Accounting for Merchandising

Operations

Ricalyn E. Sumpay, CPA

Instructor
 Merchandising

(PRODUCT)
TRADING/BUY AND SELL
PURCHASE OF INVENTORIES
- SALE OF INVENTORIES
Cash
Ar-collection
 Sample Statement of Financial Performance
Net Sales (Selling Price *Units Sold)
-Cost of Sales/Cost of Goods Sold (Purchase cost *units sold)

Gross Profit
+ Income/Expenses
Profit(Loss)
 Discounts

Trade – for bulk purchases

Cash –for paying within the
discount period Sales/Purchase
 Trade Discount
A Company received quotations from two entities
for an item of merchandise as follows:
A. Quantity (4) List price P25, 000 (total), Trade
discount 20%
B. Quantity (3) List price P200, 000 (each), Trade
discount (20-10-10)

Prepare the entry on the viewpoint of the seller and

the buyer under the following conditions: a. paid in
cash b. on credit
 Trade Discounts
B Company sold the merchandise with an invoice
price of P360, 000 with a trade discount of 20% and
10%.
Prepare the journal entry under the viewpoint of the
seller and the buyer.
 Cash Discounts
Discount Term
2/10, n/30
TWO WAYS OF RECORDING DISCOUNTS
a. Gross Method - Discount is recognized when
payment was made within the discount period.
b. Net Method – Discount is recognized
immediately upon purchase or upon sale.
 Gross Method & Net Method
Purchases
1. Purchases on account, P200, 000,
2/10, n/30.
2. Payment was made within the
discount period.
3. Payment was made beyond the
discount period.
 Gross Method & Net Method
Sale
1. Sale on account, P300, 000, 2/10,
n/30.
2. Payment was made within the
discount period.
3. Payment was made beyond the
discount period.
 Trade Discount Exercises
B Company began operations in the current year.
1. During the year, B Company purchased merchandise having an
invoice cost of P1,000,000. All purchases were made under the
credit terms 2/10, n/30.
2. During the year, the entity paid for 80% of the merchandise
within the discount period.
3. The remaining 20% was made beyond the discount period.
4. B Company sold 20% of the merchandise it acquired beyond the
discount period with a target profit of 10% based on cost. The
buyer promised to pay within 10 days.
Prepare the entry under gross method and net method under the
viewpoint of the buyer.
 Trade Discount Exercises
Answer problems 1, 2, 6, 7
Accounting for Transportation

FREIGHT
FOB destination
FOB shipping point
Freight collect
Freight prepaid
 Accounting for Transportation
On Dec. 11, C Company purchased from D
Company merchandise worth P200, 000, terms FOB
destination, Freight prepaid. The transportation cost
amounts to P3, 500. Prepare the entry on C
Company and D Company viewpoint as of Dec. 11,
and as of Dec 21, when C company paid the credit in
full. (Gross Method) (1/15, n/30)
 Accounting for Transportation
On Dec. 11, C Company purchased from D
Company merchandise worth P200, 000, terms FOB
shipping point, Freight collect. The transportation
cost amounts to P3, 500. Prepare the entry on C
Company and D Company viewpoint as of Dec. 11,
and as of Dec 21, when C company paid the credit in
full. (Gross Method) (1/15, n/30)
 Accounting for Transportation
On Dec. 11, C Company purchased from D
Company merchandise worth P200, 000, terms FOB
destination, Freight collect. The transportation cost
amounts to P3, 500. Prepare the entry on C
Company and D Company viewpoint as of Dec. 11,
and as of Dec 21, when C company paid the credit in
full. (Gross Method) (1/15, n/30)
 Accounting for Transportation
On Dec. 11, C Company purchased from D
Company merchandise worth P200, 000, terms FOB
shipping point, Freight prepaid. The transportation
cost amounts to P3, 500. Prepare the entry on C
Company and D Company viewpoint as of Dec. 11,
and as of Dec 21, when C company paid the credit in
full. (Gross Method) (1/15, n/30)
 Goods Includible in the Inventory
As a rule, all goods to which the entity has title shall be
included in the inventory, regardless of location. Applying
the legal test, the following must be included in the
inventory:
a. Goods owned and on hand
b. Goods in transit and sold FOB destination
c. Goods in transit and purchased FOB shipping point
d. Goods out on consignment
e. Goods in the hands of salesmen or agents
f. Goods held by customers on approval or on trial.
 Goods Includible in the Inventory
The Company revealed the following purchase transactions occurred during the last few days of the
fiscal year, which ends December 31, and in the first few days after that date.
1.An invoice for P50, 000, FOB shipping point, was received and recorded on December 27. The
shipment was received in satisfactory condition on January 2. The merchandise was not included
in the inventory.
2. An invoice for P75, 000, FOB destination, was received and recorded on December 28. The
shipment was received in satisfactory condition on January 3. The merchandise was not included
in the inventory.
3. An invoice for P30, 000, FOB shipping point, was received and recorded on January 4. The
invoice shows that the goods have been shipped on December 28 and the receiving report indicates
that the goods had been received on January. The merchandise was excluded from inventory.
4. An invoice for P90, 000, FOB received on December 15. The receiving report indicates that the
goods were received on December 18 but across the face of the report is the notation “merchandise
not of the same quality as ordered – returned for credit, December 19.” The merchandise was
included in the inventory.
5. An invoice for P140, 000, FOB destination, was received and recorded on January 4. The
receiving report indicates that the goods were received on December 29. The merchandise was
included in the inventory.
 Goods Includible in the Inventory
E Company provided the following data at year-end:
Items counted in the bodega P4, 000, 000
Items included in the count specifically segregated per sales contract 100, 000
Items in receiving department, returned by the customer in good condition 50, 000
Items ordered and in the receiving department, invoice not received 400, 000
Items ordered, invoice received but goods not received. Freight is paid by the seller 300, 000
Items shipped today, invoice mailed, FOB shipping point 250, 000
Items shipped today, invoice mailed, FOB destination 150, 000
Items currently being used for window display 200, 000
Items on counter for sale 800, 000
Items in receiving department, refused by company because of damage 180, 000
Items included in count, damaged and unsalable 50, 000
Items in the shipping department 250, 000
 Goods Includible in the Inventory
The accounting staff of Sisiw Company submitted an inventory list per physical count at December
31, 2018 which showed a total of P100, 000. 00. The following information which may or may not be
relevant to the inventory value submitted, are given below:

