Merchandising Accounts

Merchandising accounts often include the accounts of inventory, other supplies, cost of goods
sold and supplies expense, and are subject to adjustments and closing. While a business records
inventory and other supplies at the time of their purchases, it makes further adjustments at end
of an accounting period to account for any inventory sold and supplies expense incurred during
the period. As a result, the accounts of inventory sold, or cost of goods sold, and supplies
expense appear only on the adjusted trial balance. On the other hand, inventory and supplies
accounts show up on both the original and adjusted trial balance. Some of the merchandising
accounts may not appear on the post-closing trial balance after a business closes its books.
What are Source Documents?
Source documents are the physical basis upon which business transactions are recorded.
Source documents are typically retained for use as evidence when auditors later review a
company's financial statements, and need to verify that transactions have, in fact, occurred.
They usually contain the following information:
-A description of a business transaction
-The date of the transaction
-A specific amount of money
-An authorizing signature
A source document does not have to be a paper document. It can also be electronic, such as an
electronic record of the hours worked by an employee, as entered into a company's
timekeeping system through a smartphone.

Examples of source documents, and their related business transactions that appear in the
financial records, are:

Bank Statement- This contains a number of adjustments to a company's book balance of

cash on hand that the company should reference to bring its records into alignment with
those of the bank.

Cash register tape- This can be used as evidence of cash sales, which supports the
recordation of a sale transaction.
Credit card receipt- This can be used as evidence for a disbursement of funds from petty
cash.
Lockbox check images- These images support the recordation of cash receipts from
customers.
Packing slip- This describes the items shipped to a customer, and so supports the
recordation of a sale transaction.
Sales order- This document, when coupled with a bill of lading and/or packing list, can be
used to invoice a customer, which in turn generates a sale transaction.
Supplier invoice- This is a source document that supports the issuance of a cash, check, or
electronic payment to a supplier. A supplier invoice also supports the recordation of an
expense, inventory item, or fixed asset.
Time card- This supports the issuance of a paycheck or electronic payment to an employee.
If employee hours are being billed to customers, then it also supports the creation of
customer invoices.
~~~~~~~~~~~~

BASIC MERCHANDISING TERMINOLOGIES:

Overhead expenses- what it costs to run the business, including rent, insurance, and utilities.
Cash sales- refer to sales in which customer is making payment at the time of purchase.

Credit Sales – It refers to sales in which customer is making payment at a later date.

Credit terms -  terms that indicate when payment is due for sales that are made on credit, possible
discounts, and any applicable interest or late payment fees.
Ano ang MERCHANDISING business?
Kung bumibili ka ng isang bagay o paninda sa halagang P100, at binenta mo ito sa mas mahal na
halaga, halimbawa P150, ikaw ay masasabing engaged sa Merchandising business.
In simple words, BUY and SELL.
(BUY low => SELL high)
*
