AC102 PPT1 - Merchandising Business (PPT from Sir Leandro Fua)

MIRIAM COLLEGE
College of Business, Entrepreneurship and Accountancy

College of
Business, Entrepreneurship and
Accountancy
Business Administration Department

COURSE OUTLINE
2nd Semester, SY 2012-2013


Course Code
BSA – 102

Course Title

Principles of Accounting Part 2

Principles of Accounting, Part 1

Business entities may engage in any of the following type of business.
These are:

1. Service business. This business renders services to customers or
clients for a fee. Examples of service type of business are: public
transport companies, beauty parlors, security agencies, repair
shops, laundry shops, schools, medical or health clinics, event
coordinators, law offices, accounting firms and advertising firms.

2. Merchandising business or trading. This kind of business buys
goods or commodities and sells the same at a profit. Examples
are: grocery stores, supermarkets, hardware stores drugstores, car
dealers, real estate dealers and appliance stores.

3. Manufacturing business, This type makes finished goods from raw
materials or unassembled parts. A manufacturing business
produces the goods that it sells. Examples are: shoe
factories, garment factories, car assembler and food processing
plants.

Merchandise Inventory

• Merchandise
– Goods that a Merchandising company sells to its
customers regardless of the type of products the
company sells

• Merchandise Inventory
– Is the cost of goods on hand available for sale at
any given time

Business Documents

• Invoice
– prepared by the seller
– Contains detail of the sale
• Quantity
• Item Description
• Unit Price
• Total Price
• Term of sale
• Total Amount Sold
• Manner of Shipment


• Purchase Order
– Prepared by the purchasing department
– Sent to Supplier
– Asking for items to be shipped to the purchaser

• Receiving Report
– Prepared by receiving department
– Showing
• Quantity
• Item Description

Recording Sales

• Credit Memorandum
– A note issued by the seller
– Indicating amount and reason for the credit

• Debit Memorandum
– A note issued by the buyer who is returning the
merchandise to the seller
– Indicating the amount and reason for the debit

Trade Discount

• List Price
– Original price quoted by the seller

• Trade Discount
– Discount given and deducted from the list price
– Reduce the cost of the catalog price
– Grant for quantity discount
– Allow of quotation of different price

• Chain Discount
– Several trade discount granted to buyer

Recording Trade Discount

• List price
– 1,000 umbrella at P100.00 P 100,000.00

• Trade Discount Large Volume
– 10% Volume discount 10,000.00

– (P 100,000.00 x 10%) P 90,000.00
• Trade Discount – No Sales Invoice Discount
– 7% No invoice Discount 6,300.00
– (P 90,000 x 7%)
– Gross Invoice Price P 83,700.00

Sales (Cash) Discount

• Term of payment (Credit Term)
– States when payment is to be made
• n/30 means 30 days after the date of sale
• n/45 means 45 days after the date of sale

• Cash discount
– A deduction from the gross invoice price that the
buyer can take if he pays within a specified period
of time
• 2/10, n/30
• 3/EOM, /60

Recording Sales

• Sold 530 units for P7 each (Terms 2/15, n/90)
• On Account
Accounts Receivable 3,710.00
Sales 3,710.00
• If paid within discount period
Cash 3,635.80
Sales Discount 74.20
Accounts Receivable 3,710.00

Sales Return and Allowances

• Sales Return
– Merchandise returned by a buyer that is
considered a cancellation of sales
• Sales Allowance
– Is granted if the customer keeps the merchandise
although dissatisfied
• Entry
Sales Return and Allowances xxx
Accounts receivable xxx

Reporting Net Sales

Merchandise Company
Comprehensive Income Statement
For the Year ended December 31, 20XX

Revenue from Sales
Gross Sales P XXX
Less : Sales Discount P XXX
Sales Return and Allowances XXX XXX

Net Sales P XXX

Inventories

Perpetual Inventory Systems
• Inventory System wherein the inventory records are
continuously updated for the following events
– Purchases
– Purchase Discounts Taken
– Purchase Returns & Allowances
– Sales (remove from inventory the COST of the units sold)
– Sales Returns (add to inventory the COST of units
returned)
• Used by companies with high value merchandise
• A physical count is done at the end of the year and is
compared with the recorded balances on hand


Periodic Inventory System
• inventory transactions are not recorded directly in the
Inventory account
• Uses separate accounts for each transaction
– Purchases
– Purchase Returns & Allowances
– Purchase Discounts
– Transportation In
• Used by companies with low value merchandise
• A physical count is done at the end of the year and to
determine the balance at the end of the period

Recording Purchases

• Purchased 530 units for P7 each (Terms
2/15,n/90)
• On Account
Purchases 3,710.00
Accounts Payable 3,710.00
• If paid within discount period
Accounts Payable 3,710.00
Purchase Discount 74.20
Cash 3,635.80

Purchase Return and Allowances

• Purchase Return
– Merchandise returned by the buyer that is considered
a cancellation of purchase

• Purchase Allowance
– Is granted if the customer keeps the merchandise
although dissatisfied

• Entry
Accounts Payable xxx
Purchase Return and Allowances xxx

Freight Charges / Delivery Cost

FOB Shipping Point FOB Destination

Shipping Point Buyer Owns Shipment

Destination Buyer Owns Shipment

Who owns the shipment Buyer Seller

Shipment destroyed at sea Buyer Seller

Transportation Cost Buyer Seller

Freight Prepaid Seller pays the freight at the time of shipment

Freight Collect Buyer pays the freight upon arrival of the goods

Physical Inventory

• Taking a physical inventory consists of counting
the physical units of each type of merchandise on
hand
• Regardless of location
– Goods shipped to a potential buyer “on approval” are
not considered sold
– Goods on consignment are not considered sold

• Merchandise in transit
– Merchandise in the hand of freight company on the
date of the physical count depending on the passage
of title

Cost of Goods Sold

Cost of Goods sold
Merchandise Inventory, Jan 1, 20XX P XXX
Purchases P XXX
Add transportation In XXX

Delivered Cost of Merchandise Purchased P XXX
Less : Purchase Discount P XXX
Purchase Return and Allowances XXX XXX XXX

Goods Available for Sale P XXX
Less : Merchandise Inventory, Dec 31, 20XX XXX

Cost of goods sold XXX

Value Added Tax

• Section 106 of the National Internal Revenue Code -
12% VAT on Sales of goods or properties
• Section 106 of the National Internal Revenue Code -
12% VAT on Sales or exchange of services
• The Liability to the government is recorded as follows:
Cash 1,120.00
VAT Payable 120.00
Sales 1,000.00
To record sales of P 1,000.00
subject to 12% VAT

AC102 PPT1 - Merchandising Business (PPT from Sir Leandro Fua)

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