ACC 102

ACCOUNTING FOR
MERCHANDISING BUSINESS

Prepared by:

Prof. Janny C. Dimaunahan, CPA, MBA

Presentation Outline
NATURE OF MERCHANDISING BUSINESS
ACCOUNTING FOR INVENTORY PURCHASES

TRANSPORTATION COST
PURCHASE RETURNS AND ALLOWANCES

PURCHASES DISCOUNTS
ACCOUNTING FOR INVENTORY SALES
TRANSPORTATION COST
SALES RETURNS AND ALLOWANCES
SALES DISCOUNTS
INCOME STATEMENT
Merchandising
DEFINED
Merchandising is the presentation and
promotion of goods that are available for
purchase for both wholesale and retail
sales.
SERVICE BUSINESS

Service Revenue
Less: Operating Expenses
Php XXX S
XX
Net Income
Php XX

MERCHANDISING

M
BUSINESS
Net Sales Php XXX
Less: Cost of Goods Sold
Gross Profit XX
Less: Operating Expenses Php XX
Net Income XX
Php XX
 PERPETUAL INVENTORY SYSTEM
Each purchase and sale of merchandise is recorded
in an inventory account. As a result the inventory
balance is always up to date.

Accounting PERIODIC INVENTORY SYSTEM

for The current inventory balance is not available in

the accounting records, instead a detailed listing of

Inventory the merchandise for sale (called physical

inventory) at the end of the accounting period is

Purchases prepared. This report is used to determine the

following:
• The cost of the merchandise on hand
• The cost of the merchandise sold during the
period
 PURCHASE

Jan. 1 Erika purchased inventory on account, P50,000 with term 2/10,

n30, FOB Shipping Point.

JOURNAL ENTRY

PERPETUAL PERIODIC
Merchandise Inventory 50,000 Purchases 50,000
Accounts Payable 50,000 Accounts Payable 50,000

Note: If the problem is silent, the credit is cash. The credit is Accounts Payable if you see
these phrases “on account”, “on credit” or there is a credit term “2/10,n30”
 TRANSPORTATION
COST
FOB Shipping Point
• Title passes to buyer
• Buyer pays for freight cost
• Freight cost included to
buyer inventory cost
SELLER
FOB Destination
• Title passes to buyer when
received
• Seller pays for freight cost
• Freight cost included to seller
operating expense
BUYER
TRANSPORTATION COST
Jan. 3 Erika paid the shipping cost, P 250.00.

JOURNAL ENTRY

PERPETUAL PERIODIC
Merchandise Inventory 250 Freight In 250
Cash 250 Cash 250

Note: FOB means Freight on Board or Free on Board

Other term for Freight In is Transportation In
PURCHASE RETURNS AND ALLOWANCES

Jan. 5 Returned Php 10,000 of merchandise purchased on Jan 1.

JOURNAL ENTRY

PERPETUAL PERIODIC
Accounts Payable 10,000 Accounts Payable 10,000
Merchandise Inventory 10,000 Purchase Returns and All. 10,000

Note: If the prior (Jan 1) transaction is on cash basis, then you should debit Cash instead of
Accounts Payable
 PERPETUAL PERIODIC
Merchandise Inventory 50,000 Purchases 50,000
Jan 1. Accounts Payable 50,000 Accounts Payable 50,000

PERPETUAL PERIODIC
Accounts Payable 10,000 Accounts Payable 10,000
Jan 5. Merchandise Inventory 10,000 Purchase Returns and All. 10,000
 PERPETUAL PERIODIC
Merchandise Inventory 50,000 Purchases 50,000
Jan 1. Accounts Payable 50,000 Accounts Payable 50,000

PERPETUAL PERIODIC
Accounts Payable 10,000 Accounts Payable 10,000
Jan 5. Merchandise Inventory 10,000 Purchase Returns and All. 10,000

PAYMENT AND PURCHASE DISCOUNT

Jan. 10 Paid the January 1 transaction less returns.

 PERPETUAL PERIODIC
Merchandise Inventory 50,000 Purchases 50,000
Jan 1. Accounts Payable 50,000 Accounts Payable 50,000

PERPETUAL PERIODIC
Accounts Payable 10,000 Accounts Payable 10,000
Jan 5. Merchandise Inventory 10,000 Purchase Returns and All. 10,000

PAYMENT AND PURCHASE DISCOUNT

Jan. 10 Paid the January 1 transaction less returns.

