Accounting for Sole Proprietorships (Service and Merchandising)

Merchandising Business

entity that earns profit by buying and selling goods.

Merchandiser

person who buys and sells goods or merchandise is called; may be a wholesaler or retailer.

Wholesaler

one who buys in bulk from a manufacturer and sells them in bulk

Retailer

one who buys by piece to ultimate consumers.

Service Business

provides experience in business.

Trade Discount

by the transaction: deductions from the list price or catalog price in order to arrive at the invoice price, which is the amount actually charged to the buyer.

increases sales

not in a journal entry, just documentation.

also includes value/quantity discounts.

Cash Discount

deductions from the invoice price when payment is made with the discount period.

to encourage prompt paying right away.

Purchase Discount

pov of the buyer

credited; contra expense

Sales Discount

pov of the seller

debited; contra income

Credit Period

period of time allowed for payment

Discount Period

period of time covered by the discount

Returns and Allowances

Buyers may be dissatisfied with the merchandise received either because the goods are damaged or defective, of inferior quality or not in accordance with their specifications.

Returns

decrease the amount and physical volume of the goods sold.

Allowances

decrease the amount but not the physical volume of the goods sold.

Credit Memorandum

formal acknowledgement that the seller has reduced the amount owed by the customer.

a notice, communication.