoice
The bill that the seller sends to the buyer.
Cost of Merchandise Sold
The cost that is reported as an expense when merchandise is sold. Determined by Subtracting Ending Merchandise Inventory by the cost of merchandise available for sale.
Periodic Inventory System
The inventory system in which the inventory records do not show the amount available for sale or sold during the period.
Operating Cycle
The process by which a company spends cash, generates revenues, and receives cash either at the time the revenues are generated or later by collecting an accounts receivable.
**Sales Discount
A cash discount on sales taken by a customer. Assume that NetSolutions sold $18,000 of merchandise to Digital Technologies on March 10 with credit terms 2/10, n/30. The cost of the merchandise sold was $10,800.
Physical Inventory
A detailed listing of merchandise on hand at the end of the period and cost of merchandise sold during the period.
Purchase Discount
A discount that businesses offer to purchasers as an incentive for early payment. Reduces the cost of the merchandise purchased by the buyer. Buyers: Merchandise Inventory is Debited for the net purchase under the perpetual Inventory System. Invoice & Payment -Merch Inventory Accounts Payable-Name of Company -Accounts Payable Cash
Perpetual Inventory System
Cash purchase of merch are recorded as: -Merch Inventory -Cash Purchase Inventory from.....
Debit Memorandum
Debit memo informing the sellers of the amount the buyer proposes to debit to the accounts payable due to the seller. Buyer: -Accounts Payable- Company name Merch Inventory Debit Memo No. 18
Perpetual Inventory System
Each purchase and sale of merch. is recorded in the inventory account and related subsidiary ledger.
Merchandise Inventory
Merchandise on hand (not sold) at the end of an accounting period. * Its a Current Asset on the balance sheet.
Sales on Account
The seller records this sale as a debit to Accounts Receivable and a credit to sales. -Account Receiv Sales Invoice #... -Cost of Merch Sold Merch Inventory Cost of merch sold on Invoice #...
Purchases (transactions)
There are two Accounting system for Merchandise transactions:
Credit Period
Time period that can pass before a customer's payment is due. Credit period begins with the date of the sale.
Cash Sales
Using the perpetual inventory system, the cost of merchandise sold and the decrease in merchandise inventory are also recorded. In this way, the merchandise inventory account indicates the amount of merchandise on hand (not sold).
Sales
revenue from the sale of merchandise