JOURNAL ENTRY

PERPETUAL PERIODIC
Accounts Payable 40,000 Accounts Payable 40,000
Merchandise Inventory 800 Purchase Discounts 800
Cash 39,200 Cash 39,200
 PURCHASE DISCOUNT
Is determined byt the credit terms that
Purchase the buyer and the seller agree. Most
and commonly used is 2/10, n30.

Sales
Discount SALES DISCOUNT
Reduce sales revenue.
 Feb 2. Purchase inventory on account, P35,000,

3/15, n45

TRY IT! Feb 3. Paid freight charges, P300.

Feb 6. Return merchandise worth, P7,500.

Feb 16. Paid the merchandise purchased last

Feb 2.

What is the journal entry on Feb 16?

 SOLUTIONS
Feb 2. Purchase inventory on account,

P35,000, 3/15, n45

Feb 3. Paid freight charges, P300.

Feb 6. Return merchandise worth, P7,500.

Feb 16. Paid the merchandise purchased last

Feb 2.

What is the journal entry on Feb 16?

 SOLUTIONS
Feb 2
Feb 2. Purchase inventory on account, Merchandise Inventory 35,000
Accounts Payable 35,000

P35,000, 3/15, n45 Feb 3

Merchandise Inventory 300
Feb 3. Paid freight charges, P300. Cash 300

Feb 6. Return merchandise worth, P7,500. Feb 6

Accounts Payable 7,500
Merchandise Inventory 7,500
Feb 16. Paid the merchandise purchased last

Feb 2.

What is the journal entry on Feb 16?

 SOLUTIONS
Feb 2
Feb 2. Purchase inventory on account, Merchandise Inventory 35,000
Accounts Payable 35,000

P35,000, 3/15, n45 Feb 3

Merchandise Inventory 300
Feb 3. Paid freight charges, P300. Cash 300

Feb 6. Return merchandise worth, P7,500. Feb 6

Accounts Payable 7,500
Merchandise Inventory 7,500
Feb 16. Paid the merchandise purchased last
Feb 16
Feb 2. Accounts Payable 27,500
Merchandise Inventory 825
What is the journal entry on Feb 16? Cash 26,675
 SALES

Jan. 7 Sold merchandise to Pinagpalit Company, P75,000, term 2/15,

n30, FOB Destination. The cost merchandise sold is P35,000.

JOURNAL ENTRY

PERPETUAL PERIODIC
Accounts Receivable 75,000 Accounts Receivable 75,000
Sales 75,000 Sales 75,000

Cost of Goods Sold 35,000 ---------------------

Merchandise Inventory 35,000

Note: If the problem is silent, the debit is cash. The debit is Accounts Receivable if you see
these phrases “on account”, “on credit” or there is a credit term “2/10,n30”
TRANSPORTATION

Jan. 8 Paid freight charges, Php 750.00.

JOURNAL ENTRY

PERPETUAL PERIODIC
Freight-out 750 Freight-out 750
Cash 750 Cash 750

Note: Other terms for Freight-out are Transportation –Out and Delivery Expense.
 PERPETUAL PERIODIC
Accounts Receivable 75,000 Accounts Receivable 75,000
Jan 7. Sales 75,000 Sales 75,000

Cost of Goods Sold 35,000 ---------------------

Merchandise Inventory 35,000
 PERPETUAL PERIODIC
Accounts Receivable 75,000 Accounts Receivable 75,000
Jan 7. Sales 75,000 Sales 75,000

Cost of Goods Sold 35,000 ---------------------

Merchandise Inventory 35,000

SALES RETURNS AND ALLOWANCES

Jan. 11 The customer returned the defective merchandise sold last
January 7, P10,000. The cost of merchandise returned is P5,000.
 PERPETUAL PERIODIC
Accounts Receivable 75,000 Accounts Receivable 75,000
Jan 7. Sales 75,000 Sales 75,000

Cost of Goods Sold 35,000 ---------------------

Merchandise Inventory 35,000

SALES RETURNS AND ALLOWANCES

Jan. 11 The customer returned the defective merchandise sold last
January 7, P10,000. The cost of merchandise returned is P5,000.

