Accounting for Merchandising Transactions

Merchandising has been one of the most visible and

active businesses in our society. It accounts for a significant
value in our total economic activities, employs millions of
people, and has been responsible in the efficient distribution
of goods to individuals in almost all corners of the world.

What is a merchandising business?

This is the buying of goods from merchandise suppliers, and selling them “as is” to
customers, and collects its receivables.

What is a merchandise?

It is any tangible item, good, stock, or commodity that has value to the buyer. These are sold
in its original state or form at the time of its purchase.

Service vs. Merchandising

A service business, as previously discussed, generates income by rendering services to

customers or clients.

However, a merchandising business also collects receivables from customers, pay its
liabilities and expenses, incurs depreciation and doubtful accounts expense and distributes profit to
owner(s).

Wholesale vs Retail

There are two types of merchandising packages:

1. Wholesaling – the buyer purchases in large quantities, gets discount, and effectively
buys at a lower price per unit of goods purchased. A wholesaler does not sell directly to
the public, even the largest wholesalers are not well known to most consumers.

2. Retailing – the buyer buys in small quantities, is not normally extended the privilege of
having a quantity discount, and buys at a price normally higher than those offered to
wholesale buyers.

Illustration of the Flow of Goods:

Manufacturer Wholesaler Retailer Customer

Who are involved in a merchandising business?

Supplier – a supplier can be a manufacturer or wholesaler.

Merchandiser – serves as the broker between the supplier and the customer.
Customer – utilizes or spends the utility of the goods.

Supplier Merchandiser Customer

What transactions exists among them?

Transactions with the Supplier Transactions with the Customer

Purchase of merchandise Sale of merchandise
Payment to supplier (if purchased on Collection of receivables (if sold on
account) credit)

Technically, it will be a transaction between a BUYER and a SELLER.

The supplier is the seller to the merchandiser, while the merchandiser is the seller to the
customer.
Additionally, the customer is the buyer from the merchandiser, while the merchandiser is
the buyer from the supplier.