MERCHANDISING BUSINESS

- is a company that buys goods and resells these goods, without making any modification, at a price higher than its
purchase price for the purpose of making profit.
- it’s a product-oriented firm
- Ex.: Sari-sari stores, drugstore, supermarkets

Service organizations sell time to earn revenue. Examples: Accounting firms, law firms, and plumbing services

Merchandising companies sell products to earn revenue. Examples: sporting goods, clothing, and auto parts stores

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Types of Merchandising Business: CHANNEL OF DISTRIBUTION
RETAILER
- is a merchandising company that sells goods directly to customers.
WHOLESALER
-is a merchandising company that sells goods to retailers.

OPERATING CYCLE OF MERCHANDISING COMPANIES

Begins with the purchase of merchandise and ends
with the collection of cash from the sale of • Beginning inventory
merchandise. + Net purchases
• Cash = Merchandise available for sale
a) Purchases
b) Merchandise Inventory • Merchandise available for sale
c) Credit sales = Ending inventory
d) Accounts receivable + Cost of goods sold
e) Cash collection

Inventory Systems
• Perpetual systems
– updates accounting records for each purchase and sale of merchandising
– keeps track of changes in the inventory account
– more expensive as more costs are incurred to make sure that amounts regarding inventory are available at every
point of sale
• Periodic systems
– updates records for purchase and sale of merchandise only at the end of the accounting period
– provides data on inventory levels at some points in time
– cheaper to implement as a physical count is made usually at year-end to provide figures as to how many exist at that
point in time
 SALES-RELATED ACCOUNTS
Sales – represents merchandise sold to customers for cash or on credit
Sales Returns and Allowances – represents merchandise returned by customers or price
adjustments for damaged merchandise
Sales Discounts – represents cash discounts granted to customers for early payments of accounts.
Net Sales – Total Sales deducted by Sales Returns and Allowances and Sales Discounts

PURCHASES-RELATED ACCOUNTS
Purchases – merchandise acquired for resale.
Purchase Returns and Allowances – represents merchandise returned to vendors or suppliers or
price adjustments for damaged merchandise
Purchase Discounts – represents cash discounts granted by vendors or suppliers for early payments
of accounts
Transportation In (Freight-In) – transportation costs of merchandise purchased
FREIGHT-IN/FREIGHT-OUT
*Companies incur costs for having the goods delivered to their intended location.
FREIGHT-IN if the delivery fee is paid by the business for the incoming merchandise. If forms part of the inventory.
FREIGHT-OUT if the fee paid regarding the fee paid regarding the transportation of the inventory sold by the
company to the buyer is expensed. This forms part of the selling expense.