JOURNAL ENTRY

PERPETUAL PERIODIC
Sales Returns and All. 10,000 Sales Returns and All. 10,000
Accounts Receivable 10,000 Accounts Receivable 10,000

Merchandise Inventory 5,000 ---------------------

Cost of Goods Sold 5,000
 PERPETUAL PERIODIC
Accounts Receivable 75,000 Accounts Receivable 75,000
Jan 7. Sales 75,000 Sales 75,000

Cost of Goods Sold 35,000 ---------------------

Merchandise Inventory 35,000
Sales Returns and All. 10,000 Sales Returns and All. 10,000
Accounts Receivable 10,000 Accounts Receivable 10,000
Jan 11.
Merchandise Inventory 5,000 ---------------------
Cost of Goods Sold 5,000
 PERPETUAL PERIODIC
Accounts Receivable 75,000 Accounts Receivable 75,000
Jan 7. Sales 75,000 Sales 75,000

Cost of Goods Sold 35,000 ---------------------

Merchandise Inventory 35,000
Sales Returns and All. 10,000 Sales Returns and All. 10,000
Accounts Receivable 10,000 Accounts Receivable 10,000
Jan 11.
Merchandise Inventory 5,000 ---------------------
Cost of Goods Sold 5,000

COLLECTIONS AND SALES DISCOUNTS

Jan. 20 Collected cash from Pinagpalit Company.
JOURNAL ENTRY
PERPETUAL PERIODIC
Cash 63,700 Cash 63,700
Sales Discounts 1,300 Sales Discounts 1,300
Accounts Receivable 65,000 Accounts Receivable 65,000
 Feb 7. Sold merchandise on account, Php
25,000, term 1/10, n20. The cost of
merchandise sold is Php 15,000

TRY IT! Feb 9. Paid freight charges, P400.

Feb 11. The customer returned the defective
merchandise P5,000. The cost of merchandise
returned is P3,000.
Feb 17. Collected the merchandise sold.
What is the journal entry on Feb 17?
 SOLUTIONS
Feb 7. Sold merchandise on account, Php
25,000, term 1/10, n20. The cost of
merchandise sold is Php 15,000
Feb 9. Paid freight charges, P400.
Feb 11. The customer returned the defective
merchandise P5,000. The cost of merchandise
returned is P3,000.
Feb 17. Collected the merchandise sold.
What is the journal entry on Feb 17?
 SOLUTIONS
Feb 7
Accounts Receivable 25,000
Feb 7. Sold merchandise on account, Php Sales 25,000

25,000, term 1/10, n20. The cost of Cost of Goods Sold

Merchandise Inventory
15,000
15,000

merchandise sold is Php 15,000

Feb 9

Feb 9. Paid freight charges, P400. Freight-Out 400

Cash 400
Feb 11. The customer returned the defective
Feb 11
merchandise P5,000. The cost of merchandise Sales Returns and All. 5,000
Accounts Receivable 5,000
returned is P3,000. Merchandise Inventory 3,000
Cost of Goods Sold 3,000
Feb 17. Collected the merchandise sold.
What is the journal entry on Feb 17?
 SOLUTIONS
Feb 7
Accounts Receivable 25,000
Feb 7. Sold merchandise on account, Php Sales 25,000

25,000, term 1/10, n20. The cost of Cost of Goods Sold

Merchandise Inventory
15,000
15,000

merchandise sold is Php 15,000

Feb 9

Feb 9. Paid freight charges, P400. Freight-Out 400

Cash 400
Feb 11. The customer returned the defective
Feb 11
merchandise P5,000. The cost of merchandise Sales Returns and All. 5,000
Accounts Receivable 5,000
returned is P3,000. Merchandise Inventory 3,000
Cost of Goods Sold 3,000
Feb 17. Collected the merchandise sold.
What is the journal entry on Feb 17? Feb 17
Cash 19,800
Sales Discounts 200
Accounts Receivable 20,000
 ACCOUNT TITLE CLASSIFICATION
Merchandise Inventory Asset
Purchases
Freight In
Freight Out Expense
Cost of Goods Sold
Purchase Returns and Allowances,
TAKE Purchase Discounts
Sales
Contra-Expense

Revenue
NOTE!! Sales Returns and Allowances,
Sales Discounts Contra-Revenue
INCOME STATEMENT OF MERCHANDISING
Sales Php XXX
BUSINESS Less: Sales Returns and Allowances
XX
Sales Discounts XX
Net Sales Php XXX
Less: Cost of Goods Sold XX
Gross Profit Php XXX
Less: Operating Expenses
Rent Expense XX
Salaries Expense XX
Various Expenses XX
Total Operating Expenses Php XX

NET INCOME PHP XX

SCHEDULE OF COST OF GOODS SOLD (FOR PERIODIC
ONLY) Beginning Inventory Php XXX
Add: Purchases XX
Freight In XX
Less: Purchase Returns and Allowances XX
Purchase Discounts XX
Total Goods Available for Sale (TGAS) Php XXX
Less: Ending Inventory XX

COST OF GOODS SOLD (CGS) PHP XX

THANK YOU!!!
“It is a rough road that leads to the heights of greatness.”
-Lucius Annaeus Seneca