BBFA1103

INTRODUCTORY ACCOUNTING

TOPIC 6 ACCOUNTING FOR MERCHANDISING OPERATIONS

 LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Explain the difference between services and
merchandising operations;
2. Journalise and post transactions of a merchandiser;
3. Calculate net sales, net purchase, cost of goods sold,
gross profit and net income of a merchandiser;
4. Prepare the income statement and the balance sheet of
a merchandiser; and
5. Prepare closing entries of a merchandiser.
 6.1 MERCHANDISING
(RETAILING/TRADING)
Service vs Merchandising Company
 Operating Cycle for a Trader

Cash Sale Credit Sale

Cash
Purchases collection Purchases

Merchandise
Cash Account
inventory
sales receivable

Merchandise
inventory Credit sales
 Important Transactions

Purchases Sales Discounts

Return and Transportation

Allowances cost
 6.2 ACCOUNTING FOR
MERCHANDISNG PURCHASES

Purchase of Goods

Dr Purchases
Cr Cash/ Accounts Payable
 Trade Discounts
Used by manufacturers and wholesalers to offer better
prices for greater quantities purchased.

Quantity sold 1,000

Example Price per unit (RM) 5.25
Megah Sdn. Bhd. offers a 30% trade Total 5,250
discount on orders of 1,000 Less 30% discount (1,575)
units or more of their popular Invoice price 3,675
product Racer. Each
Racer has a list price of RM5.25.
Purchase Discounts (Discount Received)
 Purchase Discounts

2/10,n/30
Number of
Days Otherwise,
Discount Discount Is Net (or All) Credit
Percent Available Is Due Period
 Purchase Discounts

A deduction from the invoice price granted to induce early

payment of the amount due.

Terms

Time Discount Period Credit Period

Due
Full amount Full amount due
less discount

Purchase or Sale
Purchase Returns and Allowance

Dr Cash/ Accounts Payable

Cr PRA
 6.3 ACCOUNTING FOR
MERCHANDISNG SALES

Sales of Goods
Dr Cash/ Accounts Receivable
Cr Sales
Sales Discounts (Discount Allowed)

The terms for when payments for

merchandise are to be made are
called credit terms.

If buyer is allowed an
amount of time to pay, it is
known as the credit period.
Sales Discount
Credit Terms
Invoice for
If invoice is
RM1,500
paid within 10
Terms:
days of
2/10, n/30
invoice date

RM1,470 paid
(less 2% as a
cash discount)
 Sales Discount

Credit Terms
If invoice is
NOT paid
Invoice for
within 10
RM1,500 Cash Discounts
days of
Terms:
invoice date
2/10, n/30

RM1,500 PAID
 Sales Return and
Allowance(Return Inward)
Merchandise that is returned to the
vendor is referred to as a sales
return.
If there is a defect in the product or
the wrong item was shipped, the
seller may reduce the initial price at
which the goods were sold. This is
known as a sales allowance.
Transportation Costs

Transportation
Costs
 Transportation Costs
• The terms of a sale should
indicate when the
ownership of the
merchandise passes to the
buyer.
• This point determines
which party, the buyer or
the seller must pay the
transportation costs.
 Free On Board (FOB)
Shipping Point
Buyer pays freight costs

Fruit
Express

A shipping term that means that the buyer is

responsible for all freight costs while the
goods are in transit.
 FOB Destination
Seller pays freight costs

Fruit
Express

A shipping term that means that the seller is

responsible for all freight costs until the
goods reach their destination.