Note: Kung ano ang binili mo,
siya din dapat ang binenta mo.
Example:
Tela, binenta mo din as Tela.
Damit, binenta mo din as Damit.
*
Pero pag bumili ka ng TELA para gupitin o tahiin upang maging isang DAMIT,
iyan ay HINDI na masasabing merchandising.
May nangyari na kasing "processing", kaya ang tawag na diyan ay "MANUFACTURING".
Ang processing na ito ay ang pag-convert ng TELA na maging isang DAMIT. Then saka naman
siya ibebenta,.
*
Isang halimbawa din ang KAHOY, na naging LAMESA.
*
Let's go back sa MERCHANDISING.
BUYER = bumibili
SELLER = nagbebenta
Pwede kang tawaging BUYER at SELLER.
- BUYER ka kung ikaw ang bumibili galing sa "supplier" mo.
- SELLER ka naman kung ikaw ay nagbebenta sa mga "customers" mo.
Gets? Easy lang naman di ba.
*
WHOLESALER vs RETAILER
WHOLESALER
= sila yung bumibili ng "maramihan" galing sa suppliers/manufacturers.
Tapos ibebenta niya sa mga small retailers
RETAILER
= sila naman yung bumibili galing sa wholesalers.
Tapos ibebenta niya sa mga customers.
#Summary
Suppliers/Manufacturers => Wholesaler => Retailer => Customers
Example:
Manufacturing Companies => Stalls in Baclaran => Sari-sari store => Customers
*****
TRADE DISCOUNTS vs CASH DISCOUNTS
I'm sure na alam mo ang salitang "discount"
Pag bumili ka ng goods sa halagang P100, at nagbayad ka lang ng P98, magkano ang na-discount
mo?
100 - 98 = 2.
P2 ang discount.
So ang discount pala ay ang halaga ng "ibabawas" sa dapat mo bayaran.
Ang dapat mong bayaran ay P100.
Dahil naka discount ka ng P2, ang babayaran mo nalang ay P98.
*
Question:
Ano ba ang mga klase ng discounts?
Ans.
1. TRADE discount
Nakakakuha ka ng "TRADE discount" kapag
- marami kang binibili (bulk orders)
- additional discounts for being a "member"
- "sale" (yung madalas mong nakikita sa SM )
NOTE: Ang "TRADE discount" ay hindi nire-record sa journal.
Example:
List Price: P120
Less: Trade Discount P20
= Invoice Price P100
Yung "invoice price" lang na P100 ang ating nire-record. Okay?
*
2. CASH discount
Nakakakuha ka ng "CASH discount" kapag
- maaga kang nagbayad (early or "prompt payment")
- PURCHASE DISCOUNT (ito ang tawag sa "point of view" ni buyer)
- SALES DISCOUNT (yan naman ang tawag sa "point of view" ni seller)
NOTE: Yan CASH DISCOUNT naman ay nire-record na sa ating journal.
*
CASH DISCOUNT = Purchase discount (if BUYER)
CASH DISCOUNT = Sales discount (if SELLER)
*
Question:
Pero kelan ba nakakakuha ng cash discount?
Ans.
Pag nakabayad ka ng maaga within the "discount period"!!!
Ating pag-usapan ang "discount period" (at "credit term")
a.CREDIT TERM: 2/10 n/30
2 = discount rate (%)
10 = DISCOUNT PERIOD (days)
n = net
30 = deadline (maximum days)
ANONG meaning niyan?
*
Mabibigyan ka ng "2%" discount, pag nagbayad ka sa 10th day (or mas maaga pa)
Halimbawa.
May babayaran kang P100.
In this case, babawasan ng P2 ang babayaran mo. (2% of P100)
P100 - P2 (cash discount) = P98.
P98 nalang ang babayaran.
Dahil nagbayad ka ng maaga, lumiit ang binayaran mo.
Bakit nasabi nating nagbayad ng maaga??
Dahil ang deadline pa ay sa 30th day.
***
Lagyan natin ng DATES.
May 1,
Bumili ka ng goods with an "invoice price" of P100.
Credit term: 2/10 n/30
May 11 (after 10 days), nagbayad ka na.
P100 - 2 = P98 (yan nalang babayaran).
Note: pwede ka din magbayad between May 1 - May 11)
***
PAANO kung wala kang perang pambayad?
Ans.
Pwede ka pang magbayad hanggang May 31 (deadline). Pero babayaran mo na ang buong
P100.
I hope nasundan ang kwento.
*****
TAKE NOTE the following:

 List price - Trade discount = INVOICE PRICE

