Merchandising Revenue

Classified Balance Sheet

A classified balance sheet breaks assets and liabilities into smaller categories to make analysis and decision-making easier.

Merchandising versus Service Activities and Transactions

Operating cycles

Service Organization

Collect Customer Payment → Cash Available → Provide Service → Accounts Receivable

Merchandising versus Service Activities and Transactions

Operating cycles

Merchandising Organization

Collect Customer Payment → Cash Available → (Purchase Inventory) → Sell Merchandise → Accounts Receivable

What is the main difference between a Service Organization and a Merchandising Organization

Purchase Inventory and Cost of Production (if Manufacturing is involved)

Different Income Statements

Service Organization

Sales

Expenses

Net Income (Loss)

Different Income Statements

Merchandise Organization

Net Sales

Cost of Goods Sold

Gross Margin

Expenses

Net Income (Loss)

One Step for Recording Sale of Services & Two Steps in Recording Sale of Products

Step 1: Record the sale as it occurs in accordance with the revenue recognition principle

Debit: Cash
Credit: Sales Revenue

Step 2( for Products): An entry is made for the cost of items sold.

Debit: COGS
Credit: Merchandise Inventory

Two Journal Sample for every Goods Sale

Example:
A shoe store sells 150 pairs of athletic cleats to a local baseball league for $1,500 (cost of $900). If the baseball league elects to pay with cash, the shoe store would debit Cash as part of the sales entry. If the baseball league decides to use a line of credit extended by the shoe store, the shoe store would debit Accounts Receivable as part of the sales entry instead of Cash.

How would the journal look like

Debit: 1,500 (Cash)
Credit: 1,500 (Sales Revenue)

Debit: 900 (COGS)
Credit: 900 (Merchandise Inventory)

What is a Sales Return

Customer returns the merchandise and receives a full refund

What is a Sales Allowance

Customer keeps the defective merchandise and is given a partial refund

Sales Return in FULL (Example Journal)

Assume, a customer purchases 300 plants on credit from a nursery for $3,000 (with a cost of $1,200).

Debit: 3,000 (Accounts Receivable)
Credit: 3,000 (Sales Revenue)

Debit: 1,200 (COGS)
Credit: 1,200 (Merchandise Inventory)

The customer receives the plants and discovers the plants have been infested with bugs, so they send all the plants back.

Debit: 3,000 (Sales Returns and Allowances)
Credit: 3,000 (Accounts Receivable)

Debit: 1,200 (Merchandise Inventory)
Credit: 1,200 (COGS)

Sales Return PARTIALLY (Example Journal)

Assume instead, the plant customer was only dissatisfied with 100 of the plants. After speaking with the nursery, the customer decides to keep 200 of the plants for a partial refund of $1,000. The nursery would record the following entry for sales allowance associated with 100 plants.

Debit: 3,000 (Accounts Receivable)
Credit: 3,000 (Sales Revenue)

Debit: 1,200 (COGS)
Credit: 1,200 (Merchandise Inventory)

Debit: 1,000 (Sales Returns and Allowances)
Credit: 1,000 (Accounts Receivable)

Debit: 400 (Merchandise Inventory)
Credit: 400 (COGS)