 Excluded from the inventory were merchandise costing P10, 000 because they were transferred to
the delivery department for packaging on December 28 to be shipped on January 2, 2019. Shipping
term : F.O.B. Shipping Point
 A review of the company’s purchase order shows a commitment to buy P25, 000 worth of
merchandise.
 Supplier’s invoice for P22, 000 worth of merchandise dated December 28, 2018 was received
through the mails on December 30, 2018; the shipping term is F.O.B shipping point. During an
interview, the storage clerk said, ‘’Advance ako mag-isip, so, I included the goods immediately on
my count even though the goods arrived only on January 4, 2019.”
 On December 25, 2018, an order from a customer with a cost of P11, 000 and a selling price of P13,
750 merchandise was received. Once again, the storage clerk made a remark, “I heard from James,
the accountant, that a customer order is not an accountable event, that’s why he did not record it. I
disagree! However, I included the goods in my count because it was shipped on 12/31/18 – 11:11
pm (F.O.B. shipping point). I made the physical count on 12/31/18 – 11:11 am.”
 Goods in transit shipped F.O.B. Destination by a supplier, in the amount of P34, 000 had been
excluded from inventory, and further testing revealed that the purchase had been recorded.
 Goods Includible in the Inventory
Merchandise inventory is valued at P3, 025, 000 per physical count prior to any adjustments. The
following information had been found relating to certain inventory transactions.
 Goods valued at P137, 500 are on consignment from a vendor. These goods are accidentally
not included in the physical count.
 Goods costing P318, 750 were shipped on December 30, 2018. The terms of the invoice were
F.O.B destination. The goods were received by the customer on January 3, 2019.

Note: This scenario is applicable for the following items. On the evening of December 31, there were
two trucks in the entity siding:
 Truck # 999 was unloaded on January 2, of the following year. However, the goods are recorded on
the books as purchase on December 31.
 Truck # 888 was loaded and sealed on December 31 but leave the company premises on January 2.
The inventory related to this sale was valued at P500, 000. The items are still included on physical
count.
 Merchandise costing P380, 000 was shipped by the company to a customer F.O.B destination,
freight prepaid on December 11. The cost of freight is P1, 000. The customer recorded the purchase
on December 11 but was expected to receive the goods on January 4,
 Periodic vs Perpetual
1. Purchase of merchandise on account, P300, 000.
Periodic:
Purchases
Accounts Payable

Perpetual:
Merchandise Inventory
Accounts payable
 Periodic vs Perpetual
2. Payment of freight on the purchase, P20, 000.
Periodic:
Freight in
Cash

Perpetual:
Merchandise Inventory
Cash
 Periodic vs Perpetual
3. Return of merchandise purchase to supplier, P30, 000.
Periodic:
Accounts Payable
Purchase returns

Perpetual:
Accounts Payable
Merchandise inventory
 Periodic vs Perpetual
4. Sale of merchandise on account, P400, 000, at 40% gross
profit.
Periodic:
Accounts Receivable
Sales

Perpetual:
Accounts Receivable
Sales

Cost of sales
Merchandise inventory
 Periodic vs Perpetual
5. Return of merchandise sold from customer, P25, 000.
Periodic:
Sales return
Accounts receivable

Perpetual:
Sales return
Accounts receivable

Merchandise inventory
Cost of sales
 Periodic vs Perpetual
6. Adjustment of ending inventory, P65,000.
Periodic:
Merchandise inventory – end
Income summary

Perpetual:
No entry
 Periodic vs Perpetual
7. Adjustment for shortage or overage
If physical count shows inventory on hand of P55, 000.
Periodic:
No entry

Perpetual:
Cost of sales
Merchandise inventory
 Preparation of Cost of Goods Sold
Inventory, beginning Pxx
Purchases Pxx
Less: Purchase Discount xx
Purchase returns and allowances xx
Net Purchases Pxx
Add: Freight-in xx
Net Cost of Purchases xx
Goods available for sale Pxx
Less: Inventory, end xx
Cost of Goods Sold Pxx
 Preparation of Cost of Goods Sold

Answer problem #20, #21 #19

 Classification of Operating Expenses

Distribution costs
Administrative expenses
Other expenses