 Sales- Sales returns and allowances - Sales discounts = NET SALES
 Beginning inventory + Purchases - Purchase returns and allowances - Purchase
discounts+ Freight in = COST OF GOODS AVAILABLE FOR SALE
 COST OF GOODS AVAILABLE FOR SALE - Ending inventory = COST OF GOODS SOLD (or
COST OF SALES)
 Net sales - Cost of goods sold (or Cost of sales) = GROSS PROFIT
 GROSS PROFIT + Other income = TOTAL INCOME
 TOTAL INCOME - Distribution cost (or selling expenses) - General and administrative
expense - Other expenses - Finance cost (interest expense) = INCOME BEFORE TAX
 INCOME BEFORE TAX – Tax = NET INCOME ( or NET LOSS)

Gagamitin natin yan sa mga susunod na tutorials

*****
(INVENTORY SYSTEM)
1. Periodic Inventory System
2. Perpetual Inventory System
Ang tawag sa paninda ay Goods or "MERCHANDISE INVENTORY"
*
1. Ang PERIODIC INVENTORY SYSTEM
Inventory system ay para sa mga panindang ; Mura (Low Value) , Maramihan (Large quantity),
Pare-pareho (Homogenous)
Example:
Candies
- para malaman kung magkano ang COST ng nabenta, dito ay nagbibilang tayo ng inventory AT
THE END OF THE "PERIOD"
Example:
Jan. 1 to Jan 31, in one month ay bumili tayo ng candies, 10000 pieces (PISO ang isa)
Pagdating ng Jan 31, nag INVENTORY o nagBILANG tayo, at may hindi nabentang 500 pieces.
Question.
llan o magkano ang COST ng ating "nabenta"?
Ans.
9500 (10,000 - 500)
Convenient ito dahil once kalang nagbilang during the period.
At yun ay END OF THE "PERIOD" (January 31)
Hindi mo na kailangang magBILANG ng kada benta mo sa araw-araw.
*
2. PERPETUAL inventory system
Inventory system para sa mga panindang; Mahal (High Value), Konti (Small quantity),
Magkakaiba (Heterogenous)
Example:
Car o Kotse
- para malaman kung magkano ang COST ng nabenta, dito ay nagbibilang agad tayo EVERYTIME
NA MERONG SALE",
Madali lang naman bilangin ang kotse kaya okay lang magBILANG kada benta.
*
NOTE: High tech na po tayo ngayon. Kaya maaari naring gamitan ng PERPETUAL INVENTORY
SYSTEM ang candies.
Kasi nabiBILANG na agad siya ng computer kada may benta.
*
"PRO-FORMA ENTRIES"
*I-save mo lang ito for future discussions.
A. "PERIODIC INVENTORY" SYSTEM
- BUYER'S point of view
- SELLER'S point of view
B. "PERPETUAL INVENTORY" SYSTEM
- BUYER'S point of view
- SELLER'S point of view
#START
"PERIODIC INVENTORY" SYSTEM (BUYER'S point of view)
1. Initial investment of merchandise
Debit: Merchandise inventory
Credit: Owner's capital

2. Purchase of merchandise
Debit: Purchases
Credit: Cash / Accounts Payable

3. Returns and allowances (defective merchandise)

Debit: Cash / Accounts Payable
Credit: Purchase returns and allowances

4. Partial payment
Debit: Accounts payable
Credit: Cash

5. Full payment
Debit: Accounts payable
Credit: Cash
Or
Debit: Accounts payable
Credit: Cash
Credit: Purchase discount

6. Additional investment of merchandise

Debit: Purchases
Credit: Owner's capital
*
7. Withdrawal of merchandise
Debit: Owner's drawing
Credit: Purchases
**
PERIODIC INVENTORY" SYSTEM (SELLER'S point of view)
1. Sale of merchandise
Debit: Cash / Accounts receivable
Credit: Sales

2. Returns and allowances (defective merchandise)

Debit: Sales returns and allowances
Credit: Cash / Accounts receivable

3. Partial collection
Debit: Cash
Credit: Accounts receivable

4. Full collection
Debit: Cash
Credit: Accounts receivable
Or
Debit: Cash
Debit: Sales discount
Credit: Accounts receivable
~~~~~~~~~~~~~~~~~~~~~~~~~
"PERPETUAL" INVENTORY SYSTEM (BUYER'S point of view)
1. Initial investment of merchandise
Debit: Merchandise inventory
Credit: Owner's capital

