Accounting Cycle of A Merchandising

LEARNING MATERIALS - under this system, the “Inventory” account
is updated each time a purchase or sale is

ACCOUNTING CYCLE OF A MERCHANDISING BUSINESS
made. Thus, the “Inventory” account shows
MERCHANDISING - A merchandising business is one a continuing or running balance of the
that buys and sells goods in their original form and goods on hand.
without any further processing. Those goods are Explanation: Under this system we have a detailed
referred to as merchandise inventory (or simply, inventory records kada may papasok o lalabas na
inventory). inventory sa warehouse i-uupdate natin ang record,
dahil nagbenta tayo or bumuli tayo ng karagdagang
EXPLAINATION: We don’t give services here, we don’t stocks nirerecord antin yan each time.
do the goods that we are selling, kumbaga yung Advantage nya ay in every sale and purchase of
goods/inventory na bibibenta natin ay finished inventory we know the actual amount of the inventory
product/goods na. Example: A sari-sari store, diba on hand which can support the management decision
binibili natin yung mga paninda ng store then ibinibenta making in buying or selling of inventories. Nalalaman
rin natin yun (buy & sell) natin kung kelan bibili pa ng inventory or hindi muna
Inventory ang tawag sa mga goods or stocks na itinitinda dahil may stocks pa.
sa mga customers.
ILLUSTRATION:
INVENTORY SYSTEM Refer to your book
 PERIODIC INVENTORY SYSTEM NOTE: Under Periodic system, lahat ng increases and
- under this system, the “Inventory” account decreases sa inventory on hand nirerecord mo sya
is updated only when a physical count is through purchases, freight-in, purchase
performed. Thus, the amounts of inventory returns/discounts accounts, walang nirerecord na “cost
and cost of goods sold are determined only of good sold”. On the other hand, under Perpetual
periodically. system, lahat ng increases and decreases sa inventoty
Explanation: There’s no detatiled record of inventory on hand ay nirerecord mo sya through “inventory
being maintained during the year, kumbaga nalalaman account” at nagrerecord ka din ng “COGS” kung
lang natin ang proper inventory balances unless tayo ay nagbenta ka or may returns.
magsagawa ng actual physical count at the end of the
accounting period. Kaya tayo nagkakaroon ng Beginning FORMULA:
Inventory at Ending Inventory, kaya tayo nagkakaroon ng
adjusting entry na pinapalitan natin yung beginning
amount ng inventory sa ending amount ng inventory
kasi kapag periodic system kung kelan ka lang mag-
physical count dun ka lang makakapag-adjust kung
magkano na talaga ang amount or level ng inventory
mo. Therefore, sa periodic system there’s no detailed
record of inventory whether may pumapasok or
lumalabas na inventory sa warehouse unless mag-
physical count ka.
Disadvantage niya hindi mo alam kung what if
nauubusan kana pala ng stocks or sobra sobra na pala
yung stocks/goods na tinitinda mo kasi wala kang
detailed records at the same time wala kang
minimaintain na record unless magphysical count ka at
the end of accounting period NET INCOME:
 PERPETUAL INVENTORY SYSTEM
Sales xx
b. Purchase journal – purchases of inventory on
account
Ex. Purchases xx
Accts. Payable xx
c. Cash receipts – all transactions involving cash
receipts (debit to cash)
d. Cash disbursements – all transactions involving
payment of cash (credit to cash)
NET SALES MERCHANDISE TRANSPORTATION
FREIGHT TERMS (Goods in Transit)
FOB – Free On Board
 Sales – include both cash sales and credit sales.

 Sales returns – the account used to goods sold
but were returned by customers.
 Sales discounts – the account used to record
cash discounts given to and taken by customers.
Accounts used under Periodic System a. FOB Shipping Point – the ownership or the title
 Purchases – the account used to record in the merchandise will pass through the buyer
purchases of inventory under the periodic at the point of transit. ----- ibig sabihin
system. matatawag ni buyer na kanya na yung
 Freight-in (Transportation-in) – the account merchandise habang nasa byahe pa yung goods.
used to record the shipping costs incurred on b. FOB Destination – the ownership or the title in
purchases of inventory under the periodic the merchandise will only be pass to the buyer
system. when he/she already received it. ---- ibig sabihin
 Purchase returns – the account used to record matatawag na kanya na yung merchandise kung
returns of purchased goods to the supplier. mismong nasa possession na niya yung goods,
 Purchase discounts – the account used to nasal abas na mismo ng kanyang pintuan.
record cash discounts availed of on the
purchased goods. FREIGHT PREPAID vs. FREIGHT COLLECT
a. Freight prepaid – seller pays the
transportation cost
GENERAL AND SPECIAL JOURNALS - Ibig sabihin si SELLER ang nagremit ng bayad
1. General journals – all other transactions that cannot sa shipping company for the transportation
be recorded in the special journals cost ng pagdedeliver ng merchandise
2. Special journals – other than general journal, that b. Freight collect – buyer pays the
record types of transactions which occurs transportation cost
frequently, that may be seen as a repetitive list of - Ibig sabihin si BUYER yung may shoulder ng
entries transportation cost at sya yung magreremit
sa shipping company.
a. Sales journal – used to record sales on account

FREIGHT IN vs. FREIGHT OUT
Ex. Accts. Rec xx
a. Freight-in – buyer pays the freight charges
(delivery cost). It is an adjunct account to
purchases and thus added as cost of inventory
in bringing it to its present location and
condition
b. Freight-out – seller pays the freight charges. It is
recorded by the seller as an operating expense,
under the selling expenses line item
Illustration:

Accounting Cycle of A Merchandising

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Accounting Cycle of A Merchandising

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LEARNING MATERIALS - under this system, the “Inventory” account

is updated each time a purchase or sale is

NET SALES MERCHANDISE TRANSPORTATION

FREIGHT TERMS (Goods in Transit)

FOB – Free On Board

 Sales – include both cash sales and credit sales.

a. Sales journal – used to record sales on account

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