FABM AT

MERCHANDISING BUSNESS

A %%merchandising compan%%%%y%% is an ==enterprise that buys and sells goods to earn a profit==. Unlike service company, the merchandising's s==ource of earning money is from selling of goods or products.==
%%It buys and sells goods%% - it does ==not make its own product but it gets its items for resale from a supplier.==
%%Merchandise (or merchandise inventory)%% refers ==to goods that are held for sale to customers in the normal course of business.== This includes goods held for resale.

For example: Candies, canned goods, noodles sold at grocery stores Juice, biscuits sold in a grocery store Medicines sold in a pharmacy, Clothes sold in a boutique .

Expenses for a merchandising company are divided into two categories:

%%1. Cost of goods sold (COGS) %%- the ==total cost of merchandise sold during the period;==

%%2. Operating expenses (OP%%) - expenses i==ncurred in the process of earning sales revenue that are deducted from gross profit in the income statement.==

^^Examples are sales salaries and insurance expenses.^^

%%Gross profit (GP)%% is ==equal to Sales Revenue less the Cost of Goods Sold==.
%%Cost of goods sold%% - refers to ==all the expenses in merchandising compan==y that represents what the seller paid for the inventory it has sold.

For example, you are into reselling of bags with a price of P900. You buy them from your suppliers in Metro Manila. One piece of bag costs P500. You also pay P100 for the shipment. Now if your customer purchases one bag from you. The sales amount is P900. The total cost of goods sold for a bag is P600. Your gross profit for one bag sold is P300.

%%The Operating Cycle of a Merchandising Busines %%- The operation of the merchandising business starts when the merchandiser has ==the capital to buy merchandise or goods from the supplier.==
%%The purchased goods%% - are called ==merchandise inventory, the most important asset of a Merchandise Business since it is the source of Revenue when sold to the customers.==

\*Aside from that, it generates revenue from sale of goods or commodities that it buys. The business therefore could be a buyer and seller. Basically, there are Buying and Selling activities.

%%Terminologies and Pro-Forma Journal Entries:%%

These are some of the account titles used by a merchandising business:

==Sales== - The term for the $revenue when a merchandise is sold to customer.$
==Sales Discoun====t==- A $price reduction given to the customer in exchange for early payment.$
==Sales Return and Allowances==- Allowance $given to customers for reasons like defective merchandise and wrong order.$
==Purchases====-== A cost $account that refers to the gross amount of merchandise bought from the supplier.$
==Purchase Discounts==- A deduction the company receives if it makes early payment of account to the supplier.
==Purchase Return and Allowances==- Allowance given by the supplier to the business for reasons such as bad orders, does not fit the description, wrong order, etc.
==Merchandise Inventory -End== -this refers to unsold merchandise at the end of the accounting period as determined by the physical count or inventory taking. It is usually dated at the end of the month. Normal balance is Debit.
==Sales, sales discounts and sales returns and allowances== may happen when $the business is the seller of that particular transaction.$

==Purchase, purchase discounts and purchase returns and allowances== are used when $the business is the buyer.$

For example, you are selling bags from your supplier in Metro Manila under the business name, Ms. Everything's Bags ATBP. For the month of October, you ordered 10 pieces of bags costing P500

%%Discount Terms%%

==a. 2/10, N/30==- this means that the account is paid/ collected within 10 days from the date of the invoice, a 2% discounts can be availed, after 10th day no discount shall be given.

==b. 2/10, 1/20, N/30== this means that 2% discount can be availed is paid/collected within 10 days from the date of the invoice, 1% discount if paid after 10th day but before the 20th day (11th to 20th day) and no discount will be availed after 20 days.

==c. 2/10, EOM ==- this means that a 2% discount can be availed or given if paid/collected 10 days after End of the Month.

ACCOUNTS TITLE:

Merchandise Inventory-End - this refers to unsold merchandise at the end of the accounting period as determined by the physical count or inventory taking. It is usually dated at the end of the month. Normal balance is Debit.

Sales - this is credited for merchandise that are sold either in cash or on credit as follows;

^^Dr, Cash/Accounts Receivable Pxx^^
^^Cr, Sales Pxx^^

Sales Discounts - debited for sales discounts given to customer, normally given for early collection.

^^Dr. Cash Pxx^^
^^Dr, Sales Discounts Pxx^^
^^Credit, Accounts Receivable Pxx^^

Sales Return & Allowances - this is debited for merchandise sold either in cash wrong order, etc. or on credit but was return by the customer for reasons such as Bad order,

^^Debit, Sales Return & Allowances Pxx^^
^^Credit, Cash/Accounts Receivable Pxx^^

Cost Accounts:

Purchases - this is debited when merchandise are purchased either in cash or credit

^^Debit, Purchases Pxx^^
^^Credit, Cash/Accounts Payable Pxx^^

Purchase Discounts - this is credited when discount is availed from supplier for early payment or merchandise purchased on credit.

^^Debit, Accounts Payable^^
^^Credit, Purchase Discounts Pxx^^
^^Credit, Cash Pxx^^

Purchase Returns and Allowances - this is credited for merchandise purchased either in cash or credit that were return to supplier for reasons such as bad orders, etc.

^^Debit, Cash/Accounts Payable Pxx^^
^^Credit, Purchase Return & Allow. Pxx^^

Transportation-In/Freight-In- this account is debited for freight and handling charges or merchandise purchased by buyer/customer and shipped via land, sea and air transportation. Note that Transportation-In is a transportation Expense on merchandise purchased, this is considered as part of the cost and being added to purchases account.

^^Debit, Transportation-In Pxx^^

^^Credit, Cash/Accounts Payable Pxx^^

Transportation-Out/Freight-Out - this account id debited for freight and handling charges of merchandise sold to customers and shipped via land, sea and air transportation. Note Freight-Out or transportation out is recorded when merchandise is sold, this is considered as business expenses.

^^Debit, Transportation-Out Pxx^^
^^Credit, Cash/Accounts Payable Pxx^^

INVENTORY SYSTEMS

Periodic System

The %%periodic inventory system%% relies on ==physical inventory count to determine the ending inventory and the cost of goods sold. Updating the account of your inventory can be done monthly, quarterly, or annually.== In other words, from the word periodic, to determine the remaining inventory is done by period and a manual count. For example a furniture store, for the business to update the record of its furniture on hand, it must conduct a physical counting of the items at the end of the accounting period, say at the end of the month. Under the periodic inventory system, when goods are purchased, a separate set of accounts (purchases. purchase discounts, purchase returns and allowances, and transportation) is used to accumulate information on the net cost of the purchases. Cost of goods sold is determined only at the end of an accounting period. Recall that the cost of goods sold is the carrying value of goods sold in the particular period.

Perpetual Inventory System

==Perpetual== as per definition means ==never ending, changing or continuous.==

%%Perpetual inventory system%% allows the business to update the inventory records continuously for monitoring and controlling of in and out of goods. In periodic inventory system when purchases are made, purchase account is debited, perpetually updating the inventory account requires debit in merchandise inventory not purchase account. At the time of sale, the cost of sales is determined and recorded by **==a debit to the cost of sales account ==**and ==a credit to the inventory account.==

With a perpetual inventory system, both the inventory and cost of sales accounts receive entries throughout the accounting period.