2. Purchase of merchandise
Debit: Merchandise inventory
Credit: Cash / Accounts Payable

3. Returns and allowances (defective merchandise)

Debit: Cash / Accounts Payable
Credit: Merchandise inventory

4. Partial payment
Debit: Accounts payable
Credit: Cash

5. Full payment
Debit: Accounts payable
Credit: Cash
Or
Debit: Accounts payable
Credit: Cash
Credit: Merchandise inventory
6. Additional investment of merchandise
Debit: Merchandise inventory
Credit: Owner's capital

7. Withdrawal of merchandise
Debit: Owner's drawing
Credit: Merchandise inventory
***
"PERPETUAL" INVENTORY SYSTEM (SELLER'S point of view)
1. Sale of merchandise
Debit: Cash / Accounts receivable
Credit: Sales
Debit: Cost of goods sold
Credit: Merchandise inventory

2. "Returns" and "allowances" (defective merchandise)

RETURNS
1st entry
Debit: Sales returns and allowances
Credit: Cash / Accounts receivable
2nd entry
Debit: Merchandise inventory
Credit: Cost of goods sold
****
ALLOWANCES
1st entry
Debit: Sales returns and allowances
Credit: Cash / Accounts receivable
No 2nd entry

3. Partial collection
Debit: Cash
Credit: Accounts receivable

4. Full collection
Debit: Cash
Credit: Accounts receivable
Or
Debit: Cash
Debit: Sales discount
Credit: Accounts receivable
~~~~~~~~~~~~~~~~~~~~~~~~~
#NewTopic
"FREIGHT" (Periodic system)
BUYER'S point of view
1. FOB SHIPPING POINT, COLLECT
Debit: Freight in
Credit: Cash

2. FOB DESTINATION, PREPAID

"No entry"
3. FOB SHIPPING POINT, PREPAID
Debit: Freight in
Credit: Accounts payable

4. FOB DESTINATION, COLLECT

Debit: Accounts payable
Credit: Cash
OR
Debit: Accounts receivable (if purchase is made for CASH)
Credit: Cash

SELLER'S point of view

1. FOB SHIPPING POINT, COLLECT
"No entry"

2. FOB DESTINATION, PREPAID

Debit: Freight out
Credit: Cash

3. FOB SHIPPING POINT, PREPAID

Debit: Accounts receivable
Credit: Cash

4. FOB DESTINATION, COLLECT

Debit: Freight out
Credit: Accounts receivable
OR
Debit: Freight out
Credit: Accounts payable (if sale is made for CASH)
~~~~~~~~~~~~~~~~~~~~~~~~~
"FREIGHT" (Perpetual system)
BUYER'S point of view
1. FOB SHIPPING POINT, COLLECT
Debit: Merchandise inventory
Credit: Cash

2. FOB DESTINATION, PREPAID

"No entry"

3. FOB SHIPPING POINT, PREPAID

Debit: Merchandise inventory
Credit: Accounts payable

4. FOB DESTINATION, COLLECT

Debit: Accounts payable
Credit: Cash
OR
Debit: Accounts receivable (if purchase is made for CASH)
Credit: Cash

SELLER'S point of view

1. FOB SHIPPING POINT, COLLECT
"No entry"
*
2. FOB DESTINATION, PREPAID
Debit: Freight out
Credit: Cash

3. FOB SHIPPING POINT, PREPAID

Debit: Accounts receivable
Credit: Cash

4. FOB DESTINATION, COLLECT

Debit: Freight out
Credit: Accounts receivable
OR
Debit: Freight out
Credit: Accounts payable (if sale is made for CASH)
****
~~~NORMAL BALANCES~~~
DEBIT:
- Merchandise inventory
- Purchases
- Freight in
- Freight out
(contra accounts)
- Sales returns and allowances
- Sales discount
CREDIT:
- Sales
(contra accounts)
- Purchase returns and allowances
- Purchase discount

To be a good citizen of our country does not require much effort, they just have to be obedient
and abide the laws promulgated by the government (but they must also know the meaning of
democracy and stand up if the government is abusing its power). My second advice is to be
patriotic and be proud of being a Filipino wherever they go, and do not do something that can
stain the image of being a Filipino.