The retailers' method, or retail, is used to determine the cost of

inventories sold in businesses dedicated to the sale of retail

merchandise. This method simplifies the accounting process,
since it does not require determining the exact cost of each unit
sold.
The retailer method is recommended for businesses in which
the traffic of fast-moving merchandise is high and in which it is
practically impossible to determine the exact cost of each of the
units sold. An example of the above is supermarkets: in these,
because large quantities of merchandise are kept, determining
exactly what the cost of each particular unit is is almost
impossible.

“In this type of business, the sales price is usually

determined by adding a percentage of profit to the
purchase price”
In this type of business, the selling price is usually determined
by adding a profit percentage to the purchase price and it is
usual for the profit percentages to vary depending on the type of
merchandise.

Practical case
The Maya Supermarket has established the retail method as a
technique for measuring the cost of its inventories.

For these purposes, it has divided its operation into 3 types of

products: 01-Grooming, 02-grains, 03-perishables.

Each product line has a contribution margin assigned to the

cost, as follows:

Line Contribution Contribution

margin margin (over the
 (about cost) sales price)

01 – Toilet 50% 33.33%

02 – Grains 30% 23.08%

03 – Perishables 60% 37.5%

During the first period of operations it made the following

purchases:

Line Purchase amount

01 – Toilet $ 23.000.000

02 – Grains $ 48.000.000

03 – Perishables $ 65.000.000

The sales made during the period are:

Line Sales amount

01 – Toilet $ 28.000.000

02 – Grains $ 55.000.000

03 – Perishables $ 72.000.000
 With this data, the accounting records of purchases and sales
are as follows

Shopping:

Account Debit Credit

143501 – Toilet inventories $ 23.000.000

143502 – Grain inventories $ 48.000.000

143503 – Perishable inventories $ 65.000.000

11 – Banks $ 136.000.000

To determine the cost of sales, the entity must take the value of
sales and subtract the contribution margin, as follows:

Line Sales Contribution Contribution Cost

value margin on the margin on the
sales price sales price ($)
(%)

01 – Toilet $ 28.000.000 33.33% $ 9.333.333 $

18.666.667

02 – Grains $ 55.000.000 23.08% $ 12.692.308 $

42.307.692

03 – $ 72.000.000 37.5% $ 27.000.000 $

Perishables 45.000.000
 In accordance with the above, the entity must recognize sales
and cost of sales in the following way:

Account Debit Credit

413501 – Income from the sale of hygiene products $ 28.000.000

413502 – Grain sales income $ 55.000.000

413503 – Income from the sale of perishables $ 72.000.000

11 – Box $ 155.000.000

143501 – Toilet inventories $ 18.666.667

143502 – Grain inventories $ 42.307.692

143503 – Perishable inventories $ 45.000.000

613501 – cost of sales toilet $ 18.666.667

613502 – Cost of grain sales $ 42.307.692

613503 – Cost of perishable sales $ 45.000.000

At the closing date, the value of the inventories that will be

reported in the financial statements is as follows:

Line Shopping Cost of Inventory

merchandise balance
sold
01 – Toilet $ 23.000.000 $ 18.666.667 $ 4.333.333

02 – Grains $ 48.000.000 $ 42.307.692 $ 5.692.308

03 – Perishables $ 65.000.000 $ 45.000.000 $ 20.000.000

“The entity must also prepare a physical count of the

merchandise in stock to ensure the reliability of the
balances to be reported in the financial statements.”
The entity must also prepare a physical count of the
merchandise in stock to ensure the reliability of the balances to
be reported in the financial statements. If the entity finds
shortages, it must adjust the quantities reported in its inventory
databases and, therefore, also adjust the book balances of the
inventory accounts.