is bought (from supplier), debit = original

side
NATURE AND CONCEPT OF
MERCHANDISING BUSINESS 5. Purchases Returns and Allowances
- contra account to “Purchases”
● also called as trading business/buy
- similar to sales returns and
and sell business
allowances but from the view point
● service business has no
of business/buyer
merchandise inventory account
- credit = original side
● wherein a merchandising business
6. Purchase Discounts
sells its merchandise inventory
- also a contra account to
Merchandise Inventories = goods that
“Purchases”
are sold by the business
- similar to sales discount in nature
OPERATING CYCLE OF but from the viewpoint of
MERCHANDISING INVENTORY business/buyer
1. Purchasing merchandise inventory 7. Freight-In Account
2. Selling - known as transportation in
3. Accounts receivable if on account - transportation cost shouldered by
4. Collecting cash from receivables buyer or the freight term agreed
5. Purchasing more merchandise upon by both buyer and seller is
inventories FOB Shipping point
MERCHANDISING BUSINESS - found only in the book of buyer and
ACCOUNTS added in computation of total net
purchase
1. Sales Account - revenue account in
- debit = original side
merchandising business
- meanwhile, Freight-Out Account is
2. Sales Returns and Allowances
immediately expensed
- contra account to “Sales”
8. Trade Discounts
- when there is a return of
- encourages buyers to purchase
merchandise because of defect or if
because of markdowns from list
incorrect, buyer has all the right to
price
return
- enables suppliers to vary prices
- when the return is recognized by
periodically without the
seller, the seller should issue a
inconvenience of revising price lists
credit memorandum that will
- not an account title, should not be
decrease liability of buyer
recorded/recognized in the
- debit = original side
business transactions because the
3. Sales Discounts
recording of transaction starts with
- also a contra account to “Sales”
invoice price and not from list price
- companies sometimes sell on credit
- trade discounts are outright
term
deducted to list price
- to ensure early payment, seller
would give sales discount
- debit = original side
4. Purchases Account - account title
used when when merchandise inventory
9. List Price However, new accounts may appear in
- price of business transactions with the chart of accounts as follows:
trade discounts 1. Merchandise Inventory, Beginning
- trade discount is deducted from list 2. Sales
price to generate invoice price 3. Sales Discounts
SPECIAL JOURNALS AND THE 4. Sales Returns and Allowances
GENERAL JOURNAL 5. Purchases
6. Purchases Returns and Allowances
● merchandising business encourage
7. Freight-In
sales in big numbers, thus lots of
8. Merchandise Inventory, Ending
customers can be recorded in
general journal, specially if PREPARATION OF ADJUSTING
company would allow credit sales, ENTRIES
bulk of business transactions need ● generally similar with service
to be monitored for follow up, businesses but there is an
collection and sales adjustment in merchandise
● because of this, special journals are inventory, ending
used to facilitate easy monitoring of COMPLETING THE ACCOUNTING
customers and suppliers’ account CYLE OF A MERCHANDISING
1. Sales Journal - all sales on account BUSINESS
are recorded here (sales ng business na ● similar with service businesses, a
naka utang/accounts receivable) worksheet is very important in
2. Purchase Journal - all accounts with a completing the accounting cycle
credit to Accounts Payable are recorded ● the worksheet helps facilitate the
here (binili ng business na naka recording of adjustments, final
utang/accounts payable) valuation of assets and liabilities,
3. Cash Receipt Journal - all accounts and final computation of the new
with a debit to Cash account is recorded capital
here (sales ng business na binayaran ng - Business cycle is completed with the
cash ng customers) preparation of financial statements and
4. Cash Disbursement Journal - also closing of nominal accounts
known as Cash Payment Journal, where - Financial statements are the same as
all Cash account on the credit side is service businesses except statement of
recorded (lahat ng gastos na binayaran financial position and statement of
ng business na naka cash) financial performance
5. General Journal - accounts that may ● Statement of Financial Position =
not be recorded in the four special difference in presentation of
journals are recorded here (E.G. merchandise inventory in the asset
Purchase Return and Allowances & Sales section
Return and Allowances) ● Statement of Financial
PREPARATION OF TRIAL BALANCE Performance = difference in
● same with service businesses, presentation of cost of goods sold
arrange according to liquidity which will determine gross profit
after deducting the said cost